<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1998
REGISTRATION NO. 333-56995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRESTIGE COSMETICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
FLORIDA 2844 59-2224411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
1441 WEST NEWPORT CENTER DRIVE
DEERFIELD BEACH, FLORIDA 33442
(954) 480-9202
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
JACQUES COHEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRESTIGE COSMETICS CORPORATION
1441 WEST NEWPORT CENTER DRIVE
DEERFIELD BEACH, FLORIDA 33442
(954) 480-9202
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
GARY EPSTEIN, ESQ. RUBI FINKELSTEIN, ESQ.
GREENBERG TRAURIG, P.A. ORRICK, HERRINGTON & SUTCLIFFE LLP
1221 BRICKELL AVENUE 666 FIFTH AVENUE
MIAMI, FLORIDA 33131 NEW YORK, NY 10103
PHONE: (305) 579-0500 PHONE: (212) 506-5000
FAX: (305) 579-0717 FAX: (212) 506-5151
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, SEPTEMBER 16, 1998
PROSPECTUS
2,300,000 SHARES
PRESTIGE COSMETICS CORPORATION
COMMON STOCK
------------------------
Prestige Cosmetics Corporation ("Prestige" or the "Company") hereby offers
2,300,000 shares of Common Stock, $.01 par value per share (the "Common Stock").
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock of the Company and there can be no assurance that such a market
will develop after the Offering or, if developed, that it will be sustained. It
is currently anticipated that the initial public offering price of the Common
Stock will be between $6.00 and $7.00 per share. For information regarding the
factors to be considered in determining the initial public offering price see
"Underwriting." The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market System under the symbol "PRES."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 HEREOF FOR CERTAIN INFORMATION WHICH SHOULD BE
CAREFULLY CONSIDERED BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
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- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes additional compensation payable to Josephthal & Co. Inc., the
representative (the "Representative" or "Josephthal") of the several
underwriters (the "Underwriters"), in the form of a non-accountable expense
allowance. The Company has agreed to sell to the Representative, at a
nominal price, warrants (the "Representative's Warrants") to purchase up to
230,000 shares of Common Stock at an exercise price per share equal to 120%
of the initial public offering price. The Company has also agreed to
indemnify the Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated to be
$625,000, including the Representative's non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
345,000 additional shares of Common Stock solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Proceeds to Company will be
$ , $ and $ , respectively.
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by their counsel and to certain
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering without notice and to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock offered hereby will be made
against payment on or about , 1998 at the offices of Josephthal &
Co. Inc., New York, New York.
JOSEPHTHAL & CO. INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
[INSIDE FRONT COVER]
PHOTOS OF
"ADMINISTRATIVE AND MANUFACTURING FACILITIES, USA"
"FULLY INTEGRATED MANUFACTURING OPERATIONS"
"IN-HOUSE PRODUCTION FACILITIES"
"PRIVATE LABEL"
"PRESTIGE STUDIO MAKE-UP COUNTER"
"PRESTIGE COSMETICS IN-STORE DISPLAY"
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THE COMPANY INTENDS TO FURNISH ANNUAL REPORTS TO SHAREHOLDERS CONTAINING
AUDITED FINANCIAL STATEMENTS AND MAKE AVAILABLE QUARTERLY REPORTS AND SUCH OTHER
PERIODIC REPORTS AS IT MAY DETERMINE TO BE APPROPRIATE OR AS MAY BE REQUIRED BY
LAW.
2
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto, appearing elsewhere
in this Prospectus.
The Company intends to acquire (the "Acquisition Transactions"), prior to
the consummation of this Offering, all of the outstanding capital stock of each
of Les Cosmetiques P.C. Inc., a Canadian corporation, Prestige Cosmetics Pty
Ltd., an Australian corporation, and Prestige Cosmetics s.r.l., an Italian
corporation, each of which is currently engaged principally in distributing the
Company's products in foreign markets. Except as otherwise noted, all
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option, the Representative's Warrants or outstanding options,
(ii) gives effect to the consummation of the Acquisition Transactions, and (iii)
gives effect to a 12,594.14-for-1 stock split effected in September 1998. The
fiscal years ended September 30, 1995, 1996 and 1997 are referred to herein as
"Fiscal 1995," "Fiscal 1996" and "Fiscal 1997," respectively. References in this
Prospectus to the historical results of operations of the Company mean the
Company's results of operations without giving effect to the Acquisition
Transactions. References in this Prospectus to the pro forma results of
operations of the Company mean the Company's results of operations giving effect
to the Acquisition Transactions. The Company was incorporated in the State of
Florida on February 21, 1980 under the name Sinequanone Mfg. of America, Inc.,
changed its name to Lancetti Cosmetics Corporation in September 1982, and has
been doing business as Prestige Cosmetics since 1985. In September 1998, the
Company changed its name to Prestige Cosmetics Corporation. Except as otherwise
noted, all references to the Company include the foreign companies to be
acquired pursuant to the Acquisition Transactions, Les Cosmetiques P.C. Inc.,
Prestige Cosmetics Pty Ltd. and Prestige Cosmetics s.r.l. See "Prospectus
Summary -- Acquisition Transactions" and Pro Forma Financial Statements.
THE COMPANY
The Company manufactures, markets and distributes, domestically and
internationally, a full line of cosmetic products under its proprietary
"Prestige"(R) and "Prestige Studio Make-Up"(TM) brand names, and manufactures
private label products for cosmetic and other specialty retailers. The Company
believes that it is one of the fastest growing niche cosmetic companies. The
Company's marketing strategy emphasizes distinctive, high-fashion, premium color
cosmetic products that are sold at prices that compare favorably to those of
competitive products.
The Company distributes its "Prestige" products through a variety of
national and regional "self-select" distribution channels. This type of
distribution channel, in which customers select their own purchases without the
assistance of an in-store demonstrator, includes independent and chain drug
stores, mass volume retailers, and supermarkets. In the United States, the
Company markets and sells its products nationwide, in many large retail chains
including Eckerd Drugs, Thrifty-Payless, Rite-Aid and Wal-Mart stores, as well
as on a promotional basis in Walgreens and CVS. The Company has increased its
distribution in retail outlets from approximately 7,000 outlets in Fiscal 1995,
to 8,300 outlets in Fiscal 1996, to 10,000 outlets in Fiscal 1997 and to 11,000
outlets in the nine months ended June 30, 1998. In addition, the Company has
recently commenced distribution into over 500 SAV-ON stores. Further, the
Company has been realizing significant growth in sales of its products within
existing outlets, including an increase of approximately 33% in sales of the
Company's products within the same Wal-Mart stores during the 12-month period
ended January 1998. The Company has successfully completed tests of its basic
"Prestige" line in 30 K-Mart stores and its "Prestige Studio Make-Up" line in 53
Sears stores, and has recently expanded into 100 K-Mart stores and 385 Sears
stores. Since completion of testing, the linear footage of the Company's product
space has increased 150% in K-Mart stores and 300% in Sears stores. The Company
has recently launched a new, upscale merchandising program with Sears. Pursuant
to this new merchandising program, the Company's "Prestige Studio Make-Up"(TM)
line will be prominently featured in free-standing center aisle displays in 385
of the approximately 550 existing Sears stores. The opening order from Sears for
this program was $ million.
3
<PAGE> 5
The Company has operations based in three foreign countries and its
products are currently sold in 28 countries, as compared to five countries in
1995. Internationally, the Company sells its products in leading mass, drug
and/or department store chains, including Shoppers Drug Mart and London Drugs in
Canada, Kaufhof and Karstadt in Germany, Les Galeries Lafayette in France and
Myer and David Jones in Australia. The Company tailors its marketing strategy to
meet the consumer trends in each country in which it sells its products. The
major overseas markets in which the Company currently sells its products include
Canada, Italy, Germany, Spain, Norway, Sweden, Greece, Australia, Hong Kong,
Taiwan, France and Austria. In addition, the Company sells its products in such
emerging markets as Kuwait, Lithuania, Brazil, Korea, Singapore and Argentina.
In June 1997, the Company commenced distribution in Japan and anticipates
additional significant sales in the Far East, including China, where the Company
has recently begun sales of its products in a major retail chain. The Company
believes that its foreign distribution network will enable it to expand in
existing and new international markets and intends to use a portion of the net
proceeds of this Offering for international expansion.
In the United States, the Company believes that it generates retail sales
of $2,500 to $9,000 per linear foot per year on products with suggested retail
price points principally of $2.95 to $4.95, with most of the Company's volume in
the $3,000 to $4,000 range per linear foot. According to Information Resources,
Inc., for the 52-week period ended December 7, 1997, sales of the Company's lip
products within domestic drug stores increased approximately 73% on a dollar
basis and 54% on a unit basis and sales of the Company's eye makeup products
within domestic drug stores increased approximately 21% on a dollar basis and
12% on a unit basis.
The drug store industry has been experiencing a consolidation trend. In
addition, there has been significant growth among mass volume retailers. These
large retail chains typically seek vendors with the capability to offer a broad
line of innovative products and to respond quickly to changing trends. The
Company has positioned itself to capitalize on the consolidation trend in the
drug store industry through its ability to (i) manufacture a broad selection of
innovative high quality, competitively priced cosmetic products, (ii) respond
quickly to changes in consumer trends by utilizing its management information
systems which serve to differentiate it from many of its direct niche
competitors and enable it to satisfy the requirements of the large retail
chains, (iii) maintain lower levels of inventory than a number of its
competitors who are dependent on third party manufacturers, and (iv) support a
just-in-time delivery system.
The Company currently manufactures most of its products in a 50,000 square
foot modern facility in Deerfield Beach, Florida, at which the Company
manufactures and/or processes, tests, packages and labels cosmetic products
including lipstick, cosmetic pencils, lip gloss, powder, eyeshadow, blush,
concealers, mascara, foundation and nail lacquer. The Company also owns and
operates distribution facilities in Montreal, Canada, Melbourne, Australia and
Bologna, Italy. The Company intends to commence manufacturing cosmetics at its
Italian facility for the European and Middle Eastern markets thereby greatly
reducing its cost of goods as well as shipping and distribution costs and
allowing the Company to rapidly respond to local customer demands.
The Company's strategy is to (i) strengthen and enhance the Prestige brand
through marketing and advertising, (ii) further penetrate the self-select
distribution channel, (iii) continue to expand in existing and new international
markets, (iv) continue to extend its line of cosmetic products and expand into
alternative markets, (v) continue to improve operating efficiencies, customer
service and product quality by upgrading management information systems and
manufacturing capabilities, and (vi) evaluate possible acquisitions of or
investments in businesses and products that are complementary to those of the
Company.
The Company's principal executive offices are located at 1441 West Newport
Center Drive, Deerfield Beach, Florida 33442, and its telephone number is (954)
480-9202.
4
<PAGE> 6
THE OFFERING
Common Stock offered hereby......... 2,300,000 shares
Common Stock to be outstanding after
the Offering........................ 10,300,000 shares(1)
Use of proceeds..................... For the repayment of indebtedness,
including loans from shareholders,
upgrade of the Company's in-store
displays, expansion of advertising,
marketing and sales efforts,
acquisition of equipment, international
expansion, possible acquisitions,
working capital and other general
corporate purposes. See "Use of
Proceeds."
Risk factors........................ The shares of Common Stock offered
hereby are speculative in nature and
involve a high degree of risk and
immediate substantial dilution and
should not be purchased by investors
who cannot afford the loss of their
entire investment. See "Risk Factors"
and "Dilution."
Proposed Nasdaq National Market
System symbol....................... "PRES"
- ---------------
(1) Does not include (i) 437,500 shares of Common Stock reserved for issuance
upon exercise of stock options, at an exercise price equal to the initial
public offering price, granted under the Company's 1998 Stock Option Plan
(the "Plan"), (ii) 312,500 shares of Common Stock reserved for issuance upon
exercise of stock options which may be granted under the Plan and (iii)
230,000 shares of Common Stock reserved for issuance pursuant to the
Representative's Warrants. See "Management -- 1998 Stock Option Plan" and
"Underwriting."
ACQUISITION TRANSACTIONS
The Company intends to acquire all of the outstanding capital stock of each
of Les Cosmetiques P.C. Inc., a Canadian corporation ("Prestige Canada"),
Prestige Cosmetics Pty Ltd., an Australian corporation ("Prestige Australia"),
and Prestige Cosmetics s.r.l., an Italian corporation ("Prestige Italy" and,
together with Prestige Canada and Prestige Australia, the "Foreign
Subsidiaries"), prior to the consummation of this Offering. Each of the Foreign
Subsidiaries is currently engaged principally in distributing the Company's
products in foreign markets. The Company anticipates that it will acquire all of
the outstanding capital stock of Prestige Canada, Prestige Australia and
Prestige Italy in exchange for the issuance of 123,000, 380,000 and 1,199,923
shares of Common Stock, respectively. See "Certain Transactions."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
The historical summary financial data set forth below reflect the results
of operations of the Company without giving effect to the Acquisition
Transactions. The pro forma summary financial data set forth below give effect
to the Acquisition Transactions as if they had occurred as of June 30, 1998 or
at the beginning of the periods presented. The pro forma summary statement of
operations data for the year ended September 30, 1997 include the Company's
results of operations for the year ended September 30, 1997, Prestige Canada's
results of operations for the year ended December 31, 1997, Prestige Australia's
results of operations for the year ended December 31, 1997 and Prestige Italy's
results of operations for the year ended December 31, 1997. The pro forma
summary statement of operations data for the nine months ended June 30, 1998
include the results of operations of the Company and each of the Foreign
Subsidiaries for the same period.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997 1997 1998 1998
------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $10,469 $13,771 $20,252 $26,922 $15,517 $12,409 $18,297
Cost of goods sold......... 5,440 7,042 9,022 11,259 6,912 5,191 7,336
------- ------- ------- ------- ------- ------- -------
Gross profit............... 5,029 6,729 11,230 15,663 8,605 7,218 10,961
Total operating expenses... 5,237 6,452 9,377 12,004 7,109 5,919 9,262
------- ------- ------- ------- ------- ------- -------
Operating income (loss).... (208) 277 1,853 3,659 1,496 1,299 1,699
Other (expense)............ (108) (133) (217) (371) (141) (246) (348)
Provision (benefit) for
income taxes............. (120) 60 793 1,411 694 455 612
------- ------- ------- ------- ------- ------- -------
Net income (loss).......... $ (196) $ 84 $ 843 $ 1,877 $ 661 $ 598 $ 739
======= ======= ======= ======= ======= ======= =======
Basic and diluted earnings
per share................ $ (.03) $ .01 $ .13 $ .23 $ .10 $ .09 $ .09
Weighted average shares
outstanding.............. 6,297 6,297 6,297 8,000 6,297 6,297 8,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, 1998
-------------------------- ----------------------------------------
PRO FORMA AS
1995 1996 1997 ACTUAL PRO FORMA ADJUSTED(1)
------ ------ ------ ------ -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 4 $ -- $ -- $ -- $ 429 $10,908
Working capital (deficit).......... (10) (900) (298) 154 742 14,021
Total assets....................... 3,562 6,585 8,759 9,387 21,886(2) 32,365(2)
Total liabilities.................. 3,100 6,039 7,370 7,400 10,886 8,086
Total shareholders' equity......... 462 546 1,389 1,987 11,000 24,279
</TABLE>
- ---------------
(1) Gives effect to the sale of the 2,300,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $6.50 and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
(2) Includes $8,424,000 of acquired intangibles relating to acquisitions of the
Foreign Subsidiaries.
6
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered by this Prospectus.
STRONG COMPETITION
The Company faces significant competition in the marketing and sale of its
products. The Company's products compete for consumer recognition and shelf
space with competitors who have longer operating histories, significantly
greater financial, technical, manufacturing, distribution and marketing
resources, significantly greater name recognition and substantially greater
customer bases than the Company. The Company's principal competitors in the
industry include large multi-national companies such as Revlon, Inc., L'Oreal
Groupe, The Procter & Gamble Company, and smaller companies such as Del
Laboratories, Inc., Renaissance Cosmetics, Inc. and Bonne Bell Company. The
cosmetic industry is characterized by frequent introductions of new products,
accompanied by substantial promotional campaigns. Many of these competitors may
be able to respond more quickly to new or emerging changes in consumer
preferences and demands and to devote greater financial resources to the
development, promotion and sale of their products than the Company. There can be
no assurance that the Company's current or potential competitors will not
develop products comparable or superior to those developed by the Company or
adapt more quickly than the Company to evolving industry trends or changing
customer preferences.
Brand recognition, together with product quality, performance and price and
the extent to which consumers are educated on product benefits, have a marked
influence on consumers' choices among competing products and brands.
Advertising, promotion, merchandising and packaging, as well as the timing of
new product introductions and line extensions, also have a significant impact on
buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially and adversely affect the
Company's business, results of operations and financial condition. The Company's
products also compete with similar products sold door-to-door or through mail
order or telemarketing by representatives of direct sales companies. In
addition, as the Company expands internationally, it may face new competition.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, or that competitive pressures faced by
the Company will not have a material adverse effect on its business, results of
operations and financial condition.
DEPENDENCE ON CUSTOMERS
As is typical in the cosmetic industry, the Company does not have long-term
or exclusive contracts with any of its customers and sells products pursuant to
purchase orders placed from time to time in the ordinary course of business. The
Company is dependent on a limited number of customers for a significant portion
of its revenues. During Fiscal 1996, Wal-Mart and Thrifty-Payless were was the
Company's largest customers and accounted for approximately 8% and 5%,
respectively, of the Company's historical gross sales. During Fiscal 1997,
Rite-Aid (which acquired Thrifty-Payless in December 1996), Eckerd Drugs and
Wal-Mart were the Company's three largest customers, and accounted for
approximately 12%, 6%, and 6%, respectively, of the Company's historical gross
sales. During the nine months ended June 30, 1998, Wal-Mart and Rite-Aid
accounted for approximately 8% and 10%, respectively, of the Company's
historical gross sales. No single customer accounted for more than 10% of the
Company's pro forma gross sales during the years ended September 30, 1996 or
1997 or the nine months ended June 30, 1998. The loss of any of the Company's
significant customers, especially Rite-Aid, Eckerd Drugs or Wal-Mart, or a
decrease in orders from any such
7
<PAGE> 9
customers, could have a material adverse effect on the Company and its business.
There can be no assurance that sales to any of these customers will continue at
historic levels, if at all. See "Business -- Customers."
RISKS OF INTEGRATION
The Foreign Subsidiaries have been operating as separate legal entities and
there can be no assurance that the Company will be able to integrate the
operations of these businesses successfully or institute the necessary
Company-wide systems and procedures to manage the combined enterprise
profitably. The Foreign Subsidiaries use different strategies and technologies
and target different marketplaces. These differences increase the risk inherent
in successfully completing such integration. The inability of the Company to
integrate the Foreign Subsidiaries successfully would have a material adverse
effect on the Company's business, results of operations and financial condition.
DEPENDENCE ON THIRD-PARTY MANUFACTURERS AND SUPPLIERS
The Company is currently dependent on a sole source manufacturer,
Schwan-STABILO
GmbH, for all of its pencil products, which account for approximately 45% of its
gross sales for the nine months ended June 30, 1998. The Company does not
maintain a written agreement with such pencil manufacturer and, accordingly,
such manufacturer could terminate its relationship at any time. The Company is
dependent on the ability of its pencil manufacturer to adhere to the Company's
product, price and quality specifications and scheduling requirements. The
Company's operations require it to have production orders in place in advance of
shipment to the Company's warehouses (product deliveries typically take 60
days). Any delay by such manufacturer in supplying finished pencil products to
the Company would adversely affect the Company's ability to deliver products on
a timely and competitive basis. In addition, raw materials necessary for the
manufacture of the Company's products are purchased from third-party suppliers.
The Company does not maintain agreements with any such suppliers and is subject
to risks of periodic price fluctuations, shortages and delays. Delays in the
delivery of raw materials, components or packaging products from suppliers could
have a material adverse effect on the financial condition and results of
operations of the Company. See "Business -- Manufacturing and Related
Operations." Any material interruption in the availability or significant price
increases for raw materials would have a material adverse effect on the
Company's operating margins. See "Business -- Raw Materials; Suppliers."
RELIANCE ON SINGLE MANUFACTURING FACILITY
The Company manufactures or processes substantially all of its products,
except for its pencils, at its Florida facility. The Company's manufacturing
operations use certain custom designed equipment which, if damaged or otherwise
rendered inoperable or unavailable, could result in the disruption of the
Company's manufacturing operations. Any extended interruption of operations at
the Company's manufacturing facility could have a material adverse effect on the
business of the Company. See "Business -- Manufacturing and Related Operations."
MANAGEMENT OF GROWTH
The Company believes that expansion of its operations will be required in
order to address potential market opportunities. Such growth may place
substantial strain on the Company's management, operational and financial
resources and systems. To manage its growth, the Company must implement, improve
and effectively utilize its operational, management, marketing and financial
systems and expand, train and manage its employees. In addition, it may become
necessary for the Company to increase the capacity of its software, hardware and
telecommunications systems on short notice. There can be no assurance that the
Company will be able to effectively manage the expansion of its operations or
that the Company's systems, procedures or controls will be adequate to support
the Company's operations. Any failure of management to effectively manage the
Company's growth would have a material adverse effect on the Company's business,
results of operations and financial condition.
8
<PAGE> 10
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
The Company has operations based in three foreign countries and its
products are currently sold in 28 countries. The Company intends to continue to
expand internationally and expects that its international operations will be
subject to most of the risks inherent in its business generally. In addition,
the Company has been and will continue to be subject to risks inherent in doing
business in international markets, such as changes in regulatory requirements,
tariffs, import quotas and other trade barriers, fluctuations in currency
exchange rates, potentially adverse tax consequences, costs associated with the
shipping of the Company's products, longer payment cycles and difficulties in
collecting accounts receivable, political and economic instability and
difficulties in managing or overseeing foreign operations. The Company's results
of operations and the value of its foreign assets are affected by fluctuations
in foreign currency exchange rates, which may favorably or adversely affect
reported earnings and, accordingly, the comparability of period-to-period
results of operations. The Company incurred a foreign exchange loss of $161,285
for Fiscal 1995 primarily as a result of unfavorable currency exchange rates.
The Company currently does not engage in any hedging transactions to reduce the
risks associated with fluctuations in foreign currency exchange rates. There can
be no assurance that one or more of such factors would not have a material
adverse effect on the Company's current or future international operations and,
consequently, on the Company's business, results of operations and financial
condition.
RELIANCE ON NEW PRODUCT DEVELOPMENT AND CONSUMER TRENDS
The Company's ability to anticipate changes in technologies, markets and
industry trends and to successfully develop and introduce new and enhanced
products on a timely basis will be a critical factor in its ability to grow and
remain competitive. There can be no assurance that new products will be
completed or that such products can be marketed successfully. In addition, the
anticipated development schedules for new or improved products are inherently
difficult to predict and are subject to change as a result of shifting
priorities in response to customers' requirements and competitors' new product
introductions. The Company expects to devote substantial resources, including
expenditures aggregating approximately $1.0 million, to product development
efforts over the next two years. The costs of such efforts will be expensed as
they are incurred, notwithstanding that the benefits, if any, from such efforts
(in the form of increased revenues or decreased product costs) may not be
reflected until subsequent periods. There can be no assurance that any new
products introduced by the Company will achieve any significant degree of market
acceptance or that any acceptance that is achieved will be sustained for any
significant amount of time. The failure of new product lines or product
innovations to achieve or sustain market acceptance could have a material
adverse effect on the Company's business, results of operations and financial
condition.
In addition, the Company expects that the formulation of its cosmetics and
other products will be modified from time to time as a result of the Company's
ongoing product development and testing programs. As a result of such
modifications, products that the Company produces in the future may differ from
those that were the subject of earlier research and testing. In that event, the
Company may be required to make significant additional expenditures on
developing and testing of these new formulations. Furthermore, there can be no
assurance that future product formulations will be commercially viable.
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems have been, and continue to be,
substantially upgraded to provide comprehensive order processing, production and
accounting support for the Company's business. Many of the Company's key
accounts utilize the electronic data interchange ("EDI") system whereby a retail
store or distribution center automatically and electronically orders additional
Prestige products from the Company to replace products it has sold. Certain
other large retail chains also require that the Company utilize their
computerized order and reorder systems. During the nine months ended June 30,
1998, the Company spent approximately $110,000 for hardware and software
upgrades for the Company's management information systems and intends to use a
portion of the net proceeds of the Offering to purchase additional computer
equipment and software. Such costs included the cost of software updates
required to allow the systems to process data attributable to the year 2000 and
thereafter. The Company believes that its
9
<PAGE> 11
management information systems are year 2000 compliant. The Company has
determined that no significant additional expenditures will be required to
upgrade the computer systems of the Foreign Subsidiaries for year 2000
solutions. The Company's major customers have informed the Company that they are
year 2000 compliant. There can be no assurance that the Company's current
management information systems will be sufficient or effective, or that
suppliers will complete compatible technology upgrades, or that significant
further investments in management information systems will not be necessary. See
"Use of Proceeds."
MERCHANDISE RETURNS AND REFUNDS
In general, the cosmetics industry in the United States has a flexible
return policy. Typically, the Company is not contractually obligated to accept
returns. However, the Company emphasizes customer service and may accept returns
in order to assure customer satisfaction. The Company believes that its return
policy is standard for the cosmetic industry in the United States. Refunds and
merchandise credits under the Company's return policy, in Fiscal 1995, 1996,
1997 and the nine months ended June 30, 1998 were approximately, 12%, 8%, 10%
and 9%, respectively, of historical gross sales. The Company makes allowances in
its financial statements for anticipated merchandise returns and refunds based
on historical return rates. While the Company maintains reserves for product
returns which it considers adequate, the possibility exists that the Company
could experience returns at a rate significantly exceeding its historical
levels, which could have a material adverse impact on the Company's business,
results of operations and financial condition.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have fluctuated significantly from quarter
to quarter, in part because of the timing of promotions, changes in product
colors, the addition of new customers and changes in existing customer buying
patterns. The Company updates the colors in its product lines annually and
supplements its product lines seasonally with promotional colors which causes
increases in revenues and returns in quarters in which the updates occur. The
Company's operating results also vary significantly due to the timing of
customer reset orders, pursuant to which a customer places a large order to
update its product line. In addition, the consolidation trend in the drug store
industry may result in gains or losses of outlets in which the Company's
products are sold. The Company's operating expenses also fluctuate due to
expenditures for the purchase of new display units for the Company's products.
The Company's operating results for any particular quarter are not necessarily
indicative of results for any future period or for the full year.
RISKS RELATING TO INDEBTEDNESS
Historical Indebtedness
As of June 30, 1998, on a historical basis, the Company had outstanding
indebtedness of approximately $4.5 million, including approximately $3.1 million
under a line of credit with First Union National Bank of Florida (the "Bank")
which is due on demand, and $1.3 million under notes payable to Jacques Cohen
and Gabriel Cohen, principal shareholders, executive officers and directors of
the Company (the "Shareholder Notes") which are also due on demand. In addition,
the Company and Jacques Cohen and Gabriel Cohen, individually, have guaranteed a
bank loan of C&C General Partnership, an affiliate of the Company, of which
approximately $1.1 million was outstanding as of June 30, 1998. The Company
repaid an aggregate of approximately $48,000 in principal amount of the
Shareholder Notes in July 1998. Substantially all of the Company's assets are
pledged to the Bank as collateral and the Company is subject to restrictions on
the incurrence of additional indebtedness, which could, under certain
circumstances, limit the Company's ability to obtain financing in the future for
working capital needs, capital expenditures and possible acquisitions. In
addition, the agreements with the Bank subject the Company to various covenants
which, among other things: (i) require the Company to maintain certain levels of
net worth and minimum financial ratios, (ii) restrict the payment by the Company
of dividends or other distributions to shareholders and (iii) prohibit the sale
by the Company of all or substantially all of its assets. At September 30, 1997,
the Company was not in compliance with certain covenants relating to the
maintenance of minimum financial ratios. In January 1998, the Bank waived such
non-compliance. Although the Company was in compliance with such covenants at
June 30, 1998, there can be no assurance that the Company will be able to comply
with the terms of its financing
10
<PAGE> 12
agreements in the future. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Certain Transactions."
Pro Forma Indebtedness
As of June 30, 1998, on a pro forma basis, the Company had outstanding
indebtedness of approximately $5.3 million. As of June 30, 1998, the outstanding
indebtedness of Prestige Italy included unsecured loans of approximately
$238,000 and $157,000 maturing in November 2000 and October 2001, respectively,
approximately $47,000 under an unsecured line of credit and capital lease
obligations of approximately $99,000. As of June 30, 1998, the outstanding
indebtedness of Prestige Australia included approximately $161,000 under an
unsecured line of credit, which is due upon demand and capital lease obligations
of approximately $89,000.
TRADEMARKS AND PROPRIETARY RIGHTS; RISK OF THIRD PARTY CLAIMS FOR INFRINGEMENT
The Company holds United States trademark registrations for the "Prestige"
and the "Wear Ever" names, and has filed for trademark registrations for certain
other names, including "Prestige Studio Make-Up," "Quick Stick," "Lip Loofa,"
"Secret Agent," "Daily Dose," "Extreme Cover," "Everyday Cover," "Spot Check"
and "Complexion Equalizer." In addition, the Company holds trademark
registrations for the "Prestige" name in a number of foreign countries. The
Company also uses other names for which it has not applied for registration. The
Company believes that its rights in these names is a significant part of the
Company's business and that its ability to create demand for its products is
dependent to a large extent on its ability to exploit its trademarks. There can
be no assurance as to the breadth or degree of protection that trademarks afford
the Company, that the Company's marks are in fact of value, that such marks do
not or will not violate the proprietary rights of others, or that any trademark
applications will result in registered trademarks or that trademarks will not be
invalidated if challenged. In addition, there can be no assurance that the
Company will be able to secure adequate protection for its trademarks in foreign
countries other than those in which the Company already has registered trademark
rights. Many foreign countries have a "first to file" trademark registration
system and thus the Company may be prevented from registering its marks in
certain countries if third parties have previously filed applications to
register or have registered the same or similar marks. It is possible that
competitors of the Company or others will adopt product or service names similar
to the Company's, thereby impeding the Company's ability to build brand identity
and possibly leading to customer confusion. The inability of the Company to
protect the name of its marks adequately would have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company is not aware of independent claims or other challenges to any of the
Company's trademarks. See "Business -- Proprietary Rights and Trademarks."
The Company's success and ability to compete depend in large part on the
protection of its proprietary processes and formulas. The Company seeks to
protect such processes through confidentiality agreements with certain key
employees who have access to such processes. However, there can be no assurance
that such agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of unauthorized
use or disclosure. Any such unauthorized disclosure or use could have a material
adverse effect on the Company.
GOVERNMENT REGULATION
The manufacturing, processing, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the Federal Trade Commission (the "FTC"), the Food and Drug
Administration (the "FDA"), the Consumer Product Safety Commission and the
Occupational Safety and Health Administration as well as by various other
federal, state and local regulatory authorities. The Company is also subject to
foreign consumer laws in the foreign countries where its products are sold.
Compliance with federal, state, local and foreign laws and regulations has not
had a material adverse effect on the Company to date. Nonetheless, federal,
state and local regulations in the United States that are designed to protect
consumers have had, and can be expected to have, an impact on product claims,
production methods, product content, and packaging. In addition, any expansion
by the Company of its operations to produce cosmetic and related products that
include over-the-counter drug ingredients would
11
<PAGE> 13
result in the Company becoming subject to additional FDA regulation as well as a
higher degree of inspection and greater burden of regulatory compliance than
currently exist. The Company believes that it is in compliance with all
governmental laws and regulations and maintains all permits and licenses
required for its operations. Nevertheless, there can be no assurance that the
Company will continue to be in compliance with current laws and regulations or
that the Company will be able to comply with any future laws and regulations and
licensing requirements. Failure by the Company to comply with applicable laws
and regulations could subject the Company to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions.
The failure by the Company to comply with current or future environmental
regulations could result in the imposition of fines on the Company, suspension
of production, or a cessation of operations. Compliance with such regulations
could require the Company to acquire costly equipment or to incur other
significant expenses. The Company believes that it is in substantial compliance
with applicable federal, state and local rules and regulations regarding
environmental issues. There are no significant capital expenditures for
environmental control matters anticipated in the current year or expected in the
near future. See "Business -- Government Regulation."
PRODUCT LIABILITY AND INSURANCE
As a manufacturer and marketer of cosmetic products, the Company is subject
to product liability claims from consumers. The nature and use of cosmetic
products could give rise to product liability claims if one or more users of the
Company's products were to suffer adverse reactions following their use of the
products. Such reactions could be caused by various factors, many of which are
beyond the Company's control, including allergic sensitivity and the possibility
of tampering with the Company's products. In the event of such an occurrence,
the Company could incur substantial litigation expense, adverse publicity and a
loss of sales. To date, the Company has never been subject to any product
liability claims. The Company maintains product liability insurance in the
amount of $1.0 million per occurrence (with an annual limit of $2.0 million),
which it believes is adequate for the types of products currently offered by the
Company, and umbrella insurance in the amount of $4.0 million per occurrence and
a general aggregate of $4.0 million. The Foreign Subsidiaries do not maintain
separate product liability insurance. There can be no assurance, however, that
such insurance will be sufficient to cover potential claims or that adequate
levels of coverage will be available in the future at a reasonable cost. In the
event of a partially or completely uninsured successful claim against the
Company, the Company's financial condition and reputation would be materially
adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in significant part, upon the
continued service of its senior management and other key personnel, including
Jacques Cohen, Chairman of the Board, President and Chief Executive Officer,
Gabriel Cohen, Executive Vice President, Thomas Winarick, Executive Vice
President, Marc Feller, Chief Financial Officer, Giorgio Ventura, President of
Prestige Italy and Chris Dow, President of Prestige Australia. The Company has
entered into employment agreements with each of Jacques Cohen, Gabriel Cohen,
Thomas Winarick, Marc Feller, Chris Dow and Giorgio Ventura. The Company has
purchased "key man" life insurance with respect to Jacques Cohen, in the amount
of $2.0 million. However, the Company has agreed to assign any such "key man"
life insurance policy with respect to Jacques Cohen to the Bank in connection
with the Company's line of credit with the Bank. The loss of the services of one
or more of these executive officers or other key employees could have a material
adverse effect on the Company, and there can be no assurance that the Company
will be able to retain its key personnel. See "Management -- Executive Officers
and Directors."
The Company's future success also depends on its continuing ability to
attract and retain highly qualified financial, technical and managerial
personnel. Competition for such personnel is intense. There can be no assurance
that the Company will be able to attract or retain a sufficient number of highly
qualified employees in the future. If the Company is unable to hire and retain
personnel in key positions, the Company's business, results of operations and
financial condition could be materially adversely affected.
12
<PAGE> 14
BENEFITS TO RELATED PARTIES
The Company's existing shareholders, including certain members of
management, are expected to benefit from the Offering due to the anticipated
improved liquidity of their shares of Common Stock and an increase in the net
tangible book value of their shares of Common Stock. In addition, the Company
intends to use approximately $1.5 million of the net proceeds of this Offering
to reduce amounts outstanding under its line of credit with the Bank, which will
reduce the personal liability of Messrs. Jacques Cohen and Gabriel Cohen under
their personal guarantees. The Company will seek to release Messrs. Jacques
Cohen and Gabriel Cohen from their personal guarantees following this Offering.
The Company also intends to use a portion of the net proceeds of the Offering to
repay the remaining amounts due under the Shareholder Notes, including any
accrued interest thereon. See "Use of Proceeds" and "Certain Transactions."
CONTROL BY EXISTING SHAREHOLDERS
Upon completion of this Offering, Jacques Cohen and Gabriel Cohen will
beneficially own approximately 61.2% of the outstanding Common Stock
(approximately 59.1% of the outstanding Common Stock assuming full exercise of
the Underwriters' over-allotment option). As a result, Jacques Cohen and Gabriel
Cohen, if they act as a group, will be able to elect the entire Board of
Directors of the Company and to control the vote on all other matters submitted
to a vote of the Company's shareholders, including approval of significant
corporate transactions, including increasing the authorized capital, dissolving
or merging the Company and selling the assets of the Company. Control by Jacques
Cohen and Gabriel Cohen may discourage certain types of transactions involving
an actual or potential change in control of the Company including transactions
in which the shareholders might receive a premium for their shares above
prevailing market prices. See "Management," "Principal Shareholders" and
"Description of Capital Stock."
MANAGEMENT'S DISCRETION AS TO USE OF NET PROCEEDS
The Company has designated specific uses for a substantial portion of the
net proceeds from the sale by the Company of the Common Stock offered hereby.
The Board of Directors and management of the Company, however, will have
discretion and some flexibility in applying the net proceeds of this Offering.
In addition, a significant portion of such net proceeds has been allocated to
working capital and general corporate purposes. Accordingly, the Company will
have broad discretion as to the application of such proceeds. The failure of
management to apply such net proceeds effectively could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Use of Proceeds."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this Offering. The initial public
offering price will be determined by negotiation between the Company and the
Representative based upon several factors and may not be indicative of future
market prices. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The trading price
of the Company's Common Stock could be subject to fluctuations in response to
quarterly variations in results of operations, announcements of technological
innovations or new services or products by the Company or its competitors,
changes in financial estimates by securities analysts, the operating and stock
price performance of other companies and other events or factors. In addition,
the stock market has experienced volatility that often has been unrelated to the
operating performance of companies in the cosmetic industry. These broad market
fluctuations may adversely affect the trading price of the Common Stock. See
"Underwriting."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS UNDER FLORIDA LAW AND THE COMPANY'S
CHARTER AND BYLAWS
The Company is organized under the laws of the State of Florida. Certain
provisions of Florida law may have the effect of delaying, deferring or
preventing a change in control of the Company. In addition, certain provisions
of the Company's Amended and Restated Articles of Incorporation (the "Articles")
and Amended and Restated Bylaws (the "Bylaws") may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
shareholder might consider in its best interest. The Articles will authorize
13
<PAGE> 15
the Board to determine the rights, preferences, privileges and restrictions of
unissued series of preferred stock and to fix the number of shares of any series
of preferred stock and the designation of any such series, without any vote or
action by the Company's shareholders. Thus, the Board can authorize and issue
shares of preferred stock with voting or conversion rights that could adversely
affect the voting or other rights of holders of the Common Stock. In addition,
the issuance of preferred stock may have the effect of delaying, deferring or
preventing a change of control of the Company, since the terms of the preferred
stock that might be issued could potentially prohibit the Company's consummation
of any merger, reorganization, sale of substantially all of its assets,
liquidation or other extraordinary corporate transaction without the approval of
the holders of the outstanding shares of the Common Stock. See "Description of
Capital Stock -- Anti-Takeover Provisions of Florida Law" and "-- Certain
Effects of Authorized but Unissued Stock."
SHARES ELIGIBLE FOR FUTURE SALE; FUTURE EQUITY ISSUANCES
Sales of substantial amounts of Common Stock in the public market following
this Offering, or the perception that such sales will occur, could have an
adverse effect on the market price of the Company's Common Stock. After the
completion of this Offering, 10,300,000 shares of Common Stock will be
outstanding. Of such shares, only the 2,300,000 shares sold pursuant to this
Offering will be tradable in the public market without restriction. The
remaining 8,000,000 shares of Common Stock to be outstanding after the Offering
are "restricted securities" within the meaning of Rule 144 ("Rule 144") under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
publicly resold, except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144. Beginning 90 days after the date of this Prospectus,
6,297,077 of these shares of Common Stock will be eligible for resale in the
public market, subject to certain volume, timing and other requirements of Rule
144 and to the lock-up agreements. See "Shares Eligible for Future
Sale -- Lock-Up Agreements and Registration of Options."
The Company and each of its existing shareholders has agreed not to offer,
sell or contract to sell or otherwise dispose of any Common Stock for a period
of nine months after the date of this Prospectus without the prior written
consent of Josephthal. Sales of substantial amounts of Common Stock in the
public market following this Offering could have an adverse effect on the market
price of the Common Stock.
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
A significant number of shares of Common Stock offered hereby may be sold
to customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of shares of Common Stock through or with
the Representative. Although it has no obligation to do so, the Representative
intends to make a market in the Common Stock and may otherwise affect
transactions in the Common Stock. If the Representative participates in such
market, the Representative may influence the market, if one develops, for the
Common Stock. Such market-making activity may be discontinued at any time.
Moreover, if the Representative sells the securities issuable upon exercise of
the Representative's Warrants, it may be required under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), to temporarily suspend its
market-making activities. The prices and liquidity of the Common Stock may be
significantly affected by the degree, if any, of the Representative's
participation in such market. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in this Offering will incur an immediate,
substantial dilution, assuming an initial public offering price of $6.50 per
share, of $4.97 (77%) in the pro forma net tangible book value per share of the
Common Stock from the initial public offering price. See "Dilution."
NO DIVIDENDS
Although the Company has previously paid dividends to shareholders, the
Company does not anticipate paying cash dividends in the foreseeable future. The
payment of cash dividends on its securities is prohibited by the terms of the
Company's financing agreements with the Bank. See "Dividend Policy."
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,300,000 shares of Common Stock offered hereby, assuming an initial public
offering price of $6.50 per share, are estimated to be approximately $13,278,500
($15,330,000 if the Underwriters' over-allotment option is exercised in full)
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company currently intends to use the estimated net proceeds from this
Offering approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE DOLLAR PERCENTAGE OF NET
APPLICATION OF PROCEEDS AMOUNT PROCEEDS
- ----------------------- ------------------ -----------------
<S> <C> <C>
Repayment of indebtedness (1)....................... $ 2,800,000 21.1%
Upgrade of in-store displays (2).................... 2,500,000 18.8
Advertising, marketing and sales (3)................ 2,500,000 18.8
Acquisition of equipment and software (4)........... 1,500,000 11.3
International expansion (5)......................... 500,000 3.8
Working capital (6)................................. 3,478,500 26.2
----------- -----
Total use of proceeds..................... $13,278,500 100.0%
=========== =====
</TABLE>
- ---------------
(1) The Company intends to reduce the amount outstanding under its line of
credit with the Bank by approximately $1.5 million. Borrowings under the
line of credit vary daily based on the Company's working capital
requirements. At June 30, 1998, approximately $3.1 million was outstanding
under the line of credit. Interest accrues on advances made under the line
of credit at the prime rate established by the Bank (8.5% at June 30, 1998).
Borrowings under the line of credit are due on demand. Advances under the
line of credit have been used to finance increased levels of inventories,
equipment, upgrades in MIS systems, and accounts receivable. The Company
also intends to repay all remaining amounts due under the Shareholder Notes.
At June 30, 1998, approximately $1.3 million was due and payable under the
Shareholder Notes, of which an aggregate of $48,000 was repaid in July 1998.
The Shareholder Notes bore interest at a rate of 9% per annum during Fiscal
1996 and 10% per annum during Fiscal 1997, and currently bear interest at
the rate of 10% per annum for the year ending September 30, 1998. Amounts
due under the Shareholder Notes are due on demand. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources" and "Certain Transactions."
(2) Represents anticipated costs associated with the purchase and installation
of approximately 7,500 new in-store displays.
(3) Represents amounts to be used in connection with the expansion of worldwide
advertising, marketing and sales activities, including increases in
advertising in consumer magazines and areas other than print and preparation
of sales materials. See "Business -- Business Strategy" and "-- Marketing
and Sales."
(4) Represents anticipated costs associated with purchasing manufacturing
equipment for further automation at the Company's Florida facility,
manufacturing equipment for its Italian manufacturing facility and computer
equipment and software upgrades for the Company's management information
systems.
(5) Represents anticipated costs to expand the Company's distribution
capabilities internationally through additional service personnel and
worldwide trade shows.
(6) Working capital may be used, among other things, to pay for inventories,
product development, possible acquisitions and other general corporate
purposes. Any net proceeds from the Underwriter's exercise of the
over-allotment option will be applied to working capital.
From time to time, the Company expects to evaluate possible acquisitions of
or investments in businesses, products and technologies that are complementary
to those of the Company, for which a portion of the net proceeds of this
Offering may be used. The Company presently has no commitments or understandings
for any
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<PAGE> 17
such acquisitions, and is not presently engaged in any negotiations for any such
acquisitions, and no portion of the net proceeds has been allocated for any
specific acquisition.
Based on currently proposed plans and assumptions relating to its
operations, the Company believes that the proceeds of this Offering, together
with projected cash flow from operations and available cash resources, including
its line of credit, will be sufficient to satisfy its contemplated cash
requirements for at least twelve months following the consummation of this
Offering. In the event that the Company's plans change (due to changes in market
conditions, competitive factors or new or different business opportunities that
may become available in the future), its assumptions change or prove to be
inaccurate or if the proceeds of this Offering or cash flow prove to be
insufficient to implement the Company's proposed expansion strategy (due to
unanticipated expenses, operating difficulties or otherwise), the Company may
find it necessary to reallocate a portion of the proceeds within the
above-described categories, use proceeds for other purposes, seek additional
financing or curtail its expansion activities. There can be no assurance that
additional financing, if required, will be available to the Company on
commercially reasonable terms, or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
DIVIDEND POLICY
Although the Company has previously paid dividends to shareholders, the
Company does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings, if
any, to fund the development and growth of its business. In addition, the
Company's line of credit agreement with the Bank contains covenants that
prohibit the Company from paying dividends.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1998 (i) on an actual basis, (ii) on a pro forma basis to give effect to the
Acquisition Transactions, and (iii) on a pro forma as adjusted basis to give
effect to (a) the Acquisition Transactions and (b) the sale of the 2,300,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $6.50 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction with
the Company's Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ -------------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term obligations................................... $4,500 $ 5,006 $ 2,206
====== ======= =======
Long-term obligations.................................... $ 14 $ 342 $ 342
------ ------- -------
Shareholders' equity(1):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding actual, pro
forma or pro forma as adjusted......................... -- -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; 6,297,077 shares actual; 8,000,000 shares
pro forma; 10,300,000 shares pro forma as adjusted
issued and outstanding................................. 63 80 103
Additional paid-in capital............................... -- 8,713 21,969
Retained earnings........................................ 1,924 2,207 2,207
------ ------- -------
Total shareholders' equity.......................... 1,987 11,000 24,279
------ ------- -------
Total capitalization........................... $2,001 $11,342 $24,621
====== ======= =======
</TABLE>
- ---------------
(1) Does not include (i) 437,500 shares of Common Stock reserved for issuance
upon exercise of stock options, at an exercise price equal to the initial
public offering price, granted under the Plan, (ii) 312,500 shares of Common
Stock reserved for issuance upon exercise of options which may be granted
under the Plan, and (iii) 230,000 shares of Common Stock reserved for
issuance pursuant to the Representative's Warrants. See "Management -- 1998
Stock Option Plan," "Description of Capital Stock -- Warrants and Options"
and "Underwriting."
17
<PAGE> 19
DILUTION
The difference between the initial public offering price per share and the
pro forma net tangible book value per share of Common Stock after this Offering
constitutes the dilution to investors in this Offering. Net tangible book value
per share of Common Stock on any given date is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) on that date, by the number of shares of Common Stock. The pro
forma net tangible book value of the Company as of June 30, 1998, was
$2,507,000, or $.31 per share of Common Stock, after giving effect to the
Acquisition Transactions. After giving effect to the sale of the 2,300,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $6.50 per share, after deducting the estimated underwriting discount
and estimated expenses to be paid by the Company, and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of June 30, 1998 would have been $15,785,500, or $1.53 per share.
This represents an immediate increase in such pro forma net tangible book value
of $1.22 per share to existing stockholders and an immediate dilution of $4.97
per share to new investors purchasing shares in this Offering. The following
table summarizes, on a pro forma basis as of June 30, 1998, this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.50
-----
Pro forma net tangible book value per share at June 30,
1998...................................................... $ .31
-----
Increase per share attributable to new investors............ 1.22
-----
Pro forma net tangible book value per share as of June 30,
1998 after giving effect to Offering...................... 1.53
-----
Dilution per share to new investors......................... $4.97
=====
</TABLE>
The following table summarizes as of June 30, 1998, the number of shares of
Common Stock purchased from the Company, the total cash consideration paid to
the Company and the average price paid per share by existing shareholders and by
the purchasers of the shares of Common Stock offered hereby at an assumed
initial offering price of $6.50 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CASH CONSIDERATION(1)
--------------------- ---------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 8,000,000 77.7% $ 113,000(2) 1.0% $ .01
New investors............... 2,300,000 22.3% 14,950,000 99.0% $ 6.50
---------- ----- ----------- ------
Total............. 10,300,000 100.0% $15,063,000 100.0%
========== ===== =========== ======
</TABLE>
- ---------------
(1) The above computations do not include (i) 437,500 shares of Common Stock
reserved for issuance upon exercise of stock options, at an exercise price
equal to the initial public offering price, granted under the Plan, (ii)
312,500 shares of Common Stock reserved for issuance upon exercise of
options which may be granted under the Plan and (iii) 230,000 shares of
Common Stock issuable upon the exercise of the Representative's Warrants.
See "Management -- 1998 Stock Option Plan," "Description of Capital
Stock -- Warrants and Options" and "Underwriting."
(2) Excludes the value of the shares issued in connection with the Acquisition
Transactions.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The following table sets forth certain historical and pro forma selected
financial data of the Company as of and for the dates indicated. The historical
selected financial data as of September 30, 1996 and 1997, and for the years
ended September 30, 1995, 1996 and 1997, have been derived from the financial
statements that have been audited by Arthur Andersen LLP, independent certified
public accountants, and are included elsewhere herein. The historical selected
financial data as of and for the years ended September 30, 1993 and 1994 have
been derived from the Company's financial statements not included elsewhere
herein. The historical selected financial data as of and for the nine months
ended June 30, 1997 and 1998 have been derived from the Company's unaudited
interim financial statements included elsewhere herein, and in the opinion of
management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. Results for the nine months ended June 30, 1998 are not necessarily
indicative of the results for the entire year. The pro forma selected financial
data have been derived from the Company's unaudited pro forma financial
statements included elsewhere herein. The pro forma selected financial data give
effect to the Acquisition Transactions as though such transactions occurred as
of June 30, 1998 or the beginning of the periods presented. The pro forma
summary statement of operations data for the year ended September 30, 1997
include the Company's results of operations for the year ended September 30,
1997, Prestige Canada's results of operations for the year ended December 31,
1997, Prestige Australia's results of operations for the year ended December 31,
1997 and Prestige Italy's results of operations for the year ended December 31,
1997. The pro forma selected statement of operations data for the nine months
ended June 30, 1998 include the results of operations of the Company and each of
the Foreign Subsidiaries for the same period. The selected financial data set
forth below is qualified by reference to and should be read in conjunction with
the Company's financial statements, related notes and other financial
information included in this Prospectus, as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
----------------------------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1996 1997 1997 1997 1998 1998
------- ------- ------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $10,275 $10,752 $10,469 $13,771 $20,252 $26,922 $15,517 $12,409 $18,297
Cost of goods sold...... 5,079 4,981 5,440 7,042 9,022 11,259 6,912 5,191 7,336
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 5,196 5,771 5,029 6,729 11,230 15,663 8,605 7,218 10,961
Operating expenses:
Selling, general and
administrative
expenses............ 3,264 3,779 4,184 5,785 7,587 10,391 6,169 5,258 7,943
Shareholders'
compensation........ 1,584 1,844 705 505 1,513 740 737 442 555
Provision for doubtful
accounts............ -- -- 72 115 220 220 117 66 160
Depreciation and
amortization........ -- -- 144 174 256 790 220 207 598
Realized and
unrealized foreign
exchange (gain)
loss................ -- -- 132 (127) (199) (137) (134) (54) 6
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses..... 4,848 5,623 5,237 6,452 9,377 12,004 7,109 5,919 9,262
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................ 348 148 (208) 277 1,853 3,659 1,496 1,299 1,699
Other (expense)......... -- (13) (108) (133) (217) (371) (141) (246) (348)
Provision (benefit) for
income taxes.......... 139 55 (120) 60 793 1,411 694 455 612
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 209 $ 80 $ (196) $ 84 $ 843 $ 1,877 $ 661 $ 598 $ 739
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic and diluted
earnings per share.... $ .03 $ .01 $ (.03) $ .01 $ .13 $ .23 $ .10 $ .09 $ .09
Weighted average shares
outstanding........... 6,297 6,297 6,297 6,297 6,297 8,000 6,297 6,297 8,000
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, 1998
------------------------------------------ ---------------------------------
PRO PRO FORMA
1993 1994 1995 1996 1997 ACTUAL FORMA AS ADJUSTED(1)
------ ------ ------ ------ ------ ------ ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 25 $ -- $ 4 $ -- $ -- $ -- $ 429 $10,908
Working capital (deficit)........... 224 671 (10) (900) (298) 154 742 14,021
Total assets........................ 3,910 3,617 3,562 6,585 8,759 9,387 21,886(2) 32,365(2)
Total liabilities................... 3,232 2,960 3,100 6,039 7,370 7,400 10,886 8,086
Total shareholders' equity.......... 678 657 462 546 1,389 1,987 11,000 24,279
</TABLE>
- ---------------
(1) Gives effect to the sale of the 2,300,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $6.50 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(2) Includes $8,424,000 of acquired intangibles relating to acquisitions of the
Foreign Subsidiaries.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's historical results
of operation and financial condition should be read together with the financial
statements and notes thereto included elsewhere herein.
GENERAL
The Company manufactures, markets and/or distributes, domestically and
internationally, a full line of cosmetic products under its proprietary
"Prestige"(R) brand name, and, to a lesser extent, manufactures private label
products for retailers. Sales to Foreign Subsidiaries and other foreign
customers accounted for approximately 10% of the Company's historical gross
sales and have not fluctuated significantly between periods. In September 1998,
the Company began marketing and distributing products under its proprietary
"Prestige Studio Make-Up"(TM) brand name. The Company's marketing strategy
emphasizes distinctive, high-fashion premium products that are sold at prices
that compare favorably to those of competitive products.
At the time of shipment of products, the Company records sales and
establishes reserves for estimated returns, allowances, customer discounts and
rebates, which reserves are deducted from accounts receivable.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's statements
of operations:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 52.0 51.1 44.5 44.5 41.8
----- ----- ----- ----- -----
Gross profit....................................... 48.0 48.9 55.5 55.5 58.2
Selling, general and administrative expenses....... 40.0 42.0 37.5 39.8 42.4
Shareholders' compensation......................... 6.7 3.7 7.5 4.7 3.5
Provision for doubtful accounts.................... 0.7 0.8 1.1 .8 .5
Depreciation and amortization...................... 1.4 1.3 1.3 1.4 1.7
Realized and unrealized foreign exchange (gain)
loss............................................. 1.2 (0.9) (1.0) (.9) (.4)
----- ----- ----- ----- -----
Operating income (loss)............................ (2.0) 2.0 9.1 9.7 10.5
----- ----- ----- ----- -----
Income (loss) before provision for income taxes.... (3.0) 1.0 8.0 8.7 8.5
----- ----- ----- ----- -----
Net income (loss).................................. (1.9)% 0.6% 4.2% 4.3% 4.8%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1997
Net Sales. Net sales decreased by $3,108,318 or 20% during the nine months
ended June 30, 1998 when compared with the nine months ended June 30, 1997. This
is principally due to two significant non-recurring sales aggregating
approximately $2.6 million during the nine months ended June 30, 1997. Included
in such sales during the nine months ended June 30, 1997, were sales of $850,000
to a customer that was acquired by a large chain that does not currently carry
the Company's products. Accordingly, no sales were made to this customer during
the nine months ended June 30, 1998. Also included during the nine months ended
June 30, 1997 were sales of approximately $1.7 million to a customer who was
completing a periodic reset. Pursuant to a reset order, the customer places a
large order to replace all of its displays of the Company's merchandise. The
Company did not receive any significant reset orders during the nine months
ended June 30, 1998. The balance of the decrease is the result of lower overall
sales of Prestige brand name products. Sales of private label products increased
by $632,146 or 50% to $1,900,727 during the nine months ended June 30, 1998 from
$1,268,581 during the nine months ended June 30, 1997.
21
<PAGE> 23
Gross Profit. Gross profit decreased by $1,386,971 or 16% during the nine
months ended June 30, 1998 when compared with the nine months ended June 30,
1997. This is principally due to the lower level of sales during the same
period. As a result of efficiencies in the manufacturing process, the Company
improved its level of gross profit on sales from 56% during the nine months
ended June 30, 1997 to 58% during the nine months ended June 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $911,995 or 15% during the nine months
ended June 30, 1998 when compared with the nine months ended June 30, 1997. This
is principally due to a decrease of approximately $450,000 in commissions paid
on sales during the nine months ended June 30, 1998 when compared to the same
period during the prior year as a result of lower sales. Additionally, shipping
costs decreased by approximately $134,000. As a percentage of net sales,
selling, general and administrative expenses increased by 2.6%. A portion of
such expenses are fixed, and accordingly, do not fluctuate as a result of
fluctuations in sales.
Shareholders' Compensation. Shareholders' compensation decreased by
$295,537 or 40% during the nine months ended June 30, 1998 when compared to the
nine months ended June 30, 1997. This is principally the result of bonuses taken
during Fiscal 1997 as a result of corporate profitability.
Operating Income. Operating income decreased by $196,146 or 13% during the
nine months ended June 30, 1998 when compared with the nine months ended June
30, 1997. This is principally due to the net effect of the previously described
decrease in sales. Additionally, during the nine months ended June 30, 1998, the
foreign exchange gains resulting from the Company's inventory purchases
decreased by $80,914 due to currency fluctuations between the U.S. dollar and
the German Deutsche Mark.
Other Income (Expense). Total other expenses increased by $105,301 or 75%
during the nine months ended June 30, 1998 when compared with the nine months
ended June 30, 1997. This is principally due to the increase in interest expense
incurred during the same period as a result of increased borrowings under the
line of credit and the amounts due to shareholders.
Provision (Benefit) for Income Taxes. The effective tax rate decreased
from approximately 51% for the nine months ended June 30, 1997 to approximately
43% for the nine months ended June 30, 1998, due primarily to certain
non-deductible expenses incurred by the Company in the nine months ended June
30, 1997.
Net Income. Net income decreased by $62,631 or 9% during the nine months
ended June 30, 1998 when compared with the nine months ended June 30, 1997. This
is principally due to the net effect of the previously described decrease in
sales. Additionally, during the nine months ended June 30, 1998 the Company had
interest expense of $246,382 compared with $128,345 incurred during the nine
months ended June 30, 1997.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1996
Net sales. Net sales increased by $6,481,449 or 47% during Fiscal 1997
when compared with Fiscal 1996. This is principally due to an increased volume
of sales during Fiscal 1997 resulting from added promotional programs, new
private label customers, increased outlets, increased wholesale distribution and
increased sales to foreign affiliates. Sales of private label products increased
$851,204 or 90% to $1,795,774 during Fiscal 1997 from $944,570 during Fiscal
1996. The Company also initiated a price increase on January 1, 1997 of
approximately 5% on most of its major products.
Gross Profit. Gross profit increased by $4,501,618 or 67% during Fiscal
1997 when compared with Fiscal 1996. This is principally due to the previously
mentioned increased level of sales. As a percentage of net sales, gross profit
improved to 56% during Fiscal 1997 compared to 49% during Fiscal 1996. The
Company continued to improve profit margins on sales through increased operating
efficiencies in the Company's production process, the decreased cost of foreign
source product as a result of the strengthening U.S. dollar and the previously
mentioned price increase on merchandise sales.
22
<PAGE> 24
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1,802,548 or 31% during Fiscal 1997 when
compared with Fiscal 1996. This is partially due to the increase in sales during
Fiscal 1997. When compared with Fiscal 1996, this resulted in approximately
$400,000 of increased commissions and fees paid to establish and service the new
and existing customer accounts and approximately $140,000 in increased shipping
costs.
Shareholders' Compensation. Shareholders' compensation increased by
$1,007,875 during Fiscal 1997 when compared to Fiscal 1996. This is principally
the result of bonuses taken during Fiscal 1997 as a result of corporate
profitability.
Operating Income. Operating income increased by $1,576,045 during Fiscal
1997 when compared with Fiscal 1996. This is principally due to the net effect
of the previously described increase in sales as well as the increase in the
foreign exchange gain as a result of currency fluctuations relating to the
Company's purchases of inventory.
Other (Expense). Total other expenses increased by $83,699 or 63% during
Fiscal 1997 when compared with Fiscal 1996. This is principally due to the
increase in interest expense incurred during the same period as a result of
increased borrowings under the line of credit and the amounts due to
shareholders.
Provision (benefit) for income taxes. The effective tax rate increased
from 42% for Fiscal 1996 to 48% for Fiscal 1997 due primarily to certain
non-deductible expenses incurred by the Company in Fiscal 1997.
Net Income. Net income increased by $759,100 during Fiscal 1997 when
compared with Fiscal 1996. This is principally due to the net effect of the
previously described increase in sales.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
Net sales. Net sales increased by $3,302,180 or 32% during Fiscal 1996
when compared with Fiscal 1995. This is principally due to an increased volume
of sales during Fiscal 1996 resulting from new private label customers,
increased wholesale distribution and increased sales to foreign affiliates.
Gross Profit. Gross profit increased by $1,700,249 or 34% during Fiscal
1996 when compared with Fiscal 1995. This is principally due to the previously
mentioned increased level of sales during the same period. As a percentage of
net sales, gross profit improved to 49% during Fiscal 1996 compared to 48%
during Fiscal 1995. This is principally due to increased operating efficiencies
as a result of the Company's move into its current production facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1,600,960 or 38% during Fiscal 1996 when
compared with Fiscal 1995. This is partially due to the increase in sales during
Fiscal 1996. When compared with the results of Fiscal 1995, the Company
experienced an increase of approximately $235,000 in commissions and fees paid
to establish and service the new and existing customer accounts and
approximately $175,000 in increased shipping costs.
Shareholders' Compensation. Shareholders' compensation decreased by
$199,534 during Fiscal 1996 when compared to Fiscal 1995. This is principally
the result of smaller bonuses taken during Fiscal 1996.
Operating Income. Operating income increased by $485,376 during Fiscal
1996 when compared with Fiscal 1995. This is principally due to the net effect
of the previously described increase in sales as well as the foreign exchange
loss becoming a gain due to fluctuations in the currency in which the Company
purchases inventory.
Other (Expense). Total other expenses increased by $25,123 or 23% during
Fiscal 1996 when compared with Fiscal 1995. This is principally due to the
increase in interest expense incurred during the same period as a result of
increased borrowings under the line of credit and the amounts due to
shareholders.
Provision (benefit) for income taxes. The benefit for income taxes in
Fiscal 1995 resulted from the Company's operating loss position. The provision
in Fiscal 1996 resulted from the income during Fiscal 1996.
23
<PAGE> 25
Net Income. Net income increased by $280,147 during Fiscal 1996 when
compared with Fiscal 1995. This is principally due to the net effect of the
previously described increase in sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company has entered into a credit agreement with the Bank, which
provides for borrowings under a line of credit of up to $3.5 million. At June
30, 1998, approximately $3.1 million was outstanding under the line of credit.
Borrowings under the line of credit bear interest at the Bank's prime rate (8.5%
at June 30, 1998) payable monthly and are due on demand. The Company utilizes
the line of credit to fund its operating account as needed. The Company
maintains a depository account which is used to repay amounts outstanding under
the line of credit as funds are deposited. Accordingly, the Company generally
maintains a zero cash balance. In December 1997, the Company entered into a term
loan agreement with the Bank providing for a term loan of $500,000. The term
loan bore interest at the Bank's prime rate plus 1% payable monthly and was
payable in full on March 1, 1998. In March 1998, the term loan was consolidated
with the line of credit. The Company intends to use a portion of the net
proceeds of this Offering to reduce the amount outstanding under the line of
credit by $1.5 million.
The Company's principal sources of funds have been borrowings under its
line of credit with the Bank, cash flow from operations and borrowings from its
shareholders. The Company had working capital of $153,685 at June 30, 1998 as
compared to a working capital deficit of $298,171 at September 30, 1997.
Substantially all of the Company's assets including accounts receivable,
inventory and equipment, are pledged to the Bank as collateral. The Company is
subject to restrictions on the incurrence of additional indebtedness, which
could, under certain circumstances, limit the Company's ability to expand. In
addition, the credit agreement with the Bank subjects the Company to various
covenants which, among other things: (i) require the Company to maintain certain
levels of net worth and minimum financial ratios, (ii) restrict the payment by
the Company of dividends or other distributions to shareholders and (iii)
prohibit the sale by the Company of all or substantially all of its assets. At
September 30, 1997, the Company was not in compliance with certain covenants
relating to the maintenance of minimum financial ratios. In January 1998, the
Bank waived such non-compliance. The Company was in compliance with such
covenants at June 30, 1998. To date, the Company has relied on the personal
guarantees of Jacques Cohen, the Company's Chairman of the Board, President and
Chief Executive Officer, and Gabriel Cohen, the Company's Executive Vice
President, respectively, in connection with its bank borrowings. It is not
anticipated that such persons will provide personal guarantees following
consummation of this Offering.
At June 30, 1998, the Company had outstanding Shareholder Notes in the
principal amount of approximately $1.3 million of which an aggregate of $48,000
was repaid in July 1998. The notes, which are due on demand, bore interest at a
rate of 9% per annum for Fiscal 1996 and 10% per annum for Fiscal 1997 and
currently bear interest at a rate of 10% per annum for the year ending September
30, 1998. The Company intends to repay the balance due under the Shareholder
Notes with the proceeds of the Offering.
During the nine months ended June 30, 1998, net cash used by the Company's
operating activities was $970,960 as compared to net cash provided of $23,942
during the nine months ended June 30, 1997. The decrease in liquidity was
principally due to a decrease in trade accounts payable of $1,473,492 as a
result of the Company's efforts to minimize excess merchandise inventories which
were reduced by $854,130 and the increase in accounts receivable of $1,385,877
which was due to the addition of significant amount of new customers, as well as
the extended payment period for invoices for foreign customers. Net cash used in
investing activities during the nine months ended June 30, 1998 was $207,487, as
compared to $343,144 in the nine months ended June 30, 1997, which was
principally the result of purchases of property and equipment. Net cash provided
by financing activities was $1,178,447, during the nine months ended June 30,
1998 as compared to $319,202 during the nine months ended June 30, 1997, which
was principally the result of increased net borrowings under the line of credit
of $381,774.
Net cash used in operating activities was $456,892 in Fiscal 1997 compared
to net cash provided by operating activities of $239,170 in Fiscal 1996. The
increase in net cash used in operating activities was primarily the result of an
increase in inventories and a decrease in accounts payable. Net cash used in
investing
24
<PAGE> 26
activities was $1,206,374 and $510,026 in Fiscal 1996 and Fiscal 1997,
respectively, representing the purchase of property and equipment. Net cash
provided by financing activities was $964,004 and $966,918 in Fiscal 1996 and
Fiscal 1997, respectively, representing borrowings under its financing
arrangements with the Bank and borrowings from shareholders.
The Company's principal cash requirements arise from the purchase of raw
materials, inventories, in-store displays and equipment. At June 30, 1998,
neither the Company nor any of the Foreign Subsidiaries had commitments for
material capital expenditures. Based upon the Company's current level of
operations and anticipated growth as a result of its business strategy, the
Company expects that the proceeds of this Offering, together with cash flows
from operations and borrowings under its existing line of credit will be
sufficient to enable the Company to meet its anticipated cash requirements for
at least 12 months following consummation of this Offering.
During the nine months ended June 30, 1998, the Company spent approximately
$110,000 for hardware and software upgrades for the Company's management
information systems and intends to use a portion of the net proceeds of the
Offering to purchase additional computer equipment and software. Such costs
included the cost of software updates required to allow the systems to process
data attributable to the year 2000 and thereafter. The Company believes that its
management information systems are year 2000 compliant. The Company has
determined that no significant additional expenditures will be required to
upgrade the computer systems of the Foreign Subsidiaries for year 2000
compliance. The Company's major customers have informed the Company that they
are year 2000 compliant.
PRO FORMA
As of June 30, 1998, on a pro forma basis, the Company had outstanding
indebtedness of approximately $5.3 million. As of June 30, 1998, the outstanding
indebtedness of Prestige Italy included unsecured loans of approximately
$238,000 and $157,000 maturing in November 2000 and October 2001, respectively,
and approximately $47,000 under an unsecured line of credit and capital lease
obligations of approximately $99,000. As of June 30, 1998, the outstanding
indebtedness of Prestige Australia included approximately $161,000 under an
unsecured bank line of credit, which is due upon demand and capital lease
obligations of approximately $89,000.
The Company has entered into employment agreements with certain
shareholders. See "Management -- Employment Agreements." Pursuant to the terms
of these agreements the aggregate salaries will be $740,000 on an annualized
basis. This compares to actual salaries and bonuses paid in Fiscal 1997 of
$1,749,000 and $628,000 for the nine months ended June 30, 1998.
QUARTERLY RESULTS
The Company's operating results have fluctuated significantly from quarter
to quarter, in part because of the timing of promotions, changes in product
colors, the addition of new customers and changes in existing customer buying
patterns. The Company updates the colors in its product lines annually and
supplements its product lines seasonally with promotional colors which causes
increases in revenues and returns in quarters in which the updates occur. The
Company's operating results also vary significantly due to the timing of
customer reset orders, pursuant to which a customer places a large order to
update its product line. In addition, the consolidation trend in the drug store
industry may result in gains or losses of outlets in which the Company's
products are sold. The Company's operating expenses also fluctuate due to
expenditures for the purchase of new display units for the Company's products.
The Company's operating results for any particular quarter are not necessarily
indicative of results for any future period or for the full year.
The following table presents certain unaudited historical quarterly
financial data for each of the quarters in Fiscal 1997 and the nine months ended
June 30, 1998. This information has been prepared on the same basis as the
Financial Statements appearing elsewhere in the Prospectus and include, in the
opinion of
25
<PAGE> 27
management, all adjustments (consisting of all normal recurring adjustments)
necessary to present fairly the quarterly results when read in conjunction with
the Financial Statements and the notes thereto.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
1997 1997 1997 1997 1998 1998 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $5,952 $4,865 $4,700 $4,735 $3,374 $4,009 $5,026
Gross profit............... 3,593 2,614 2,398 2,625 2,080 2,150 2,988
Net income (loss).......... 597 308 (244) 182 27 230 341
Earnings (loss) per
share.................... .09 .05 (.04) .03 -- .04 .05
</TABLE>
The loss in the third quarter of Fiscal 1997 was due primarily to executive
bonuses of $530,500 accrued in that quarter. No accrual was made during the
first two quarters of Fiscal 1997 for these bonuses because of the timing of the
principal's determination to pay bonuses.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" ("SFAS No. 128"). SFAS No. 128 simplifies the standards for computing
and presenting earnings per share ("EPS") and makes them comparable to
international EPS standards. SFAS No. 128 replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures. SFAS No. 128 became effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement of all prior periods presented. Basic EPS is calculated by dividing
income available to common shareholders by the weighted average number of common
shares outstanding during such period. Diluted EPS includes the potential impact
of convertible securities and dilutive common stock equivalents using the
treasury stock method of accounting. The Company had no common stock equivalents
outstanding at September 30, 1997 or June 30, 1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"), which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in financial statements and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
statements of financial position. Comprehensive income is defined as the change
in equity during the financial reporting period of a business enterprise
resulting from non-owner sources. The Company does not currently have income
which would be considered in other comprehensive income and therefore does not
believe the adoption of SFAS No. 130 will have a significant impact on its
financial statement presentation.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131") which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments including, among other things, a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. The Company has not yet determined the impact that implementation of
SFAS No. 131 will have on its financial statement presentation.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 prospectively beginning January 1, 1999. Adoption of this
Statement will not have a material impact on the Company's financial position or
results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that
26
<PAGE> 28
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. SFAS 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998). The adoption of SFAS
133 will not have a material impact on the Company's financial statements since
the Company does not currently or intend to use derivative financial
instruments.
CHANGE IN INDEPENDENT AUDITORS
In December 1997 the Company's Board of Directors replaced Goldstein Lewin
& Co. ("Goldstein"), with Arthur Andersen LLP as its independent auditor. The
report of Goldstein on the financial statements of the Company as and for the
years ended September 30, 1995 and 1996 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles and there were no disagreements with Goldstein on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure which, if not resolved to the satisfaction of
Goldstein, would have caused it to make reference thereto in its report on the
Company's financial statements for such year.
27
<PAGE> 29
BUSINESS
GENERAL
The Company manufactures, markets and distributes, domestically and
internationally, a full line of cosmetic products under its proprietary
"Prestige"(R) and "Prestige Studio Make-Up"(TM) brand names, and manufactures
private label products for cosmetic and other specialty retailers. The Company
believes that it is one of the fastest growing niche cosmetic companies. The
Company's marketing strategy emphasizes distinctive, high-fashion, premium color
cosmetic products that are sold at prices that compare favorably to those of
competitive products.
The Company distributes its "Prestige" products through a variety of
national and regional "self-select" distribution channels. This type of
distribution channel, in which customers select their own purchases without the
assistance of an in-store demonstrator, includes independent and chain drug
stores, mass volume retailers, and supermarkets. In the United States, the
Company markets and sells its products nationwide, in many large retail chains
including Eckerd Drugs, Thrifty-Payless, Rite-Aid and Wal-Mart stores, as well
as on a promotional basis in Walgreens and CVS. The Company has increased its
distribution in retail outlets from approximately 7,000 outlets in Fiscal 1995,
to 8,300 outlets in Fiscal 1996, to 10,000 outlets in Fiscal 1997 and to 11,000
outlets in the nine months ended June 30, 1998. In addition, the Company has
recently commenced distribution into over 500 SAV-ON stores. Further, the
Company has been realizing significant growth in sales of its products within
existing outlets, including an increase of approximately 33% in sales of the
Company's products within the same Wal-Mart stores during the 12-month period
ended January 1998. The Company has successfully completed tests of its basic
"Prestige" line in 30 K-Mart stores and its "Prestige Studio Make-Up" line in 53
Sears stores, and has recently expanded into 100 K-Mart stores and 385 Sears
stores. Since completion of testing, the linear footage of the Company's product
space has increased 150% in K-Mart stores and 300% in Sears stores. The Company
has recently launched a new, more upscale merchandising program with Sears.
Pursuant to this new merchandising program, the Company's "Prestige Studio Make-
Up"(TM) line will be prominently featured in free-standing center aisle displays
in 385 of the approximately 550 Sears stores. The opening order from Sears for
this program was $ million.
The Company has operations based in three foreign countries and its
products are currently sold in 28 countries, as compared to five countries in
1995. Internationally, the Company sells its products in leading mass, drug
and/or department store chains, including Shoppers Drug Mart and London Drugs in
Canada, Kaufhof and Karstadt in Germany, Les Galeries Lafayette in France and
Myer and David Jones in Australia. The Company tailors its marketing strategy to
meet the consumer trends in each country in which it sells its products. The
major overseas markets in which the Company currently sells its products include
Canada, Italy, Germany, Spain, Norway, Sweden, Greece, Australia, Hong Kong,
Taiwan, France and Austria. In addition, the Company sells its products in such
emerging markets as Kuwait, Lithuania, Brazil, Korea, Singapore and Argentina.
In June 1997, the Company commenced distribution in Japan and anticipates
additional significant sales in the Far East, including China, where the Company
has recently begun sales of its products in a major retail chain. The Company
believes that its foreign distribution network will enable it to expand in
existing and new international markets and intends to use a portion of the net
proceeds of this Offering for international expansion.
MARKET OVERVIEW
During the 52-week period ended June 30, 1996, over $2 billion was spent in
drug stores on make-up items. During such period, mass retail stores accounted
for over $919 million in sales, up 12.3% from the previous comparable period,
and 37% of cosmetic dollars were spent in mass retail outlets, up from 35% in
the previous comparable period. The Company believes that 91.6 million U.S.
women aged 18 and older will be cosmetic users by the year 2000.
28
<PAGE> 30
U.S. MASS COLOR COSMETIC INDUSTRY REVIEW
(FOR THE 52 WEEK PERIOD ENDED JUNE 30, 1996)
<TABLE>
<CAPTION>
$ SALES % CHG. % SHARE OF
(IN MILLIONS) V. YR. AGO TOTAL MARKET
------------- ---------- ------------
<S> <C> <C> <C>
Total Market........................................... 2,484.4 4.3% 100%
Mass Cosmetic Sales By Distribution Channel
- Food............................................... 352.5 5.3% 14%
- Drug............................................... 1,212.3 -1.3% 49%
- Mass volume retailer............................... 919.6 12.3% 37%
Mass Cosmetic Sales By Product Category
- Lip................................................ 509.6 10.6% 21%
- Eye................................................ 679.9 4.6% 27%
- Face............................................... 821.0 3.2% 33%
- Nail............................................... 247.7 1.6% 10%
- Misc. ............................................. 226.2 unknown 9%
</TABLE>
- ---------------
* Source: Information Resources, Inc. Business Strategy
Historically, the large cosmetic companies dominated the sale of cosmetic
products in drug stores and mass retail stores. In recent years, there has been
a shift in consumer buying patterns to niche brand cosmetic products. The
Company has recently outperformed major brands in terms of percentage annual
growth in net sales, and believes that as a result of the shift in consumer
buying patterns, new opportunities have been created for niche marketers of
cosmetic products. The Company believes that it is one of the fastest growing
niche marketers of cosmetic products.
BUSINESS STRATEGY
The Company's business strategy includes the following components:
Strengthen Prestige Brand. The Company seeks to strengthen its brand name
by increasing its exposure within the stores in which its products are sold. One
of the Company's strategies for increasing its exposure is to upgrade its
in-store displays with new, innovative displays which will hold more products
per linear foot and enhance its consumer sales. The Company also intends to
increase the number of in-store demonstrations and the training of in-store
personnel regarding Prestige products through third-party independent
contractors. As part of the strategy to strengthen and broaden its brand name,
the Company has increased and plans to further increase its investment in
advertising and promotion with a portion of the net proceeds of the Offering.
The Company coordinates its advertising efforts through its in-house advertising
department. The Company believes that maintaining an in-house advertising
department enables it to better control advertising, execute creative concepts
quickly, and reduce costs, such as agency commissions. To augment its
advertising, which has primarily consisted of print advertising and in-store
displays, the Company will seek to expand its advertising to include exposure in
leading fashion and beauty magazines.
Further Penetrate Self-Select Distribution Channel. The Company believes
that the self-select distribution channel in the United States represents the
fastest-growing channel of distribution for cosmetics and personal care
products. The Company intends to capitalize on its established presence and
experience in marketing into the self-select distribution channel to increase
market share in this channel. For example, the Company intends to continue to
seek to increase its sales in Wal-Mart, which carries Prestige products in only
about 650 of over 2,600 of its stores (up from 550 in 1997) and to secure
distribution in other major drug store chains. During the twelve month period
ended January 1998, sales of the Company's products within the same Wal-Mart
stores increased approximately 33%. The Company has recently expanded further
into SAV-ON, Sears and K-Mart and intends to open new national accounts with a
number of additional retail chains. The Company believes that it can attract
consumers from department stores and specialty stores, existing consumers in the
self-select distribution channel, and new cosmetics consumers by providing them
with fashion-forward quality products at competitive prices. The Company also
provides point-of-sale testers on
29
<PAGE> 31
some of the Company's display units which provide information about the
Company's products and permit consumers to test the products, thereby achieving
the benefits of an in-store demonstrator without the corresponding cost. The
Company develops jointly with retailers carefully tailored advertising, point of
purchase and other focused marketing programs. The Company believes that strong
relationships with retailers and consumer traffic generated by its innovative
marketing programs will enable the Company to increase its market share in the
self-select distribution channel.
International Expansion. The Company believes that international markets
for cosmetics and skin care and personal care products represent a significant
growth opportunity. The Company believes that the Company's existing
international presence, together with the Company's strengths in the self-select
distribution channel, provide platforms from which to gain further significant
international penetration. The Company intends to achieve growth through (i)
increasing distribution into the expanding self-select distribution channels in
Europe, Canada, Australia, the Far East (including China and Japan) and South
America, (ii) entering new and emerging markets and (iii) pursuing strategic
acquisitions of international cosmetic companies.
Product Extensions and Alternative Markets. The Company has successfully
completed tests of its "Prestige Studio Make-Up" line in 53 Sears stores.
Following these successful tests, the Company is expanding distribution of its
"Prestige Studio Make-Up" line into 385 Sears stores. In addition, the Company
has begun to manufacture private label cosmetic products for several well-known
retailers and direct sales companies. The Company believes that it can compete
successfully in the area of contract manufacturing given its high-quality
products, its flexible manufacturing capabilities, low-production costs and its
ability to provide "turn-key" cosmetic programs. The Company believes that its
private label manufacturing will continue to increase, resulting in additional
growth in the Company's business. The Company also intends to pursue
acquisitions of brands and businesses which expand the Company's market share
and product lines, although the Company does not currently have any agreements
with respect to any acquisitions.
Continue to Improve Operating Efficiencies, Customer Service and Product
Quality. The Company intends to continue programs initiated in Fiscal 1997 to
increase efficiencies in its sourcing, manufacturing and distribution processes.
The Company is obtaining sell-through data from retailers which enables it to
replenish inventory based on consumer purchasing trends with reduced paperwork
and to allocate manufacturing capacity more efficiently. The Company has
recently upgraded its management information systems to provide an integrated
system for forecasting, production, inventory management, distribution,
procurement and accounting. As part of its efforts to improve operating
efficiencies, the Company attempts to ensure that a significant portion of its
capital expenditures are devoted to improving operating efficiencies.
Improvements in manufacturing, sourcing and systems have contributed to improved
customer service levels, improved product quality, an increase in gross profit
as a percentage of net sales and improved management of working capital. The
Company believes that such improvements are essential to maintaining a
diversified line of cosmetics at price points below that of comparable
competitive products.
Possible Acquisitions. The Company believes that the cosmetic industry is
fragmented and intends to seek out opportunities, on a highly selective basis,
to acquire other cosmetic brands, distribution channels and businesses, both
internationally and domestically. The Company believes that through strategic
acquisitions, joint ventures and licensing agreements, the Company will be able
to utilize its existing infrastructure to expand its business.
DOMESTIC AND INTERNATIONAL OPERATIONS
During Fiscal 1996 and Fiscal 1997 and the nine months ended June 30, 1998,
sales to Foreign Subsidiaries and other foreign customers accounted for
approximately 10% of the Company's historical gross sales. During the year ended
September 30, 1997 and the nine months ended June 30, 1998, sales by the Foreign
Subsidiaries and sales by the Company to other customers in foreign countries
accounted for approximately 29% and 40%, respectively, of the Company's pro
forma gross sales. The Company's international operation is increasing
distribution through the expanding self-select distribution channels such as
department stores, drug stores/chemists, perfumeries, mass volume retailers,
specialty stores and variety
30
<PAGE> 32
stores, as the Company's lines gain acceptance in the marketplace. The Company
continues to pursue strategies to establish its presence in new and emerging
markets including China, Japan, Eastern Europe, Southeast Asia and South
America.
PRODUCTS
The Company sells a full line of cosmetics designed to fulfill specifically
identified consumer needs, including lip, eye and face make-up. The Company's
products are principally priced in the moderate range of the self-select
distribution channel and are marketed to women of all age groups. The Company's
advertising typically focuses on products, so that the age and appearance of the
model is not a factor in determining the target customer.
The Company has trademark rights to the "Wear Ever" lipstick line, which
includes 16 shades of silicone-free, long-lasting and smudge-proof color, to
supplement its sales of 40 shades of classic lipstick. The Company also sells a
variety of colors of vitamin E-enriched lipstick crayons and lip glosses,
including aromatherapy lip glosses infused with natural ingredients. The
Company's facial make-up includes foundation, powder, blush and concealers, all
under the Prestige brand name. The Company's eye make-up products include
mascaras, eyeshadows and eyeliners and the Company offers a variety of seasonal
colors. The Company has recently launched "The Correctives" line of concealers,
which are designed to cover facial imperfections. The Company also sells a
variety of waterproof eye and lip liners, vitamin E-enriched mascara and a long
lash formula mascara. In April 1997, the Company began to market a 32-color
assortment of nail lacquers. The "Prestige Studio Make-Up" line is an upscale
product line and presentation featuring a number of products sold at higher
price points than the basic Prestige line.
The Prestige line includes 272 SKUs, and the "Prestige Studio Make-Up" line
is being expanded to 258 SKUs. The Company's Prestige products principally
retail at $2.95 to $6.00 per item. The Company's Prestige Studio Make-Up
products retail at $7.50 to $12.50 per item. The following charts provide a
summary of the
31
<PAGE> 33
Company's products, the number of shades of color for each product and the
typical suggested U.S. retail price as of June 30, 1998:
PRESTIGE PRODUCT LINES
<TABLE>
<CAPTION>
NUMBER SUGGESTED
PRODUCT CATEGORY OF SHADES U.S. RETAIL PRICE
- ---------------- --------- -----------------
<S> <C> <C>
EYE
Classic Kohl Eye Pencils.................................... 12 $2.95
Eyebrow Pencils............................................. 4 $2.95
Waterproof Eyeliners........................................ 8 $4.25
Waterproof Mechanical Eyeliners............................. 12 $4.25
Liquid Eyeliner............................................. 6 $4.95
Vitamin Enriched Mascara.................................... 4 $3.95
Long Lash Mascara........................................... 3 $3.95
Eyeshadow Compacts.......................................... 15 $3.25
LIPS
Classic Lip Liner Pencils................................... 12 $2.95
Waterproof Lipstick Liner Pencils........................... 20 $4.25
Waterproof Mechanical Lip Liners............................ 16 $4.25
Matte Lipstick Crayons...................................... 16 $4.50
Aromatherapy Lipgloss Pots.................................. 10 $2.95
Classic Lipstick............................................ 24 $3.95
Shimmering Pearl Lipstick................................... 8 $3.95
Sheer Finish Lipstick....................................... 8 $3.95
Wear Ever Lipstick.......................................... 16 $4.95
FACE
Blush Compacts.............................................. 12 $3.25
Foundation.................................................. 7 $3.95
CORRECTIVES
Everyday Cover.............................................. 3 $4.00
Complexion Equalizers....................................... 3 $4.00
Extreme Cover Concealer Cream............................... 8 $6.00
ACCESSORIES
Sharpeners.................................................. 3 $1.75-$2.95
Make-up Brushes............................................. 10 $1.75-$12.00
NAIL
Nail Lacquers............................................... 32 $2.95
</TABLE>
32
<PAGE> 34
PRESTIGE STUDIO MAKE-UP PRODUCT LINES
<TABLE>
<CAPTION>
NUMBER SUGGESTED
PRODUCT CATEGORY OF SHADES U.S. RETAIL PRICE
- ---------------- ---------------- -----------------
<S> <C> <C>
EYE
Eyeliner Pencils............................................ 9 $7.50
Eye Brow Pencils............................................ 3 $7.50
Eye Shadows................................................. 28 $7.50
Mascara..................................................... 4 $7.50
4 Color Kits................................................ 4 $12.50
Eye Make-up Remover......................................... 1 $5.00
LIP
Lipliner Pencils............................................ 24 $7.50
Lipsticks................................................... 60 $7.50
Lipgloss.................................................... 8 $7.50
FACE
Moisturizing Foundation..................................... 12 $7.50
Oil-Free Foundation......................................... 12 $7.50
Wet/Dry Foundation.......................................... 12 $7.50
Soft Face Powder............................................ 6 $7.50
Loose Powder................................................ 4 $7.50
Concealers.................................................. 6 $7.50
Color Correctors............................................ 3 $7.50
All-Over Shimmer............................................ 3 $7.50
Blush....................................................... 12 $7.50
Bronzing Powder............................................. 2 $7.50
ACCESSORIES
Applicators................................................. 1 $3.00
Sponges..................................................... 1 $3.00
Puffs....................................................... 1 $3.00
Wedges...................................................... 1 $3.00
Brushes..................................................... 9 $5.00-$15.00
NAILS
Nail Lacquers............................................... 32 $5.00
</TABLE>
In addition to the Prestige line of products, the Company has developed
"private label" lines of color cosmetics for several well-known retailers and
direct-sales companies. During Fiscal 1996 and Fiscal 1997 and for the nine
months ended June 30, 1998, sales of "private label" products accounted for 6%,
8% and 14% of the Company's historical gross sales, respectively.
MANUFACTURING AND RELATED OPERATIONS
The Company's manufacturing facilities provide the Company with the
capability to manufacture, assemble and package a wide range of cosmetics and
other personal care products. At its Florida facility, the Company manufactures
all of its products other than its pencil products, which it imports from
Europe. Manufacturing operations performed by the Company include compounding
and blending individual ingredients into bulk products, which are then filled
and packaged into finished products.
The Company's strategy is to maintain state-of-the-art manufacturing
capabilities which, combined with its product development initiatives, allow it
to respond quickly to customer orders and changes in consumer preferences. The
Company's sophisticated manufacturing, sourcing and related operations have
contributed to high levels of customer service, including timeliness in order
fulfillment and new product and promotion
33
<PAGE> 35
deliveries. The Company has automated a significant portion of the manufacturing
process, including the processing, packaging and labeling of its cosmetics. Such
improvements have caused a reduction in labor intensive tasks and resulted in
lower manufacturing costs. The Company intends to use a portion of the net
proceeds from the Offering to purchase additional equipment, to increase
automation and further reduce labor costs.
The Company assures that extensive safety and quality tests on the
Company's products are undertaken, including microbiology and package testing.
In addition to the Company's quality control procedures, in certain instances
the Company develops with the customer a customized quality control program to
monitor the production of a specific product order. The Company's quality
control program includes laboratory testing and assures that the product
conforms to desired specifications. The Company also utilizes two of its
in-house chemists and its plant manager to monitor the appearance of finished
products and to confirm that each product includes the required product quantity
or weight. The Florida manufacturing facility is registered with the FDA as a
drug manufacturing establishment. The Company retains an international
consultant based in France to ensure compliance with certain product standards
established in the Company's foreign markets.
The Company currently has a distribution facility in Italy where it is
developing manufacturing capabilities which are expected to become fully
operational during the 1999 calendar year. When developed and operational, the
facility would manufacture products for distribution and sale to customers
located in Europe and the Middle East. The Company also maintains distribution
facilities in Canada and Australia.
SUPPLIERS
The Company devotes a significant portion of its capital budget to the
enhancement of operating efficiencies. The Company purchases raw materials and
components throughout the world, continuously pursuing reductions in cost of
goods through the global sourcing of raw materials and components from qualified
vendors and utilizing its purchasing capacity to maximize cost savings. The
Company requires that materials supplied by its vendors meet the Company's
quality standards. The global sourcing of raw materials and components from such
vendors also ensures the quality of the raw materials and components. The raw
materials used in the Company's manufacturing includes pigments, waxes, oils and
preservatives. In those instances where there may be only a limited number of
suppliers for a particular ingredient, there generally are available a number of
alternate ingredients that are functionally equivalent. The Company has no
long-term contractual relationships with any of its suppliers. The Company has
obtained all of its supply of pencil products from a European-based manufacturer
for over 20 years. The Company believes it currently has a good relationship
with such manufacturer, whose product accounted for approximately 45% of its
gross sales for the nine months ended June 30, 1998. Other than its pencil
products, none of the Company's suppliers provide more than 10% of the raw
materials and finished goods utilized by the Company. The Company believes that
alternate sources of pencils exist and does not anticipate any significant
shortages of, or difficulty in obtaining, such materials.
MARKETING AND SALES
The Company's strategy is to provide glamour and excitement through
innovative quality products at affordable prices. The Company's marketing
efforts are designed to implement this strategy. The Company uses print
advertising and point-of-sale merchandising, including displays and in-store
samples. The Company coordinates advertising campaigns with in-store promotional
and other marketing activities, and has developed joint advertising,
point-of-purchase and other focused marketing programs with key retailers.
In the United States, the Company believes that it efficiently generates
sales of $2,500 to $9,000 per linear foot per year on products with suggested
retail price points principally of $2.95 to $4.95, with most of the Company's
volume in the $3,000 to $4,000 range per linear foot. According to an industry
trade journal, New Products Report, A Confidential Analysis of Drug, Cosmetic
and Appliance Trends, the Company has outperformed certain of its competition in
terms of sales per linear foot per year.
The Company's domestic sales force consists of approximately 100
independent sales representatives who are compensated solely on a commission
basis, and whose efforts are coordinated by a national sales manager.
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<PAGE> 36
Virtually all key national accounts are handled directly by senior executives of
the Company supported by the independent sales force. To promote the Company's
understanding of, and responsiveness to, the needs of its key accounts, the
Company's management interacts directly with marketing and merchandising
executives at these accounts. The Company has a network of distributors through
which it markets its products internationally. The Company generally has
contractual arrangements with its international distributors pursuant to which
the distributor is granted the exclusive right to market the Company's products
in the defined territory. The distributor is typically not required to meet
sales quotas to maintain its relationship with the Company, however the
distributor's performance is monitored on a regular basis by the Company. The
Company's international distributors purchase its products for resale to their
customers. As a result of its commitment to customer service and innovative
marketing programs which are market specific, as well as the consumer traffic
generated by its products, the Company believes that it has established
significant relationships with self-select distribution cosmetic retailers both
domestically and internationally.
The Company has been able to capitalize on the recent demand for "make-up
artist" and "professional" cosmetics with a full line of color products. For
these products, the Company occasionally runs in-store demo promotions. During
Fiscal 1996, 97% of customers who participated in such promotions purchased
Prestige products. The Company intends to utilize a significant portion of the
proceeds of this Offering to upgrade its in-store displays and expand its
marketing and sales programs, including aggressive advertising of its brand name
products and penetrating new distribution outlets.
The Company also utilizes "co-op" advertising, in which the Company
provides an allowance equal to a percentage of sales to certain retail chains
and, in turn, the Company's products are featured in a glossy, color
advertisement in such chain's sales circulars.
CUSTOMERS
The Company's principal customers include chain drug stores, specialty and
variety stores, and large mass volume retailers, including such well known
retailers as Wal-Mart, Eckerd Drugs, Rite-Aid, Thrifty-Payless and SAV-ON.
During Fiscal 1996, Wal-Mart and Thrifty-Payless were the Company's largest
customers and accounted for approximately 8% and 5%, respectively, of the
Company's historical gross sales. During Fiscal 1997, sales to the Company's
three largest customers, Rite-Aid (which acquired Thrifty-Payless in December
1996), Eckerd Drugs, and Wal-Mart accounted for approximately 12%, 6% and 6%,
respectively, of historical gross sales. For the nine months ended June 30,
1998, Wal-Mart and Rite-Aid accounted for approximately 8% and 10%,
respectively, of the Company's historical gross sales. No single customer
accounted for more than 10% of pro forma combined gross sales during the years
ended September 30, 1996 or 1997 or the nine months ended June 30, 1998. The
Company does not have any long-term contractual relationships with any of its
customers, nor are any of the Company's customers subject to any contractual
provisions or other restrictions which preclude them from purchasing products
from the Company's competitors.
PRODUCT DEVELOPMENT
The Company is developing innovative cosmetic products. The Company's
marketing and product development personnel identify consumer needs and shifts
in consumer preferences in order to develop new product introductions, tailor
line extensions and promotions and redesign or reformulate existing products to
satisfy such needs or preferences. The Company's product development personnel
work closely with the Company's sales and marketing groups to keep current with
changes in consumer tastes and new product developments in the industry at
large. Specifically, the Company has retained a New York-based fashion and color
forecasting consulting firm to keep the Company in the forefront of national and
international trends in fashion and color. The Company updates the colors in its
product lines annually and supplements its product lines seasonally with
promotional colors.
The Company principally relies on the experience of its staff in conducting
research on a wide range of areas in developing new and innovative products and
improving its existing formulations. As a result of its relationships with key
suppliers worldwide, the Company has been able to cooperate in the formulation
of new products and has introduced a number of innovative products.
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<PAGE> 37
The Company's laboratory services comprise a key element of its business
strategy and provide for the timely development and production of a wide variety
of cosmetics. The Company has three chemists on its laboratory staff whose
services include the development of product formulas, analytical assays,
reformulations and quality control. The Company provides, or arranges for, all
necessary toxicological, microbiological and stability testing.
COMPETITION
The Company's principal competitors in the industry include large
multi-national companies such as Revlon, Inc., L'Oreal Groupe, The Procter &
Gamble Company, and smaller companies such as Del Laboratories, Inc.,
Renaissance Cosmetics, Inc. and Bonne Bell Company. The Company competes with
such companies by offering quality cosmetic products at competitive prices. The
Company believes that it has a quicker response time to consumer trends and is
capable of developing and manufacturing new products faster than most of its
larger competitors. Further, the Company believes that it is better positioned
to capitalize on opportunities for future growth than most of its smaller
competitors because of its manufacturing and distribution capabilities,
experienced management, and in-house creative talent. The Company believes
continued expansion in marketing, sales, manufacturing and distribution will
enable it to compete effectively in the future.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems have been, and continue to be,
substantially upgraded to provide comprehensive order processing, production and
accounting support for the Company's business. Many of the Company's key
accounts utilize the EDI system whereby a retail store or a distribution center
automatically and electronically orders additional Prestige products from the
Company to replace products it has sold. The Company also subscribes to
Wal-Mart's "Retail Link," an on-line business management system designed to
assist manufacturers in meeting Wal-Mart's order and category management
demands. Certain other large retail chains also require that the Company utilize
their computerized order and reorder systems. The Company intends to continue to
upgrade management information systems in 1998, which will include further
conversion to EDI billing and other improved systems for forecasting,
production, inventory management and order processing. During the nine months
ended June 30, 1998, the Company has expended approximately $110,000 for
hardware and software upgrades for the Company's management information systems
and intends to use a portion of the net proceeds of the Offering to purchase
additional computer equipment and software. Such costs included the cost of
software updates required to allow the systems to process data attributable to
the year 2000 and thereafter. The Company has determined that no significant
additional expenditures will be required to upgrade the computer systems of the
Foreign Subsidiaries for year 2000 solutions. The Company's major customers have
informed the Company that they are year 2000 compliant.
The Company anticipates that these systems and improvements will continue
to be instrumental in contributing to the reduction of the time from order entry
to shipment and improved forecasting of demand and overall operating
efficiencies. The Company believes that its current management information
system provides the Company with an additional competitive advantage.
GOVERNMENT REGULATION
The manufacturing, processing, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the Federal Trade Commission (the "FTC"), the Food and Drug
Administration (the "FDA"), the Consumer Product Safety Commission and the
Occupational Safety and Health Administration, as well as by various other
federal, state and local regulatory authorities. The Company is also subject to
foreign consumer laws in the foreign countries where its products are sold.
Compliance with federal, state, local and foreign laws and regulations has not
had a material adverse effect on the Company to date. Nonetheless, federal,
state and local regulations in the United States, as well as foreign
regulations, that are designed to protect consumers have had, and can be
expected to have, an increasing influence on product claims, production methods,
product content, and packaging. In addition, any
36
<PAGE> 38
expansion by the Company of its operations to produce cosmetic and related
products that include over-the-counter drug ingredients would result in the
Company becoming subject to additional FDA regulation as well as a higher degree
of inspection and greater burden of regulatory compliance than currently exist.
The Company's Florida facility is registered with the FDA. There are no pending
reviews or investigations of the Company by the FDA or any other government
entity. The Company believes that it is in substantial compliance with
applicable federal, state and local rules and regulations regarding
environmental issues. There are no significant capital expenditures for
environmental control matters anticipated in the current year or expected in the
near future.
PROPRIETARY RIGHTS AND TRADEMARKS
The Company's success and ability to compete depend in large part on the
protection of its proprietary processes and formulas. The Company seeks to
protect such processes through confidentiality agreements with certain key
employees who have access to such processes. The Company does not own any
patents on any of its technology. The Company believes that the trademarks it
owns on certain product names have significant value and are important to the
marketing of its products.
The Company holds United States trademark registrations for the "Prestige"
and the "Wear Ever" names, has filed for trademark registrations for certain
other names, including "Prestige Studio Make-Up," "Quick Stick," "Lip Loofa,"
"Secret Agent," "Daily Dose," "Extreme Cover," "Everyday Cover," "Spot Check"
and "Complexion Equalizer." The Company uses other names for which it has not
applied for registration. The Company believes that its rights in these names is
a significant part of the Company's business and that its ability to create
demand for its products is dependent to a large extent on its ability to exploit
its trademarks. There can be no assurance as to the breadth or degree of
protection that trademarks afford the Company, or that any trademark
applications will result in registered trademarks or that trademarks will not be
invalidated if challenged. The Company is currently not aware of independent
claims or other challenges to any of the Company's trademarks. The Company also
has registered the "Prestige" name in numerous foreign countries including
Mexico, France, Colombia, Ecuador, Brazil, Argentina and Peru, filed for
registration of the "Prestige" name in Singapore, Taiwan and Korea, and is in
the process of acquiring rights to the "Prestige" name in approximately 30
additional foreign countries. The Company has also instituted proceedings to
claim exclusive right to use the "Prestige" name in Australia.
PROPERTIES
The Company's manufacturing, laboratory, distribution, storage, sales and
administrative operations are maintained in an approximately 50,000 square foot
building located in Deerfield Beach, Florida. The building is occupied pursuant
to a lease expiring on May 31, 2002 which may be extended by the Company for two
additional six year terms. The Company's rent paid pursuant to this lease is
approximately $25,000 per month, gradually increasing to approximately $31,000
per month during the last year of the lease's current term. The building is
owned by C & C Partnership, a partnership in which Jacques Cohen and Gabriel
Cohen, principal shareholders, executive officers and directors of the Company,
are the sole general partners. The Company's packing and distribution operations
in Italy are maintained in an approximately 10,000 square foot building under a
lease with an annual rent of approximately U.S. $67,000, gradually increasing to
approximately U.S. $89,000 during the last two years of the lease term, such
lease expiring in January 2004 with an option to extend the lease for an
additional term of five years. The building is owned by the in-laws of Giorgio
Ventura, the President of Prestige Italy. The Company's distribution operations
in Canada are maintained in an approximately 3,670 square foot building under a
lease with an annual rent of U.S. $27,000, such lease expiring on April 30, 2000
with an option to extend the lease for an additional term of two years. The
Company's distribution operations in Australia are maintained in an
approximately 3,000 square foot building under a lease with an annual rent of
approximately U.S. $32,000. The Company's lease for the Australian distribution
facility expires in December 1998, and the Company is currently negotiating the
terms of a lease for a new distribution facility in Australia. The Company
believes that its existing facilities are adequate for its current requirements
and that additional space can be obtained on commercially reasonable terms to
meet its future requirements. See "Certain Transactions."
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<PAGE> 39
EMPLOYEES
As of June 30, 1998, the Company employed 126 persons in the United States,
including 2 part-time employees, of whom 89 were engaged in manufacturing and
distribution operations, 3 were engaged in laboratory services, and 32 were
engaged in management and administration, including 11 in marketing and customer
service. None of the Company's employees are members of a labor union. The
Company believes that its employee relations are satisfactory. As of June 30,
1998, the Foreign Subsidiaries employed 51 full-time persons, consisting of 19
employees in Italy, 9 employees in Canada and 23 employees in Australia. Of such
employees, 16 were engaged in manufacturing and distribution operations, 16 were
engaged in marketing and sales and 13 were engaged in management and
administration.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is not currently a party to any legal proceedings, the adverse outcome
of which, individually or in the aggregate, would have a material adverse effect
on the Company's financial condition or results of operations.
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jacques Cohen...................... 51 Chairman, Chief Executive Officer and President
Gabriel Cohen...................... 46 Executive Vice President and Director
Thomas Winarick.................... 39 Executive Vice President and Director
Marc Feller........................ 38 Chief Financial Officer and Secretary
Ronald Korn........................ 56 Director Nominee
Ann Spector Lieff.................. 46 Director Nominee
W. Keith Schilit................... 44 Director Nominee
</TABLE>
Jacques Cohen is a co-founder and one of the principal shareholders of the
Company. He has served as Chairman of the Board, President and Chief Executive
Officer of the Company since its inception, and his responsibilities include
overseeing all aspects of the operations of the Company, including marketing and
sales, manufacturing and distribution, research and development and management
and administration. Jacques Cohen is the brother of Gabriel Cohen.
Gabriel Cohen is a co-founder and one of the principal shareholders of the
Company. He has served as Executive Vice President since July 1998, and Vice
President and a Director of the Company since its inception, and his
responsibilities include serving as director of administrative systems in the
United States. Gabriel Cohen is the brother of Jacques Cohen.
Thomas Winarick has served as Executive Vice President of the Company since
August 1997 and as a Director of the Company since June 1998, and served as Vice
President of Operations -- Marketing of the Company from November 1994 until
July 1997. From October 1992 to October 1994, Mr. Winarick served as the
President of Signature Beauty Care, a Florida based cosmetics company.
Marc Feller has served as Chief Financial Officer and Secretary of the
Company since May 1998. From January 1997 to April 1998, Mr. Feller served as
Vice-President and Chief Financial Officer of International Hospitality, Inc., a
Canadian based public company. From August 1992 to January 1997, Mr. Feller was
Executive Vice President and Chief Operating Officer of Farm Stores, a Florida
based company.
Ronald Korn will become a director of the Company upon the consummation of
this Offering. Since July 1991, Mr. Korn has served as President of Ronald Korn
Consulting, a business consulting firm, and as Chairman of the Board of Carol
Korn Interiors, Inc., an interior design firm. From 1961 to 1991, Mr. Korn was a
partner with the certified public accounting firm of KPMG Peat Marwick,
including six years in which Mr. Korn served as Managing Partner of KPMG Peat
Marwick's Miami, Florida office. Since October 1991, Mr. Korn has served as a
director and Chairman of the Compensation and Audit Committees of the Board of
Directors of Engle Homes, Inc., a company whose common stock is traded on the
NASDAQ National Market. Since 1996, Mr. Korn has also served as a director of
Magicworks Entertainment Incorporated, a public company.
Ann Spector Lieff will become a director of the Company upon the
consummation of the Offering. Since March 1993, Ms. Lieff has served as
President and Chief Executive Officer of Spec's Music, Inc., a retail company
whose common stock was formally traded on the NASDAQ National Market. Ms. Lieff
is past president of the National Association of Recording Merchandisers.
W. Keith Schilit will become a director of the Company upon the
consummation of the Offering. Mr. Schilit is an entrepreneur, consultant, author
and lecturer. Since 1982, Mr. Schilit has been the principal officer of Catalyst
Ventures, a consulting firm which assists emerging growth businesses in private
and public financing. He has served on the board of directors and has served as
Chairman of the Compensation and Benefits Committee and on the Audit Committee
of Chico's FAS, Inc., a company whose common stock is traded on the NASDAQ
National Market, and Dataflex CP and Check Express Inc., two companies whose
stock was formally traded on the NASDAQ National Market. Mr. Schilit has served
on the faculties of Keio University (Tokyo), Syracuse University and the
University of South Florida.
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<PAGE> 41
Effective upon the consummation of this Offering, the Company's Board of
Directors will be comprised of six members. All directors are elected annually
and hold office until the next annual meeting of shareholders of the Company and
until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Board of Directors. Except for the
relationship between Jacques Cohen and Gabriel Cohen, there are no family
relationships among the directors and officers of the Company.
The Company has agreed that, for a period of five years following the
completion of this Offering, the Representative will have the right to designate
one individual to be elected to the Company's Board of Directors. As of the date
of this Prospectus, no person has been identified by the Representative for
election as a director.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors intends to establish, effective upon
consummation of this Offering, an Audit Committee which will be composed of two
non-employee directors. The Audit Committee will be responsible for reviewing
audit functions, including accounting and financial reporting practices of the
Company, the adequacy of the Company's system of internal accounting control,
the quality and integrity of the Company's financial statements and relations
with independent auditors. The Company also plans to establish, effective upon
consummation of this Offering, a Compensation Committee which will be composed
of a majority of non-employee directors and will be responsible for establishing
the compensation of the Company's directors, officers and employees, including
salaries, bonuses, commissions, and benefit plans, administering the Company's
stock option plans and other forms of or matters relating to compensation.
DIRECTOR COMPENSATION
Directors who are not employees of the Company will receive a quarterly
retainer of $2,500. Each non-employee director will also receive options to
purchase 7,500 shares of Common Stock at the initial public offering price
vesting over a period of three years. The Company will reimburse its directors
for out-of-pocket expenses incurred in connection with their rendering of
services as directors. Directors who are also officers of the Company will not
be compensated for their services as a director.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth all
compensation awarded to, earned by or paid for services rendered to the Company
in all capacities during Fiscal 1997 by the Company's Chief Executive Officer
and its other two executive officers (the "Named Executive Officers"). No other
executive officer's salary and bonus equaled or exceeded $100,000 for services
rendered to the Company during such year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
- --------------------------- --------- ---------
<S> <C> <C>
Jacques Cohen............................................... $296,000 $533,120
Chairman, President and Chief Executive Officer
Gabriel Cohen............................................... $150,100 $534,150
Executive Vice President
Thomas Winarick............................................. $154,350 $ 76,000
Executive Vice President
</TABLE>
- ---------------
(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in such column. The aggregate amount
of perquisites and other personal benefits provided to each Named Executive
Officer is less than the lesser of $50,000 or 10% of the total annual salary
and bonus of such officer.
No executive officers received option grants in Fiscal 1997. During Fiscal
1998, options to purchase 125,000 and 50,000 shares of Common Stock of the
Company were granted to Thomas Winarick, Executive Vice President and Marc
Feller, Chief Financial Officer and Secretary, respectively.
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<PAGE> 42
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Jacques
Cohen, Chairman of the Board, President and Chief Executive Officer of the
Company, Gabriel Cohen, Executive Vice President, Thomas Winarick, Executive
Vice President, Marc Feller, Chief Financial Officer and Secretary, Chris Dow,
President of Prestige Australia, and Giorgio Ventura, President of Prestige
Italy, each of which expires on June 30, 2001 (the "Employment Agreements").
Each of the Employment Agreements is automatically renewable for an additional
period of one year, unless either party gives written notice of an intent not to
renew within six months prior to the expiration date. Pursuant to the Employment
Agreements, Messrs. Cohen, Cohen, Winarick, Feller, Dow and Ventura will receive
annual base salaries of $225,000, $195,000, $175,000, $150,000, $125,000 and
$195,000, respectively, and such bonuses as may be awarded from time to time by
the Board of Directors or any compensation committee thereof. If an Employment
Agreement is terminated by the Company other than by reason of death, Disability
(as defined) or Cause (as defined), or by the executive for Good Reason
(generally defined as a material breach by the Company of the Employment
Agreement), such executive will be entitled to receive (i) any unpaid salary
through the effective date of such termination and (ii) an amount equal to such
executive's annual base salary on the date of termination.
1998 STOCK OPTION PLAN
Under the Company's 1998 Stock Option Plan (the "Plan"), which will be
effective on September , 1998, 750,000 shares of Common Stock are reserved for
issuance upon exercise of stock options granted under the Plan. The Plan is
designed as a means to retain and motivate qualified and competent persons who
provide services to the Company and its subsidiaries. The Board of Directors or
a committee (the "Committee") of outside directors appointed by the Board of
Directors will administer and interpret the Plan. The Board of Directors and the
Committee each shall be authorized to grant options thereunder to all eligible
employees, directors (whether or not also employees of the Company or any of its
subsidiaries), consultants and independent contractors of the Company or its
subsidiaries. In the event of a change in the Common Stock due to a stock
dividend or recapitalization, the Plan provides for appropriate adjustment in
the number of shares available for grant under the Plan and the number of shares
and the exercise price per share under any option then outstanding under the
Plan, so that the same percentage of the Company's issued and outstanding shares
shall remain subject to being optioned under the Plan or subject to purchase at
the same aggregate exercise price under any such outstanding option, as
applicable. Unless otherwise provided in any option, the Committee or the Board
of Directors may change the option price and/or number of shares under any
outstanding option when, in their discretion, such adjustment becomes
appropriate so as to preserve but not increase benefits under the Plan. The
aggregate number of shares subject to options granted to any one optionee under
the Plan may not exceed 250,000 subject to adjustment as described above.
However, no incentive stock options (as defined in Section 422 of the Internal
Revenue Code) may be granted to a person who is not also an employee of the
Company or a subsidiary.
The Plan provides for the granting of both incentive stock options and
nonqualified stock options. Options may generally be granted under the Plan on
such terms and at such prices as determined by the Committee or the Board of
Directors, except that the per share exercise price of any incentive stock
options cannot be less than the fair market value of a share of the Common stock
on the date of grant. Each option is exercisable after the period or periods
specified in the option agreement, but no option may become exercisable after
the expiration of ten years from the date of grant. The Board of Directors or
the Committee may accelerate the exercisability or vesting of any option or
shares previously acquired by the exercise of any options, and, in the event of
a change in control (as defined in the Plan), unless otherwise provided in the
option, each outstanding option will become immediately fully exercisable.
Incentive stock options granted to an individual who owns (or is deemed to own)
at least 10% of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries must have an exercise price of at least 110%
of the fair market value of the Common Stock subject to such option on the date
of grant and a term of no more than five years. Incentive stock options granted
under the Plan are not transferable other than by will or by the laws of descent
and distribution. Nonqualified stock options are also not transferable unless
the prior written consent of the Committee or the Board of Directors is obtained
and such transfer does not violate Rule 16b-3 under the Securities Exchange
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<PAGE> 43
Act of 1934. Unless otherwise provided in any option, and subject to such
guidelines as the Committee or the Board of Directors may establish, the option
price may be paid by cash, certified or official bank check, personal check if
accepted by the Committee or the Board of Directors, money order, shares of
Common Stock, withholding of shares of Common Stock, any cashless exercise
procedure approved by the Committee or the Board of Directors, other
consideration deemed appropriate by the Committee or the Board of Directors, or
a combination of the above. The Plan also authorizes the Company to make or
guarantee loans to optionees to enable them to exercise their options. Such
loans must (i) provide for recourse to the optionee, (ii) bear interest at the
prime rate of the Company's principal lender, (iii) be secured by the shares of
Common Stock purchased, and (iv) contain such other terms as the Committee or
the Board of Directors in its sole discretion shall reasonably require. The
Board of Directors or the Committee has the authority to amend or terminate the
Plan or any options, provided that no such action may substantially impair the
rights or benefits of the holder of any outstanding option without the consent
of such holder, and provided further that certain amendments to the Plan are
subject to shareholder approval. Unless terminated sooner, the Plan will
continue in effect until all options granted thereunder have expired or been
exercised, provided that no options may be granted after September , 2008.
Options granted under the Plan will be exercisable in accordance with the
option agreement executed in connection with such grant. The Company has granted
stock options under the Plan, effective upon consummation of this Offering, to
purchase an aggregate of 437,500 shares of Common Stock. Such options are
immediately exercisable at an exercise price equal to the initial public
offering price per share of the shares offered hereby (110% of such public
offering price per share in the case of shareholders holding more than 10% of
the outstanding shares of Common Stock of the Company).
The Company will agree with the Representative that for a 9-month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part, the Company will not, without the consent of the
Representative, adopt or propose to adopt any plan or arrangement permitting the
grant, issue or sale of any shares of its Common Stock or issue, sell or offer
for sale any of its Common Stock, or grant any option for its Common Stock which
shall: (x) have an exercise price per share of Common Stock less than the
greater of (a) the initial public offering price of the Common Stock offered in
this Prospectus or (b) the fair market value of the Common Stock on the date of
grant; or (y) be granted to any direct or indirect beneficial holder of more
than 10% of the issued and outstanding Common Stock of the Company. No option or
other right to acquire Common Stock granted, issued or sold during the 9-month
period immediately following the effective date of the Registration Statement of
which this Prospectus forms a part shall permit (a) the payment with any form of
consideration other than cash, (b) the payment of less than the full purchase or
exercise price for such shares of Common Stock or other securities of the
Company on or before the date of issuance, or (c) the existence of stock
appreciation rights, phantom options or similar arrangements.
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<PAGE> 44
CERTAIN TRANSACTIONS
ACQUISITION OF THE FOREIGN SUBSIDIARIES
In September 1998, the Company intends to acquire all of the outstanding
stock of each of Prestige Canada, Prestige Australia and Prestige Italy, each of
which is currently engaged principally in distributing the Company's products in
foreign markets. The Company anticipates that it will acquire all of the
outstanding capital stock of Prestige Canada, Prestige Australia and Prestige
Italy in exchange for the issuance of 123,000, 380,000 and 1,199,923
unregistered shares of Common Stock, respectively. The Company anticipates that,
pursuant to the acquisition agreements, the current shareholders of the Foreign
Subsidiaries will make certain representations and warranties to the Company,
and will indemnify the Company with respect to breaches of such representations
and warranties, including with respect to certain tax matters.
LEASES WITH AFFILIATES
The Company leases its Deerfield Beach, Florida headquarters from C&C
General Partnership, a partnership in which Jacques Cohen and Gabriel Cohen are
the general partners, pursuant to a lease expiring on May 31, 2002 for $25,200
per month, plus real estate and sales taxes, insurance and other costs. The
Company has the option to extend the lease for two additional five year terms.
Rent expense on this facility totaled $203,520, $310,368 and $241,744 for Fiscal
1996 and 1997 and the nine months ended June 30, 1998, respectively.
Prior to Fiscal 1996, the Company leased its former headquarters from
Jacques Cohen pursuant to a lease that expired in 1996. Rent expense on this
facility totaled $78,288 and $26,076 for Fiscal 1995 and 1996.
The Company and each of Jacques Cohen and Gabriel Cohen, individually, have
guaranteed a bank loan of C&C General Partnership, of which Jacques Cohen and
Gabriel Cohen are the general partners, of which approximately $1.1 million was
outstanding as of June 30, 1998.
LEASE OF ITALIAN FACILITY
The Company leases its Bologna, Italy distribution facility from Finelli
Dante and Vechi Rosina, the in-laws of Giorgio Ventura, the President of
Prestige Italy, pursuant to a lease expiring in January 2004. Rent expense on
this facility totaled $67,340, $67,340, $67,340, $50,505, for Fiscal 1995, 1996
and 1997 and the nine months ended June 30, 1998, respectively.
GUARANTEES AND LOANS BY CERTAIN SHAREHOLDERS
Jacques Cohen and Gabriel Cohen have personally guaranteed the Company's
$3.5 million bank line of credit and have received no compensation for such
guaranty. To the extent that the Company applies a portion of the net proceeds
of this Offering to reduce the Company's bank debt, Messrs. Cohen will be
relieved of their personal guarantee of such indebtedness. The Company will seek
to release Messrs. Jacques Cohen and Gabriel Cohen from their personal
guarantees following this Offering. See "Use of Proceeds."
During Fiscal 1995 and Fiscal 1996, Jacques Cohen and Gabriel Cohen loaned
the Company an aggregate of $289,548 and $229,255, respectively, for working
capital purposes. During Fiscal 1997, each of Jacques Cohen and Gabriel Cohen
loaned the Company $491,536 and $176,490, respectively, for working capital
purposes. These loans bore interest at a rate of 9% per annum for Fiscal 1996,
and 10% per annum for Fiscal 1997 and currently bear interest at the rate of 10%
per annum for the year ended September 30, 1998. Amounts due under the
Shareholder Notes are due upon demand. During Fiscal 1995 and Fiscal 1996, the
Company repaid $295,933 and $130,000, respectively, of such loans. During Fiscal
1997, the Company repaid $390,144 and $109,606 to Jacques Cohen and Gabriel
Cohen, respectively. In the nine months ended June 30, 1998, the Company repaid
$250,000 and $80,000 to Jacques Cohen and Gabriel Cohen, respectively, and
borrowed an additional $517,945 and $180,436 from each of Jacques Cohen and
Gabriel Cohen, respectively, during the same period. In July 1998, the Company
repaid $48,000 to Gabriel Cohen.
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<PAGE> 45
It is not anticipated that Messrs. Cohen will continue to provide funds to
the Company or guarantee the Company's indebtedness following consummation of
this Offering.
ROYALTY AGREEMENT
Prestige Italy had a royalty agreement with an affiliate of Jacques Cohen,
Chairman, President and Chief Executive Officer of the Company, which provided
for the payment of a royalty of 12% of certain revenue of Prestige Italy. The
royalty agreement expired during the year ended December 31, 1997. Total
royalties incurred during the years ended December 31, 1996 and 1997 were
approximately $307,340 and $327,160, respectively. As of December 31, 1997,
approximately $140,291 was due under the royalty agreement. At June 30, 1998,
all amounts due under the royalty agreement had been paid.
FOREIGN SUBSIDIARY TRANSACTIONS
The Company purchases goods from, and sells goods to, certain of the
Foreign Subsidiaries. Purchases from Prestige Canada aggregated $80,742,
$41,599, $61,908, $60,843 and $9,313 for Fiscal 1995, 1996 and 1997, and for the
nine months ended June 30, 1997 and 1998, respectively. Sales to Prestige Canada
aggregated $143,395, $542,845, $549,394, $390,034 and $610,940 for Fiscal 1995,
1996 and 1997, and for the nine months ended June 30, 1997 and 1998,
respectively. Sales to Prestige Italy aggregated $0, $157,048, $784,535,
$676,284 and $279,785 for Fiscal 1995, 1996 and 1997, and for the nine months
ended June 30, 1997 and 1998, respectively. Sales to Prestige Australia
aggregated $124,546, $509,932, $710,408, $417,886 and $373,564 for Fiscal 1995,
1996 and 1997, and for the nine months ended June 30, 1997 and 1998,
respectively.
TAX INDEMNITY AGREEMENTS
Upon consummation of the Acquisition Transactions, the Company will enter
into tax indemnity agreements with each of the shareholders of Prestige Italy,
Prestige Canada and Prestige Australia which provide among other things, that
the shareholders of each of Prestige Italy, Prestige Canada and Prestige
Australia will indemnify the Company against (i) additional income taxes
resulting from adjustments made (as a result of a final determination made by a
competent tax authority) to the taxable income reported by any of Prestige
Italy, Prestige Canada and Prestige Australia prior to the closing of the
Acquisition Transactions, (ii) any material breach of a representation or
warranty in the tax indemnity agreement or (iii) any tax liability resulting
from the Acquisition Transactions.
The Company believes that the terms of the foregoing transactions with the
affiliates are no less favorable to the Company than could be obtained in arms'
length negotiations with unaffiliated third parties. Any future transactions
with affiliates will be approved by a majority of disinterested directors then
serving on the Board of Directors.
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<PAGE> 46
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the outstanding Common Stock as of September 1, 1998, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each director,
director nominee and Named Executive Officer of the Company and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Jacques Cohen...................................... 3,695,646 46.2% 35.9%
Gabriel Cohen...................................... 2,601,431 32.5% 25.3%
Thomas Winarick.................................... -- -- --
So. Ge. Cos. S.A................................... 1,058,812 13.2% 10.3%
Giorgio Ventura(2)................................. 1,157,685 14.5% 11.2%
Ronald Korn........................................ -- -- --
Ann Spector Lieff.................................. -- -- --
W. Keith Schilit................................... -- -- --
Marc Feller........................................ -- -- --
All directors and executive officers of the Company
as a group (5 persons)........................... 6,297,077 78.7% 61.2%
</TABLE>
- ---------------
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 1441 West Newport Center Drive, Deerfield Beach, FL 33442.
Except as otherwise indicated, such beneficial owners have sole voting and
investment power with respect to all shares of Common Stock owned by them.
(2) Consists of (i) 71,995 shares owned by Giorgio Ventura, President of
Prestige Italy, (ii) 1,058,812 shares owned by So. Ge. Cos. S.A., a company
affiliated with Mr. Ventura, and (iii) 26,878 shares owned by the wife of
Giorgio Ventura.
45
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par
value. As of September 1, 1998, 8,000,000 shares of Common Stock were issued and
outstanding and no shares of Preferred Stock were outstanding.
COMMON STOCK
As of September 1, 1998, there were 8,000,000 shares of Common Stock
outstanding and held of record by nine shareholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
2,300,000 shares of Common Stock offered hereby, there will be 10,300,000 shares
of Common Stock outstanding upon the closing of this Offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this Offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future. Upon the completion of this Offering, there
will be no shares of preferred stock outstanding.
WARRANTS AND OPTIONS
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, the Representative's Warrants to
purchase up to 230,000 shares of Common Stock. Upon consummation of this
Offering, the Company will have outstanding options for 437,500 shares of Common
Stock granted under the Company's 1998 Stock Option Plan. See
"Management -- 1998 Stock Option Plan" and "Underwriting."
PREFERRED STOCK
Upon the closing of this Offering, the Board of Directors will be
authorized, subject to certain limitations prescribed by law, without further
shareholder approval, to issue from time to time up to an aggregate of 5,000,000
shares of preferred stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. See "-- Anti-Takeover Provisions of Florida Law," and "-- Certain
Effects of Authorized But Unissued Stock." The Company has no present plans to
issue any shares of preferred stock.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The "Control Share Acquisitions" section of the Florida
Business Corporation Act (the "FBCA") generally provides that shares acquired in
excess of certain specified thresholds, beginning at 20% of a corporation's
outstanding voting shares, will not possess any voting rights unless such voting
rights are approved by a majority vote of a corporation's disinterested
shareholders. The "Affiliated Transactions" section of the FBCA generally
requires majority approval by disinterested directors or supermajority approval
of disinterested shareholders of certain specified transactions (such as a
merger, consolidation, sale of assets, issuance or transfer of shares or
46
<PAGE> 48
reclassifications of securities) between a corporation and a holder of more than
10% of the outstanding shares of the corporation, or any affiliate of such
shareholder.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the communities
and society in which the Company operates and the economy of the state and
nation. Consequently, in connection with any proposed action, the Board of
Directors is empowered to consider interests of other constituencies in addition
to the Company's shareholders, and directors who take into account these other
factors may make decisions which are less beneficial to some, or a majority, of
the shareholders than if the law did not permit consideration of such other
factors.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to act, regarding corporate management or policy, unless (i) the
director breached or failed to perform his duties as a director and (ii) a
director's breach of, or failure to perform, those duties constitutes (1) a
violation of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his conduct
was unlawful, (2) a transaction from which the director derived an improper
personal benefit, either directly or indirectly, (3) a circumstance under which
an unlawful distribution is made, (4) in a proceeding by or in the right of the
corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. A corporation
may purchase and maintain insurance on behalf of any director or officer against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the FBCA.
The Articles and Bylaws of the Company provide that the Company shall, to
the fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
The Company has also entered into indemnification agreements with each of
its directors and executive officers where it has agreed to indemnify each of
them to the fullest extent permitted by law. In general, Florida law permits a
Florida corporation to indemnify its directors, officers, employees and agents,
and persons serving at the corporation's request in such capacities for another
enterprise, against liabilities arising from conduct performed in good faith
that such persons reasonably believed to be in, nor not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 10,300,000 shares
of Common Stock outstanding. Of these shares, the 2,300,000 shares sold in this
Offering will be freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act (an "Affiliate"), which may generally be sold only in compliance
with Rule 144 as described below. The remaining 8,000,000 shares of Common Stock
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). All of the Restricted Shares will be subject to lock-up
agreements as described below. Beginning 90 days after the date of this
Prospectus, 6,297,077 of these shares of Common Stock will be eligible for
resale in the public market, subject to certain volume, timing and other
requirements of Rule 144 and to the lock-up agreements. Sales of Restricted
Shares in the public market, or the availability of such shares for sale, could
adversely affect the market price of the Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
103,000 shares immediately after this Offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
date on which notice of such sale is filed with the Securities and Exchange
Commission. Such sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. In addition, a person who is not an affiliate and
has not been an affiliate for at least three months prior to the sale and who
has beneficially owned Restricted Shares for at least two years may resell such
shares without regard to the requirements described above. The Company is unable
to estimate accurately the number of Restricted Shares that ultimately will be
sold under Rule 144 because the number of shares will depend in part on the
market price for the Common Stock, the personal circumstances of the sellers and
other factors. See "Risk Factors -- Shares Eligible for Future Sale; Future
Equity Issuances" and "Risk Factors -- No Prior Public Market; Possible
Volatility of Stock Price."
LOCK-UP AGREEMENTS AND REGISTRATION OF OPTIONS
All officers and directors of the Company and all existing holders of the
Common Stock and options to purchase Common Stock have agreed that they will
not, without the prior written consent of Josephthal, directly or indirectly,
offer to sell, sell, contract to sell or otherwise dispose of any shares of
Common Stock beneficially owned by them for a period of nine months after the
effective date of this Offering (the "Lock-up Period"). Josephthal may, in its
sole discretion and at any time, without notice, release all or any portion of
the securities subject to lock-up agreements.
Options to purchase a total of 437,500 shares ("Option Shares") of Common
Stock have been granted by the Company. All of the Options Shares are subject to
the lock-up agreements described above. An additional 312,500 shares of Common
Stock are available for future grants under the Plan. See "Management -- 1998
Stock Option Plan."
The Company intends to file a registration statement under the Securities
Act on Form S-8 to register all shares of Common Stock subject to outstanding
stock options and Common Stock issuable pursuant to the Company's stock plan,
promptly upon expiration of the Lock-up Period. Following the filing of the Form
S-8, shares issued under the Company's stock plan will be eligible for sale in
the public markets upon vesting and exercise of options or awards, subject to
the Rule 144 volume restrictions applicable to affiliates.
48
<PAGE> 50
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Josephthal &
Co. Inc. is acting as the Representative (the "Representative"), have severally
agreed, subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Josephthal & Co. Inc........................................
---------
Total............................................. 2,300,000
=========
</TABLE>
The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
initially propose to offer the Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share of Common
Stock. Such dealers may re-allow a concession not in excess of $ per share
of Common Stock to other dealers. After the commencement of the Offering, the
public offering price, concession and reallowance may be changed by the
Representative.
The Representative has advised the Company that it does not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the total number of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay the Representative an expense allowance on a non-accountable
basis equal to one and one-half percent of the gross proceeds of the Offering,
of which $25,000 has been paid to date.
The Underwriters have been granted an option by the Company, exercisable
within 45 days of the date of this Prospectus, to purchase up to an additional
345,000 shares of Common Stock at the initial public offering price per share of
Common Stock offered hereby, less underwriting discounts and the non-accountable
expense allowance (the "Over-Allotment Option"). Such option may be exercised
solely for the purpose of covering over-allotments, if any, incurred in the sale
of the shares offered hereby. To the extent such option is exercised, in whole
or in part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment.
The Company has agreed that, for five (5) years after the effective date of
this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of Directors. Such individual
may be a director, officer, employee or affiliate of the Representative. In the
event the Representative elects not to designate a person to serve on the
Company's Board of Directors, the Representative may designate an observer to
attend meetings of the Board of Directors.
All of the Company's officers and directors and all existing holders of
Common Stock and holders of options to purchase Common Stock have executed
agreements pursuant to which they have agreed not to offer to sell, sell,
transfer, hypothecate or otherwise encumber or dispose of any beneficial
interest in any shares of Common Stock owned by them, directly or indirectly,
without the prior written consent of Josephthal, for a period of nine months
from the effective date of this Offering. An appropriate legend shall be marked
on the face of the certificates representing all such securities.
Upon consummation of this Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representative's Warrants to
purchase from the Company 230,000 shares of Common
49
<PAGE> 51
Stock. The Representative's Warrants are initially exercisable at a price per
share equal to 120% of the initial public offering price for a period of four
years commencing one year after the date of this Prospectus and are restricted
from sale, transfer, assignment or hypothecation for a period of twelve months
from the date hereof, except to officers of Josephthal. The Representative's
Warrants also provide for adjustment in the number of shares of Common Stock
issuable upon the exercise thereof as a result of certain subdivisions and
combinations of the Common Stock. The Representative's Warrants grant to the
holders thereof certain rights of registration for the securities issuable upon
exercise of the Representative's Warrants.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representative and
is not necessarily related to the Company's asset value, net worth or other
established criteria of value. The factors considered in such negotiations, in
addition to prevailing market conditions, included the history of and prospects
for the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors as were deemed relevant.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of establishing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 345,000 shares of Common Stock, by
exercising the Over-Allotment Option. In addition, the Representative may impose
"penalty bids" under contractual arrangements with the Underwriters, whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of other Underwriters, the selling concession with respect to Common
Stock that is distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to the
copies of such agreements which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenberg Traurig, P.A., Miami, Florida. Orrick,
Herrington & Sutcliffe LLP New York, New York, has acted as counsel for the
Underwriters in connection with the Offering.
EXPERTS
The Financial Statements included in this Prospectus and Registration
Statement, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent certified public accountants,
and are included herein in reliance upon the authority of said firm as experts
in giving said reports.
50
<PAGE> 52
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (including all amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the shares of Common Stock offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance, reference is made
to the copy of such agreement filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained from such office upon
payment of the prescribed fees. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission. Information concerning the Company is also
available for inspection at the offices of the Nasdaq National Market, Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish its shareholders with annual
reports containing audited financial statements and such other periodic reports
as the Company deems appropriate or as may be required by law.
51
<PAGE> 53
PRESTIGE COSMETICS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REGISTRANT
Report of Independent Certified Public Accountants........ F-3
Balance Sheets -- September 30, 1996 and 1997 and June 30,
1998 (Unaudited)....................................... F-4
Statements of Operations -- For the Years Ended September
30, 1995, 1996 and 1997 and for the Nine Months Ended
June 30, 1997 and 1998 (Unaudited)..................... F-5
Statements of Shareholders' Equity -- For the Years Ended
September 30, 1995, 1996 and 1997 and for the Nine
Months Ended June 30, 1998 (Unaudited)................. F-6
Statements of Cash Flows -- For the Years Ended September
30, 1995, 1996 and 1997 and for the Nine Months Ended
June 30, 1997 and 1998 (Unaudited)..................... F-7
Notes to Financial Statements............................. F-8
PRESTIGE COSMETICS S.R.L.
Report of Independent Certified Public Accountants........ F-17
Balance Sheets -- December 31, 1997 and June 30, 1998
(Unaudited)............................................ F-18
Statements of Income -- For the Year Ended December 31,
1997, and for the Six Months Ended June 30, 1998
(Unaudited)............................................ F-19
Statements of Shareholders' Equity -- For the Year Ended
December 31, 1997, and for the Six Months Ended June
30, 1998 (Unaudited)................................... F-20
Statements of Cash Flows -- For the Year Ended December
31, 1997, and for the Six Months Ended June 30, 1998
(Unaudited)............................................ F-21
Notes to Financial Statements............................. F-22
PRESTIGE COSMETICS PTY LTD. AND PRESTIGE COSMETICS LIMITED
Report of Independent Certified Public Accountants........ F-29
Combined Balance Sheets -- December 31, 1997 and June 30,
1998 (Unaudited)....................................... F-30
Combined Statements of Operations -- For the Year Ended
December 31, 1997, and for the Six Months Ended June
30, 1997 and 1998 (Unaudited).......................... F-31
Combined Statements of Shareholders' Equity
(Deficit) -- For the Year Ended December 31, 1997, and
for the Six Months Ended June 30, 1998 (Unaudited)..... F-32
Combined Statements of Cash Flows -- For the Year Ended
December 31, 1997, and for the Six Months Ended June
30, 1997 and 1998 (Unaudited).......................... F-33
Notes to Combined Financial Statements.................... F-34
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial
Statements............................................. F-39
Pro Forma Balance Sheet -- June 30, 1998.................. F-41
Pro Forma Statement of Operations -- For the Nine Months
Ended June 30, 1998.................................... F-42
Pro Forma Statement of Operations -- For the Year Ended
September 30, 1997..................................... F-43
Notes to Unaudited Pro Forma Financial Statements......... F-44
</TABLE>
F-1
<PAGE> 54
PRESTIGE COSMETICS CORPORATION
F-2
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Prestige Cosmetics Corporation:
We have audited the accompanying balance sheets of Prestige Cosmetics
Corporation (a Florida corporation) as of September 30, 1996 and 1997 and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prestige Cosmetics
Corporation as of September 30, 1996 and 1997 and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 27, 1998 (except with respect to the
matters discussed in Note 10, as to
which the date is September 10, 1998).
F-3
<PAGE> 56
PRESTIGE COSMETICS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 300 $ 300 $ 300
Accounts receivable, net............................. 2,094,428 1,226,418 2,546,465
Due from related parties............................. 220,275 840,342 597,772
Inventories.......................................... 2,349,010 4,621,983 3,767,853
Deferred income taxes................................ 307,527 253,865 559,313
Prepaid expenses and other current assets............ -- 20,259 22,505
---------- ---------- ----------
Total current assets.............................. 4,971,540 6,963,167 7,494,208
PROPERTY AND EQUIPMENT, net............................ 1,490,530 1,723,239 1,732,268
OTHER ASSETS........................................... 122,985 72,717 161,188
---------- ---------- ----------
Total assets................................. $6,585,055 $8,759,123 $9,387,664
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $3,212,892 $3,134,206 $1,648,176
Accrued expenses..................................... 176,789 233,056 508,027
Customer deposits.................................... 82,679 81,344 167,839
Line of credit....................................... 1,364,748 2,246,724 3,126,234
Current portion of long-term debt.................... 83,333 83,333 83,333
Notes payable -- shareholders........................ 754,320 922,596 1,290,977
Due to related parties............................... 26,492 15,057 37,272
Income taxes payable................................. 170,384 545,022 478,665
---------- ---------- ----------
Total current liabilities......................... 5,871,637 7,261,338 7,340,523
LONG-TERM DEBT, net of current portion................. 166,667 83,333 13,889
DEFERRED INCOME TAXES.................................. 919 25,367 45,861
---------- ---------- ----------
Total liabilities............................ 6,039,223 7,370,038 7,400,273
---------- ---------- ----------
COMMITMENTS (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value, 5,000,000 shares
authorized, no shares issued or outstanding....... -- -- --
Common stock, par value $.01 per share; 30,000,000
shares authorized 6,297,077 shares issued and
outstanding....................................... 62,971 62,971 62,971
Retained earnings.................................... 482,861 1,326,114 1,924,420
---------- ---------- ----------
Total shareholders' equity........................ 545,832 1,389,085 1,987,391
---------- ---------- ----------
Total liabilities and shareholders' equity... $6,585,055 $8,759,123 $9,387,664
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
these balance sheets.
F-4
<PAGE> 57
PRESTIGE COSMETICS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES....................... $10,468,747 $13,770,927 $20,252,376 $15,517,405 $12,409,087
COST OF GOODS SOLD.............. 5,440,284 7,042,215 9,022,046 6,912,598 5,191,251
----------- ----------- ----------- ----------- -----------
Gross profit............... 5,028,463 6,728,712 11,230,330 8,604,807 7,217,836
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative expenses.... 4,183,622 5,784,582 7,587,130 6,169,534 5,257,539
Shareholders' compensation.... 704,659 505,125 1,513,000 737,050 441,513
Provision for doubtful
accounts................... 72,047 115,127 220,161 116,743 65,830
Depreciation and
amortization............... 143,831 174,291 255,963 219,825 206,531
Foreign exchange (gain)
loss....................... 161,285 (110,662) (179,101) (134,325) (49,311)
Unrealized foreign exchange
(gain) loss................ (28,626) (16,772) (19,889) -- (4,100)
----------- ----------- ----------- ----------- -----------
Total operating expenses...... 5,236,818 6,451,691 9,377,264 7,108,827 5,918,002
----------- ----------- ----------- ----------- -----------
Operating income (loss)....... (208,355) 277,021 1,853,066 1,495,980 1,299,834
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.............. (50,731) (89,916) (138,811) (90,929) (152,502)
Interest expense -- related
parties.................... (57,034) (52,255) (64,782) (37,416) (93,880)
Other......................... -- 9,283 (12,994) (12,736) --
----------- ----------- ----------- ----------- -----------
Total other income
(expense)................ (107,765) (132,888) (216,587) (141,081) (246,382)
----------- ----------- ----------- ----------- -----------
Income (loss) before
provision (benefit) for
income taxes............. (316,120) 144,133 1,636,479 1,354,899 1,053,452
PROVISION (BENEFIT) FOR INCOME
TAXES......................... (120,126) 59,980 793,226 693,962 455,146
----------- ----------- ----------- ----------- -----------
Net income (loss).......... $ (195,994) $ 84,153 $ 843,253 $ 660,937 $ 598,306
=========== =========== =========== =========== ===========
EARNINGS PER SHARE:
Basic and diluted............. $ (.03) $ .01 $ .13 $ .10 $ .09
=========== =========== =========== =========== ===========
Weighted average shares
outstanding................ 6,297,077 6,297,077 6,297,077 6,297,077 6,297,077
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 58
PRESTIGE COSMETICS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------- ---------- -------------
<S> <C> <C> <C>
BALANCE, September 30, 1994............................ $62,971 $ 594,702 $ 657,673
Net loss............................................. -- (195,994) (195,994)
------- ---------- ----------
BALANCE, September 30, 1995............................ 62,971 398,708 461,679
Net income........................................... -- 84,153 84,153
------- ---------- ----------
BALANCE, September 30, 1996............................ 62,971 482,861 545,832
Net income........................................... -- 843,253 843,253
------- ---------- ----------
BALANCE, September 30, 1997............................ 62,971 1,326,114 1,389,085
Net income (unaudited)............................... -- 598,306 598,306
------- ---------- ----------
BALANCE, June 30, 1998
(unaudited).......................................... $62,971 $1,924,420 $1,987,391
======= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 59
PRESTIGE COSMETICS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------------------------------- ---------------------------
1995 1996 1997 1997 1998
---------- ------------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ (195,994) $ 84,153 $ 843,253 $ 660,937 $ 598,306
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization......... 143,831 174,291 255,963 219,825 206,531
Provision for doubtful accounts....... 72,047 115,127 220,161 116,743 65,830
Loss on disposition of property....... -- 3,453 258 -- --
Deferred income tax (benefit)
provision........................... (149,167) (138,264) 78,110 (182,658) (284,954)
Changes in operating assets and
liabilities:
Accounts receivable................. 304,091 (973,908) 647,849 (92,002) (1,385,877)
Due from related parties............ 29,125 (74,062) (620,067) (468,517) 242,570
Inventories......................... (223,307) (821,981) (2,272,973) (1,672,230) 854,130
Prepaid expenses and other current
assets........................... 8,042 12,446 (20,259) (129,020) (2,246)
Other assets........................ 42,382 (116,013) 71,364 298,971 (96,544)
Accounts payable.................... 156,981 1,766,660 (78,686) (45,603) (1,486,030)
Accrued expenses.................... (31,711) 58,061 56,267 588,152 274,971
Customer deposits................... 9,527 10,702 (1,335) (20,597) 86,495
Due to related parties.............. 12,146 (31,879) (11,435) 33,499 22,215
Income taxes payable................ -- 170,384 374,638 716,442 (66,357)
---------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
operating activities........... 177,993 239,170 (456,892) 23,942 (970,960)
---------- ----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (100,329) (1,291,944) (488,930) (295,798) (215,560)
(Increase) decrease in equipment
deposits.............................. (67,779) 85,570 (21,096) (47,346) 8,073
---------- ----------- ----------- ------------ ------------
Net cash used in investing
activities..................... (168,108) (1,206,374) (510,026) (343,144) (207,487)
---------- ----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit and
debt.................................. 1,475,000 12,624,605 21,536,146 15,543,988 12,828,403
Repayments on line of credit and debt... (1,475,000) (11,759,856) (20,737,504) (15,115,696) (12,018,337)
Borrowings from shareholders............ 289,548 229,255 668,026 372,515 698,381
Repayments to shareholders.............. (295,933) (130,000) (499,750) (481,605) (330,000)
---------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
financing activities........... (6,385) 964,004 966,918 319,202 1,178,447
---------- ----------- ----------- ------------ ------------
Net increase (decrease) in cash
and cash equivalents........... 3,500 (3,200) -- -- --
CASH AND CASH EQUIVALENTS, beginning of
period.................................. -- 3,500 300 300 300
---------- ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period.................................. $ 3,500 $ 300 $ 300 $ 300 $ 300
========== =========== =========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest................................ $ 60,664 $ 89,917 $ 264,449 $ 203,063 $ 148,802
========== =========== =========== ============ ============
Income taxes............................ $ 4,950 $ 23,616 $ 334,794 $ 115,890 $ 675,000
========== =========== =========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE> 60
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Description of Company
Prestige Cosmetics Corporation (the "Company", formerly known as Lancetti
Cosmetics Corporation) was incorporated in the State of Florida on February 21,
1980. The Company is a manufacturer and wholesaler of cosmetic products,
principally in the United States. The Company also has agreements with
affiliated and independent distributors of its products in Asia, Canada,
Australia and Italy (the "Affiliated Entities"). Subsequent to September 30,
1997, the Company entered into agreements to acquire the Affiliated Entities
(see Note 10). Information as of June 30, 1998 and 1997 is unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include cash, petty cash and interest-bearing
deposits with original maturities of 90 days or less.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the respective assets or lease term,
if shorter, as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
Building.................................................... 30
Furniture and equipment..................................... 5 - 7
Leasehold improvements...................................... Life of lease
</TABLE>
Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in selling, general and
administrative expense, as incurred.
Inventories
Inventories consist of items purchased for resale and production and are
stated at the lower of cost (first-in, first-out) or market. Inventories are
comprised of material purchases and manufacturing costs for manufactured
products. Manufacturing costs principally represent allocated labor and overhead
costs incurred in the manufacturing of the product.
Revenue Recognition
Sales are recorded at the time of shipment of products. Typically, the
Company is not contractually obligated to accept returns. However, the Company
emphasizes customer service and may accept returns in order to assure customer
satisfaction. The Company establishes reserves for estimated returns and
allowances at the time of shipment. The Company also provides for returns for
periodic resets upon delivery of reset orders. A periodic reset occurs when a
customer returns merchandise and places a new order to replace the returned
merchandise. In addition, reserves for customer discounts and rebates are
recorded when revenues are recognized. All such reserves are deducted from sales
and accounts receivable in the accompanying statements of operations and balance
sheets.
While the Company maintains reserves for product returns which it considers
adequate the possibility exists that the Company could experience returns at a
rate significantly exceeding its historical sales, which could have a material
adverse impact on the Company's financial position and results of operations.
F-8
<PAGE> 61
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended September 30, 1996, the Company granted a single
customer extended payment terms for the purchase of inventory. In Fiscal 1997,
the agreement was modified to eliminate the extended payment terms. Revenue and
cost related to the transaction are recognized on a cash basis.
Foreign Exchange
The Company purchases a significant amount of its inventories from foreign
vendors. The accounts payable balances with such vendors are translated to U.S.
dollars at the exchange rates in effect at each balance sheet date. The
resulting gain or loss between the translated amount at the balance sheet date
and the date of receipt of the vendor invoice is included in the accompanying
statements of operations as unrealized foreign exchange gain or loss. Payments
made to such vendors during the reporting period are translated to U.S. dollars
at the date of payment and the resulting gain or loss between the translated
amount at the time of payment and the date of receipt of the vendor invoice is
included in the accompanying statements of operations as foreign exchange gain
or loss.
Income Taxes
The Company provides Federal and state income taxes at the applicable
Federal and state statutory rates. Deferred income taxes are recorded to reflect
the tax consequences of future years of differences between the tax bases of
assets and liabilities and the amounts recorded for financial reporting purposes
in accordance with the Statement of Financial Accounting Standards ("SFAS") No.
109 "Accounting for Income Taxes".
Advertising
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. Advertising expense was $263,650, $632,083
and $650,185 for the years ended September 30, 1995, 1996 and 1997,
respectively, and $541,216 (unaudited) and $462,860 (unaudited) for the nine
months ended June 30, 1997 and 1998, respectively.
Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash and cash
equivalents, accounts receivable and borrowings, approximate fair value due to
their short-term nature or interest rates that approximate market.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements
In the opinion of the management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of June 30, 1998, and the results of operations for the nine month
periods ended June 30, 1997 and 1998. The results of operations and cash flows
for the nine month period ended June 30, 1998 are not necessarily indicative of
the results of operations or cash flows which may be reported for the remainder
of 1998.
F-9
<PAGE> 62
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share". This statement simplifies the standards for
computing and presenting earnings per share ("EPS") and makes them comparable to
international EPS standards. SFAS No. 128 replaces the presentation of primary
EPS with a presentation of basic EPS. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement of all prior periods presented. Basic EPS is calculated by dividing
income available to common shareholders by the weighted average number of common
shares outstanding during each period. Diluted EPS includes the potential impact
of convertible securities and dilutive common stock equivalents using the
treasury stock method of accounting. The Company has no common stock
equivalents.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in financial statements and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of statements of
financial position. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. The Company does not currently have income which would be
considered in other comprehensive income and therefore does not believe the
adoption of SFAS No. 130 will have a significant impact on its financial
statement presentation.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is required to be adopted for
fiscal years beginning after December 15, 1997. This statement requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments including, among other things, a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. The Company has not yet determined the impact implementation of SFAS No.
131 will have on its financial statement presentation.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS
133 must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998).
The adoption of SFAS 133 will not have a material impact on the Company's
financial statements since the Company does not currently or intend to use
derivative financial instruments.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable............................ $2,234,803 $1,555,324 $2,941,201
Less -- Allowance for doubtful accounts........ (140,375) (328,906) (394,736)
---------- ---------- ----------
Accounts receivable, net.................. $2,094,428 $1,226,418 $2,546,465
========== ========== ==========
</TABLE>
F-10
<PAGE> 63
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
-------------------------------- ----------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period.................... $ 57,312 $ 69,348 $140,375 $140,375 $328,906
Provision for doubtful
accounts............... 72,047 115,127 220,161 116,743 65,830
Write-offs................ (60,011) (44,100) (31,630) (22,114) --
-------- -------- -------- -------- --------
Balance, end of period...... $ 69,348 $140,375 $328,906 $235,004 $394,736
======== ======== ======== ======== ========
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................. $ 81,536 $ 94,481 $ 72,488
Finished goods................................. 2,267,474 4,527,502 3,695,365
---------- ---------- ----------
Inventories.................................. $2,349,010 $4,621,983 $3,767,853
========== ========== ==========
</TABLE>
Approximately 45% of the Company's inventories are purchased from European
suppliers as of September 30, 1997.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Building....................................... $ 115,000 $ 115,000 $ 115,000
Furniture and equipment........................ 1,661,806 1,846,299 2,061,859
Leasehold improvements......................... 599,275 609,914 609,914
---------- ---------- ----------
2,376,081 2,571,213 2,786,773
Less -- Accumulated depreciation and
amortization................................. (885,551) (847,974) (1,054,505)
---------- ---------- ----------
Property and equipment, net.......... $1,490,530 $1,723,239 $1,732,268
========== ========== ==========
</TABLE>
F-11
<PAGE> 64
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank, original principal amount
of $250,000, interest payable monthly at prime
plus .25% (8.75% at September 30, 1997), due in
thirty-six monthly installments of $6,944
beginning October 5, 1996, secured by the assets
of the Company................................... $250,000 $166,666 $ 97,222
Less -- Current maturities......................... (83,333) (83,333) (83,333)
-------- -------- --------
Long-term debt..................................... $166,667 $ 83,333 $ 13,889
======== ======== ========
</TABLE>
All of the Company's borrowings with a bank are cross-collateralized and
cross-defaulted.
Borrowings under the Company's $3 million revolving line of credit with a
bank bear interest payable monthly at prime (8.5% at September 30, 1997) and are
due on demand. The line is collateralized by substantially all of the assets of
the Company and guaranteed by the shareholders.
The revolving line of credit contains various covenants pertaining to
minimum ratios, dividends, net worth, shareholder debt, ownership and the sale
of assets. At September 30, 1997, the Company was not in compliance with certain
covenants related to financial ratios. As a result, the Company received a
waiver from the bank on January 28, 1998, waiving action on the violation of the
covenants. The Company was in compliance with all applicable covenants at June
30, 1998 (unaudited). On February 19, 1998, the Company increased its existing
line of credit in the amount of $3 million to $3.5 million and extended the term
until May 30, 1999.
On December 17, 1997, the Company entered into a $500,000 term loan
agreement with a bank. Interest only payments at prime plus 1% (9.5% at
September 30, 1997) are due on a monthly basis until March 1, 1998 at which time
all unpaid principal and interest is due. The loan is cross-collateralized and
cross-defaulted with the $3,000,000 line of credit. The funds were not received
by the Company until January 5, 1998.
7. INCOME TAXES
The provision (benefit) for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- ---------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................. $ 29,041 $ 198,244 $715,116 $ 876,620 $ 740,100
Deferred................ (149,167) (138,264) 78,110 (182,658) (284,954)
--------- --------- -------- --------- ---------
Total......... $(120,126) $ 59,980 $793,226 $ 693,962 $ 455,146
========= ========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
-------------------------------------- --------------------
1995 1996 1997 1997 1998
--------- ------------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal.................. $(102,739) $51,298 $667,172 $556,191 $374,256
State.................... (17,387) 8,682 126,054 137,771 80,890
--------- ------- -------- -------- --------
Total.......... $(120,126) $59,980 $793,226 $693,962 $455,146
========= ======= ======== ======== ========
</TABLE>
F-12
<PAGE> 65
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of each type of temporary differences that give rise to a
significant portion of deferred tax assets (liabilities) and the total deferred
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Capitalized inventory costs....................... $ 84,870 $141,071 $116,953
Depreciation...................................... (9,927) (48,411) (45,861)
Allowance for doubtful accounts................... 174,423 123,767 274,427
Inventory reserves................................ -- -- 129,649
Accrued interest and other........................ 57,242 12,071 38,284
-------- -------- --------
$306,608 $228,498 $513,452
======== ======== ========
</TABLE>
The amounts have been presented in the financial statements as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred income tax assets................ $307,527 $253,865 $559,313
Non-current deferred income taxes................. (919) (25,367) (45,861)
-------- -------- --------
$306,608 $228,498 $513,452
======== ======== ========
</TABLE>
A reconciliation of the difference between the expected provision (benefit)
for income taxes using the Federal tax rate and the Company's actual provision
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
-------------------------------------- --------------------
1995 1996 1997 1997 1998
--------- ------------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision at statutory
Federal tax rate of
34%.................... $(107,481) $49,005 $556,403 $460,666 $358,174
State income taxes....... (11,475) 5,730 83,195 90,929 53,388
Meals and
entertainment.......... 2,367 11,021 12,629 9,471 6,931
Other.................... (3,537) (5,776) 140,999 132,896 36,653
--------- ------- -------- -------- --------
$(120,126) $59,980 $793,226 $693,962 $455,146
========= ======= ======== ======== ========
</TABLE>
8. COMMITMENTS
Lease Commitments
In May 1997, the Company entered into a 60-month lease agreement for its
corporate headquarters with C&C Partnership, an entity owned by the Company's
shareholders, which expires in May 2002. The lease calls for monthly payments of
$25,200 plus real estate and sales taxes, insurance and other costs. The rent
increases every year in June and ranges from $25,200 per month for 1997-1998 to
$30,630 per month for 2001-2002.
Total rent expense included in selling, general and administrative expenses
in the accompanying statements of operations is $209,933, $319,842, $327,109,
$241,690 (unaudited) and $251,615 (unaudited) for the years ended September 30,
1995, 1996 and 1997 and for the nine months ended June 30, 1997 and 1998,
respectively. Included in rent expense is $78,228, $229,596, $310,368, $230,232
(unaudited) and $241,744 (unaudited) for the years ended September 30, 1995,
1996 and 1997 and for the nine months ended June 30, 1997 and 1998,
respectively, for related party rent.
F-13
<PAGE> 66
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual lease payments are as follows:
<TABLE>
<CAPTION>
RELATED NON-RELATED
SEPTEMBER 30, PARTY PARTIES TOTAL
- ------------- ---------- ----------- ----------
<S> <C> <C> <C>
1998......................................... $ 325,886 $29,621 $ 355,507
1999......................................... 342,181 29,409 371,590
2000......................................... 359,289 17,715 377,004
2001......................................... 377,250 2,449 379,699
2002......................................... 259,742 -- 259,742
---------- ------- ----------
$1,664,348 $79,194 $1,743,542
========== ======= ==========
</TABLE>
Guaranties
The Company and its stockholders individually have guaranteed a bank loan
of C&C General Partnership. The balance in the bank loan was $1.1 million
(unaudited) as of June 30, 1998. The loan agreement contains certain restrictive
covenants similar to those discussed in Note 6.
Litigation
As a manufacturer and marketer of cosmetic products, the Company is subject
to product liability claims from consumers. The nature and use of cosmetic
products could give rise to product liability claims if one or more users of the
Company's products were to suffer adverse reactions following their use of the
products. The Company maintains insurance coverage for these claims; however, a
partially or completely uninsured successful claim against the Company could
have a material adverse effect on the Company's financial position and results
of operations.
Concentrations
The Company is dependent on a limited number of customers for a significant
portion of its revenues. During the year ended September 30, 1997, Rite-Aid,
Eckerd Drugs and Wal-Mart were the Company's three largest customers, and
accounted for approximately 12%, 6%, and 6%, respectively, of the Company's
gross sales. No single customer accounted for more than 10% of the Company's
sales during the years ended September 30, 1995 or 1996. During the nine months
ended June 30, 1998 (unaudited), Wal-Mart and Rite-Aid accounted for
approximately 8% and 10%, respectively, of the Company's gross sales. The loss
of any of the Company's significant customers, especially Rite-Aid, Eckerd
Drugs, or Wal-Mart or a decrease in orders from any such customers could have a
material adverse effect on the Company's financial position and results of
operations.
The Company is currently dependent on a sole source manufacturer for all
its pencil products which accounted for approximately 45% (unaudited) of the
Company's gross sales in the nine months ended June 30, 1998. The Company does
not maintain a written agreement with such pencil manufacturer and, accordingly,
such pencil manufacturer could terminate its relationship at any time.
9. RELATED PARTY TRANSACTIONS
The Company purchases goods from and sells goods to certain of the
Affiliated Entities. Purchases from the Affiliated Entities aggregated $80,742,
$41,599, $61,908, $60,843 (unaudited) and $9,313 (unaudited) for the years ended
September 30, 1995, 1996 and 1997, and for the nine months ended June 30, 1997
and 1998, respectively. Sales to the Affiliated Entities aggregated $267,941,
$1,209,825, $2,044,337, $1,484,204 (unaudited) and $1,264,289 (unaudited) for
the years ended September 30, 1995, 1996, and 1997 and for the
F-14
<PAGE> 67
PRESTIGE COSMETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
nine months ended June 30, 1997 and 1998, respectively. Subsequent to September
30, 1997, the Company entered into agreements to acquire the Affiliated Entities
(see Note 10).
The Company has notes payable to shareholders which bear interest at 10%
for 1997 and 9% for 1996 and are due on demand.
10. SUBSEQUENT EVENTS
The Company is in the process of preparing an initial public offering of up
to 2,300,000 of its common shares. The Company will utilize the net proceeds of
the offering to repay borrowings and other general corporate purposes.
In connection with the Company's initial public offering, the Company's
Certificate of Incorporation will be amended to increase the number of
authorized shares of Common Stock from 500 to 30,000,000 shares and to change
the par value of the common stock to $.01 per share, and the Company will
declare a 12,594.154 for 1 stock split of the Company's Common Stock. The
amended outstanding shares and the stock split have been retroactively reflected
in the accompanying financial statements.
In July 1998, the Company adopted a stock option plan (the "Plan") for
grant of up to 750,000 shares of the Company's common stock. Options granted
under the Plan will be exercisable in accordance with the Option Agreement
executed in connection with such grant.
The Company is in the process of finalizing its agreements to acquire the
Affiliated Entities for consideration of 1,702,923 shares of the Company's
common stock. Two of the acquisitions will be accounted for under the purchase
method of accounting. One of the acquisitions will be accounted for in a manner
similar to a pooling-of-interests since the merger is between entities under
common control.
F-15
<PAGE> 68
PRESTIGE COSMETICS S.R.L.
F-16
<PAGE> 69
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO PRESTIGE COSMETICS S.R.L.:
We have audited the accompanying balance sheet of Prestige Cosmetics s.r.l.
(an Italian corporation) as of December 31, 1997, and the related statements of
income, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prestige Cosmetics s.r.l. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in accordance with the accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Miami, Florida,
May 20, 1998 (except with respect to the
matter discussed in Note 11, as to
which the date is September 10, 1998).
F-17
<PAGE> 70
PRESTIGE COSMETICS S.R.L.
BALANCE SHEETS
(IN MILLIONS OF ITALIAN LIRE, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. 296 690
Accounts receivable, net.................................. 2,322 2,035
Due from related parties.................................. 11 11
Inventories............................................... 831 1,285
Prepaid expenses and other current assets................. 161 139
----- -----
Total current assets................................... 3,621 4,160
PROPERTY AND EQUIPMENT, net................................. 1,279 1,201
OTHER ASSETS................................................ 17 128
----- -----
Total assets...................................... 4,917 5,489
===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... 849 1,745
Accrued expenses.......................................... 257 504
Capital lease obligation.................................. 218 177
Lines of credit........................................... 370 84
Current portion of long-term debt......................... 234 234
Due to Prestige Cosmetics Corporation and its
affiliates............................................. 616 126
Income taxes payable...................................... 489 531
----- -----
Total current liabilities.............................. 3,033 3,401
LONG-TERM DEBT, net of current portion...................... 586 470
RESERVE FOR TERMINATION INDEMNITIES......................... 783 904
----- -----
Total liabilities...................................... 4,402 4,775
----- -----
COMMITMENTS (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, par value Lire 1,000 per share; 170,000
shares authorized, issued and outstanding.............. 170 170
Retained earnings......................................... 345 544
----- -----
Total shareholders' equity............................. 515 714
----- -----
Total liabilities and shareholders' equity........ 4,917 5,489
===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-18
<PAGE> 71
PRESTIGE COSMETICS S.R.L.
STATEMENTS OF INCOME
(IN MILLIONS OF ITALIAN LIRE, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE SIX
DECEMBER 31, MONTHS ENDED
1997 JUNE 30, 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
NET SALES................................................... 8,611 4,138
COST OF GOODS SOLD.......................................... 3,710 1,615
----- -----
Gross profit........................................... 4,901 2,523
----- -----
OPERATING EXPENSES:
Selling, general and administrative expenses.............. 2,449 1,606
Shareholder's compensation................................ 270 135
Royalty expense........................................... 583 --
Depreciation and amortization............................. 473 177
Termination indemnities................................... 143 71
Unrealized loss on foreign currency translation, net...... 79 20
----- -----
Total operating expenses............................... 3,997 2,009
----- -----
Operating income....................................... 904 514
----- -----
OTHER INCOME (EXPENSE):
Interest expense.......................................... (117) (59)
Other, net................................................ (130) (33)
----- -----
Total other income (expense)........................... (247) (92)
----- -----
Income before provision for income taxes............... 657 422
PROVISION FOR INCOME TAXES.................................. 482 223
----- -----
Net income............................................. 175 199
===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-19
<PAGE> 72
PRESTIGE COSMETICS S.R.L.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS OF ITALIAN LIRE, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ -------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1996.................................. 20 223 243
Net income................................................ -- 175 175
Distributions to shareholders............................. -- (53) (53)
Proceeds from sale of common stock........................ 150 -- 150
--- --- -----
BALANCE, December 31, 1997.................................. 170 345 515
Net income (unaudited).................................... -- 199 199
--- --- -----
BALANCE, June 30, 1998 (unaudited).......................... 170 544 714
=== === =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-20
<PAGE> 73
PRESTIGE COSMETICS S.R.L.
STATEMENTS OF CASH FLOWS
(IN MILLIONS OF ITALIAN LIRE, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ 175 199
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 473 177
Loss on disposal of trademark.......................... 18 --
Loss on disposal of property and equipment............. 51 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (675) 287
Due from related parties............................. (11) --
Inventories.......................................... (110) (454)
Prepaid expenses and other current assets............ (114) 22
Other assets......................................... 53 (111)
Accounts payable..................................... (692) 896
Accrued expenses..................................... (85) 247
Reserve for termination indemnities.................. 293 121
Due to Prestige Cosmetics Corporation................ (86) (490)
Income taxes payable................................. 482 42
---- -----
Net cash provided by (used in) operating
activities...................................... (228) 936
---- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (411) (99)
Proceeds from sale of property and equipment.............. 47 --
Proceeds from sale of common stock........................ 150 --
Distributions to shareholders............................. (53) --
---- -----
Net cash used in investing activities............. (267) (99)
---- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt........................................ 500 --
Repayments of debt........................................ (89) (116)
Net repayments on lines-of-credit......................... (7) (286)
Payments on capital lease obligation...................... -- (41)
---- -----
Net cash provided by (used in) financing
activities...................................... 404 (443)
---- -----
Net increase (decrease) in cash and cash
equivalents..................................... (91) 394
CASH AND CASH EQUIVALENTS, beginning of period.............. 387 296
---- -----
CASH AND CASH EQUIVALENTS, end of period.................... 296 690
==== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
NON-CASH ACTIVITY:
Property and equipment acquired pursuant to capital
lease.................................................. 192 --
==== =====
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. 95 24
==== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-21
<PAGE> 74
PRESTIGE COSMETICS S.R.L.
NOTES TO FINANCIAL STATEMENTS
(IN MILLIONS OF ITALIAN LIRE, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION AND BUSINESS
Prestige Cosmetics s.r.l. (a limited liability Corporation, the "Company")
was incorporated in Italy on August 1, 1994. The Company began operations at the
beginning of 1995, upon the acquisition of the operations of FR S.r.l., a
Company that produced articles for perfumeries with the trademark Fin-Ros. The
Company was fully owned by the Ventura family until October 1997, when
SO.GE.COS. S.A. (a Belgium Corporation) made an investment in the Company in the
amount of Lire 150.
The Company manufactures and distributes make-up products, mainly
lipsticks, eyeliner, lipliner, nail lacquer and nail care products. Until June
1997, the Company also manufactured and distributed Fin-Ros products. In June
1997, the Company sold the trademark for Fin-Ros and the remaining inventory on
hand. As a result, the Company charged to expense the remaining unamortized
goodwill of approximately Lire 245 derived from the Fin-Ros acquisition. The net
loss from the sale of the Fin-Ros trademark was Lire 18 and is included as a
component of other income (expense) in the accompanying 1997 statement of
income. Information as of June 30, 1998 is unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles. The more significant
accounting policies employed by the Company are as follows:
Cash and Cash Equivalents
Cash and cash equivalents include cash and interest bearing deposits with
original maturities of 90 days or less at the date of acquisition.
Inventories
Inventories are stated at the lower of purchase or production cost
(first-in, first-out method) or market. Inventory costs include material, labor
and manufacturing overhead.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the respective assets or lease term,
if shorter, as follows:
<TABLE>
<CAPTION>
YEARS
----------------
<S> <C>
Leasehold improvements...................................... Shorter of asset
useful life or
lease term
Furniture and fixtures...................................... 8
Machinery and equipment..................................... 5 - 7
Vehicles.................................................... 4 - 5
</TABLE>
Repairs and maintenance costs are expensed as incurred.
Other Assets
Other assets at June 30, 1998 (unaudited) consists primarily of a trademark
for the Prestige Brand name purchased during 1998. The trademark is being
amortized over five years on a straight line basis. The
F-22
<PAGE> 75
PRESTIGE COSMETICS S.R.L.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company will continually evaluate whether events and circumstances have occurred
that may warrant revision of the estimated useful life of the trademark or
whether the remaining balance of the trademark should be evaluated for possible
impairment. The Company will use an estimate of the related anticipated
undiscounted cash flows over the remaining life of the trademark in measuring
its recoverability.
Foreign Currency
Certain of the Company's accounts receivable and payable balances are
denominated in currency other than the Lira. These balances are translated into
Lira at each balance sheet date. The resulting gain or loss between the
translated amount at the balance sheet date and the date of the transaction
generating the receivable or payable balance is included as a component of
income from operations.
Reserve for Termination Indemnities
Personnel
Italian Law requires that the Company record a reserve for employee
termination benefits which is calculated based upon compensation for each year
plus the revaluation of prior period balances using an index derived from the
annual increase in the Official Italian Cost of Living Index. The Emerging
Issues Task Force of the Financial Accounting Standards Board has determined
that this reserve is a defined benefit plan for the purpose of Statement of
Financial Accounting Standards ("SFAS") No. 87 and that the liability calculated
under Italian Law is more conservative than the amount that would be calculated
by SFAS No. 87. The difference would not have a material effect on the
accompanying financial statements.
Sales Agents
Under Italian National Collective Agreement, sales agents have the right to
receive, under certain circumstances, an indemnity upon termination. Such
indemnity is based on certain percentages of the commission earned during the
agency contract. The computation of the reserve for termination indemnities to
sales agents is made based on historical experience and other data and
represents the Company's best estimate of the actual liabilities to be paid to
sales agents.
Board of Directors
The Company accrues amounts due to the Board of Directors for benefits to
be paid by the Company upon termination of members of the Board of Directors. In
1995, the shareholders approved the following annual payments through 2001 to
the members of the Board of Directors:
Lire 150 to the Chairman -- Mr. Giorgio Ventura;
Lire 50 to the delegate Director -- Mrs. Giuliana Finelli (Mr. Ventura's
wife);
Lire 25 each to the remaining two Directors -- Mrs. Stefania Ventura and
Mrs. Claudia Ventura (Mr. Ventura's daughters).
The Company accrues the amount due to each Board member annually. The
expense for termination indemnities for the Chairman is included in
shareholder's compensation in the accompanying statements of income. In 1996,
the Board members agreed to reduce the amounts due to them by 50%.
Revenue Recognition
Sales are recorded at the time of shipment of products. The Company
establishes reserves for estimated returns and allowances at the time of
shipment. In addition, reserves for customer discounts and rebates are
F-23
<PAGE> 76
PRESTIGE COSMETICS S.R.L.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recorded when revenues are recognized. All such reserves are deducted from sales
and accounts receivable in the accompanying balance sheets and statements of
income.
Income Taxes
The Company provides Italian income taxes at the applicable statutory
rates. Deferred income taxes are recorded, if material, to reflect the tax
consequences of future years of tax provisions or benefits.
Advertising
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. Advertising expense was Lire 114 and Lire 140
(unaudited) for the year ended December 31, 1997 and the six months ended June
30, 1998, respectively.
Fair Value of Financial Statements
The Company's financial instruments, primarily consisting of cash and cash
equivalents, accounts receivable and borrowings, approximate fair value due to
their short-term nature or interest rates that approximate market.
Use of Estimates
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements
In the opinion of the management of the Company, the accompanying unaudited
financial statements contain all adjustments consisting of only normal recurring
adjustments necessary to present fairly the financial position of the Company as
of June 30, 1998, and the results of operations for the six month period ended
June 30, 1998 are not necessarily indicative of the results of operations or
cash flows which may be reported for the remainder of 1998.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net of allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Accounts receivable......................................... 2,408 2,129
Less -- allowance for doubtful accounts..................... (86) (94)
----- -----
2,322 2,035
===== =====
</TABLE>
F-24
<PAGE> 77
PRESTIGE COSMETICS S.R.L.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Raw materials.............................................. 282 628
Finished goods............................................. 549 657
--- -----
831 1,285
=== =====
</TABLE>
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Leasehold improvements...................................... 898 933
Furniture and fixtures...................................... 326 327
Machinery and equipment..................................... 345 399
Vehicles.................................................... 93 93
----- -----
1,662 1,752
Less -- accumulated depreciation............................ (383) (551)
----- -----
1,279 1,201
===== =====
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Loan with a bank, maturing November 2000, repayable in
quarterly installments, interest payable at prime less
1.5%...................................................... 500 424
Credit facility with a bank, maturing October 2001,
repayable in quarterly installments, interest payable at
prime plus 0.5%........................................... 320 280
---- ----
820 704
Less -- current portion..................................... (234) (234)
---- ----
586 470
==== ====
</TABLE>
The Company has lines of credit with certain banks that allow it to borrow
up to Lire 2,312 with interest rates to be determined at the date of borrowing.
At December 31, 1997 and June 30, 1998, Lire 370 and Lire 84 (unaudited),
respectively, are outstanding under these agreements at interest rates ranging
from 6.5% to 9.5%.
7. INCOME TAXES
Income tax expense in the accompanying financial statements represents
current income tax expense. There are no deferred taxes in the accompanying
balance sheets. The statutory income tax rate in Italy is 53%. The difference
between the statutory tax rate and the effective tax rate in the accompanying
statement of
F-25
<PAGE> 78
PRESTIGE COSMETICS S.R.L.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
income for the year ended December 31, 1997 relates primarily to the write-off
of approximately Lire 245 of goodwill relating to the Fin-Ros product line that
is not deductible for tax purposes.
8. SHAREHOLDERS' EQUITY
As of December 31, 1997, the ownership structure of the Company consists of
the following:
<TABLE>
<CAPTION>
CAPITAL
SHAREHOLDERS AMOUNT PERCENTAGE
- ------------ ------- ----------
<S> <C> <C>
SO.GE.COS. S.A.............................................. 150.0 88.24%
Mr. Giorgio Ventura......................................... 10.2 6.00
Mrs. Giuliana Finelli....................................... 3.8 2.24
Mrs. Stefania Ventura....................................... 3.0 1.76
Mrs. Claudia Ventura........................................ 3.0 1.76
----- ------
Total............................................. 170.0 100.00%
===== ======
</TABLE>
Italian Law requires that at least 5% of annual net income be appropriated
and transferred to a legal reserve until such reserve has reached 20% of paid in
capital. The legal reserve is not available for distribution and may be utilized
only to cover losses pursuant to approval by the shareholders. Retained earnings
in the accompanying financial statements include the required legal reserve as
of December 31, 1997 and June 30, 1998 (unaudited).
9. RELATED PARTY TRANSACTIONS
During 1997, the Company had hired MA.CO. S.a.s. di Federico Malventi
("MA.CO. S.a.s."), a company owned by Mr. Ventura's son-in-law, to perform
certain services for the Company. The Company incurred expenses of approximately
Lire 25 for the year ended December 31, 1997. No such expenses were incurred
during the six month period ended June 30, 1998 (unaudited). The Company has a
payable as of December 31, 1997 and June 30, 1998 (unaudited) of Lire 3 relating
to these services, which is included as a component of accounts payable in the
accompanying balance sheets. Additionally, as of December 31, 1997 and June 30,
1998 (unaudited), the Company had a receivable from MA.CO. S.a.s. of Lire 11,
for machinery to be used in the MA.CO. S.a.s. production process owned by the
Company and sold to MA.CO. S.a.s.
As of December 31, 1997 and June 30, 1998 (unaudited), MA.CO. S.a.s. uses
two of the Company's machines for no charge.
During the year ended December 31, 1997 and the six month period ended June
30, 1998, the Company purchased products of approximately Lire 1,808 and Lire
294 (unaudited), respectively, from Prestige U.S. and sold products of
approximately Lire 20 and Lire 2 (unaudited), respectively, to Prestige U.S. As
of December 31, 1997 and June 30, 1998, the Company has an outstanding payable
to Prestige U.S. of approximately Lire 366 and Lire 126 (unaudited),
respectively.
The Company had a royalty agreement with an affiliate controlled by the
owner of Prestige Cosmetics Corporation ("Prestige U.S.") that expired during
1997. The agreement provided for payment of a royalty of 12% of certain revenue
of the Company. Total royalties incurred during the year ended December 31, 1997
were Lire 583 of which Lire 250 was due as of December 31, 1997.
The building that the Company operates in is rented from related parties
(see Note 10).
F-26
<PAGE> 79
PRESTIGE COSMETICS S.R.L.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
Lease Commitments
Future minimum annual lease payments as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
RELATED NON-RELATED
DECEMBER 31, PARTIES PARTIES TOTAL
- ------------ ------- ----------- -----
<S> <C> <C> <C>
1998.................................................. 180 95 275
1999.................................................. 180 80 260
2000.................................................. 180 79 259
2001.................................................. 180 7 187
2002.................................................. 120 -- 120
--- --- -----
840 261 1,101
=== === =====
</TABLE>
Rent expense under the related party lease totaled Lire 120 for the year
ended December 31, 1997 and Lire 60 (unaudited) for the six months ended June
30, 1997.
On January 8, 1998, the Company renegotiated the terms of the leasing
contract with Mr. Finelli Dante and Mrs. Vecchi Rosina (the father-in-law and
mother-in-law of Mr. Giorgio Ventura) for the Company's warehouse and offices.
The new contract expires January 7, 2004. The total lease payments for the
duration of the rental will be Lire 840 as follows: Lire 120 per year for the
first two years, Lire 140 per year for the third and fourth year and Lire 160
per year for the last two years.
11. SUBSEQUENT EVENT
The Company is in the process of finalizing an agreement to be acquired by
Prestige U.S. for consideration of 1,199,923 shares of Prestige U.S.'s common
stock. The acquisition will be accounted for under the purchase method of
accounting.
F-27
<PAGE> 80
PRESTIGE COSMETICS PTY LTD
F-28
<PAGE> 81
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Prestige Cosmetics Pty Ltd and Prestige Cosmetics Limited:
We have audited the accompanying combined balance sheet of Prestige
Cosmetics Pty Ltd (an Australian Corporation) and Prestige Cosmetics Limited (a
Hong Kong Company) as of December 31, 1997 and the related combined statements
of operations, shareholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Prestige Cosmetics
Pty Ltd and Prestige Cosmetics Limited as of December 31, 1997, and the results
of their operations and their cash flows for the year ended December 31, 1997,
in conformity with the accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Melbourne, Australia
September 8, 1998.
F-29
<PAGE> 82
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
COMBINED BALANCE SHEETS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. 92,896 9,122
Accounts receivable....................................... 534,289 732,012
Inventories............................................... 407,490 452,533
Prepaid expenses and other current assets................. 13,393 94,971
Current deferred income tax assets........................ 40,737 20,374
---------- ----------
Total current assets.............................. 1,088,805 1,309,012
PROPERTY AND EQUIPMENT, net................................. 233,719 398,975
LONG TERM DEFERRED INCOME TAX ASSETS........................ 12,561 12,561
---------- ----------
Total assets........................................... 1,335,085 1,720,548
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ 2,263 260,277
Accounts payable.......................................... 137,913 287,399
Income taxes payable...................................... 64,556 34,889
Current portion of capital lease obligations.............. 38,553 41,323
Accrued expenses and other liabilities.................... 76,747 117,553
Due to affiliated parties................................. 719,308 637,644
Due to directors.......................................... 95,988 69,077
---------- ----------
Total current liabilities......................... 1,135,328 1,448,162
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION........... 125,909 104,196
---------- ----------
Total liabilities................................. 1,261,237 1,552,358
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share; 1,000,000 shares
authorized, 23,800 shares issued and outstanding....... 25,425 25,425
Cumulative translation adjustment......................... 33,972 74,469
Retained earnings......................................... 14,451 68,296
---------- ----------
Total shareholders' equity........................ 73,848 168,190
---------- ----------
Total liabilities and shareholders' equity........ 1,335,085 1,720,548
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-30
<PAGE> 83
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
COMBINED STATEMENTS OF OPERATIONS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE FOR THE SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ---------------------------
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
NET SALES......................................... 3,352,174 1,213,299 1,927,488
COST OF GOODS SOLD................................ 1,788,020 485,842 871,685
---------- ---------- ----------
Gross profit............................ 1,564,154 727,457 1,055,803
---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative expenses.... 1,320,860 811,618 779,300
Depreciation and amortization................... 29,774 9,300 61,365
Managing Director's salary...................... 73,186 33,104 41,386
Foreign exchange loss........................... 29,851 31,462 79,336
---------- ---------- ----------
Total operating expenses................ 1,453,671 885,484 961,387
---------- ---------- ----------
Operating income (loss)................. 110,483 (158,027) 94,416
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income (expense), net.................. (22,601) (12,991) (4,118)
Other, net...................................... (6,700) (3,233) (5,033)
---------- ---------- ----------
Total other income (expense)............ (29,301) (16,224) (9,151)
---------- ---------- ----------
Net income (loss) before provision for
income taxes.......................... 81,182 (174,251) 85,265
PROVISION (BENEFIT) FOR INCOME TAXES.............. (15,262) (72,823) 31,420
---------- ---------- ----------
Net income (loss)....................... 96,444 (101,428) 53,845
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-31
<PAGE> 84
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
RETAINED OTHER SHAREHOLDERS'
COMPREHENSIVE COMMON EARNINGS COMPREHENSIVE EQUITY
INCOME STOCK (LOSS) INCOME (DEFICIT)
------------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996... -- 25,425 (81,993) (7,492) (64,060)
Comprehensive income
Net income................. 96,444 -- 96,444 -- 96,444
Other comprehensive income,
net of tax-cumulative
transaction
adjustment.............. 41,464 -- -- 41,464 41,464
-------
Comprehensive income....... 137,908
------- ------ -------- ------- --------
BALANCE, December 31, 1997... 25,425 14,451 33,972 73,848
Comprehensive income
Net income (unaudited)..... 53,845 -- 53,845 -- 53,845
Other comprehensive income,
net of tax-cumulative
transaction adjustment
(unaudited)............. 40,497 -- -- 40,497 40,497
-------
Comprehensive income....... 94,342
------- ------ -------- ------- --------
BALANCE, June 30, 1998
(unaudited)................ 25,425 68,296 74,469 168,190
====== ======== ======= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE> 85
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
COMBINED STATEMENTS OF CASH FLOWS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE FOR THE SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ---------------------------
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. 96,444 (101,428) 53,845
Adjustments to reconcile net income to net
cash Provided by (used in) operating
activities--
Depreciation and amortization.............. 29,774 9,300 61,365
Changes in operating assets and
liabilities:
Accounts receivable........................ (199,908) (376,977) (175,644)
Inventories................................ (233,719) (199,551) (45,043)
Prepaid expenses and other current
assets................................... (46,683) (167,626) (61,203)
Other non-current assets................... (12,561) (12,561) --
Bank overdraft............................. (102,381) 120,441 258,014
Accounts payable and other liabilities..... 181,249 531,955 182,701
Due to affiliated parties.................. 406,645 146,903 (81,664)
---------- ---------- ----------
Net cash provided by (used in)
operating activities................ 118,860 (49,544) 192,371
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (72,551) (12,012) (226,621)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on director's loans................. 25,558 22,577 --
Repayment of Director's loan.................. -- -- (26,923)
Payments on capital lease obligations......... (19,987) (1,062) (18,943)
---------- ---------- ----------
Cash provided by (used in) financing
activities.......................... 5,571 21,515 (45,866)
---------- ---------- ----------
Effect of exchange rate changes on cash.... (14,620) (2,519) (3,658)
Net increase (decrease) in cash and cash
equivalents.............................. 37,260 (42,560) (83,774)
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 55,636 55,636 92,896
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period........ 92,896 13,076 9,122
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
NON-CASH ACTIVITY:
Property and equipment acquired pursuant to
capital leases............................. 150,481 50,657 --
========== ========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest...................................... 43,473 28,293 18,789
========== ========== ==========
Income taxes.................................. -- -- 38,942
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-33
<PAGE> 86
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
1. ORGANIZATION AND BUSINESS
Description of Company
The combined financial statements consist of the financial statements of
Prestige Cosmetics Pty Ltd ("Pty Ltd") and Prestige Cosmetics Limited
("Limited"), (collectively the "Company"). The Company is presented combined as
the entities are under common control through ownership by its Directors. The
Company is a wholesaler of cosmetic products which are substantially purchased
from Prestige Cosmetics Corporation ("Prestige U.S."). Prestige Cosmetics Pty
Ltd was incorporated in Melbourne, Australia on August 6, 1993 and Prestige
Cosmetics Limited was incorporated in Hong Kong on February 16, 1990.
All significant intercompany accounts and transactions have been eliminated
in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles. The more significant
accounting policies employed by the Company are as follows:
Cash and Cash Equivalents
Cash and cash equivalents include cash, petty cash and interest-bearing
deposits with original maturities of 90 days or less.
Inventories
Inventories consist of items purchased for resale for Pty Ltd and
production and are stated at the lower of cost (first-in, first-out) or market.
Inventories are comprised of finished goods held for resale.
There is no physical inventory on hand for Limited as the company arranges
for goods to be transferred directly from Prestige U.S. to the customer. If any
inventory is in transit at the end of a period, Limited will record inventory.
No such amounts were in transit at December 31, 1997 or June 30, 1998
(unaudited).
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the respective assets or lease term,
if shorter, as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures...................................... 5
Office equipment............................................ 2.5
Display Stands.............................................. 3
</TABLE>
Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in selling, general and
administrative expense, as incurred.
Revenue Recognition
Sales are recorded at the time of shipment of products. The Company
establishes reserves for estimated returns and allowances at the time of
shipment. In addition, reserves for customer discounts and rebates are recorded
when revenues are recognized. All such reserves are deducted from sales and
accounts receivable in the accompanying combined profit and loss statement and
combined balance sheet. The Company does not have a history of significant
product returns and hence no provision has been made.
F-34
<PAGE> 87
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN AUSTRALIAN DOLLARS)
Income Taxes
The Company provides Federal and state income taxes at the applicable
Federal and state statutory rates. Deferred income taxes are recorded to reflect
the tax consequences of future years of differences between the tax bases of
assets and liabilities and the amounts recorded for financial reporting purposes
in accordance with the Statement of Financial Accounting Standards ("SFAS") No.
109 "Accounting for Income Taxes".
The statutory income tax rate is 36% and 16.5% in Australia and Hong Kong,
respectively.
Foreign Currency Translation
Limited is located in Hong Kong. Assets and liabilities stated in Hong Kong
Dollars are translated to Australian Dollars at the rate of exchange prevailing
at the balance sheet date. Statement of operations amounts are translated at the
average rates for the period.
Gains and losses from translating intercompany balances between Pty Ltd and
Limited are recognized as a component of income since the balances are short
term in nature.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in financial statements and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of statements of
financial position. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. The Company has adopted the provisions of this statement as
of December 31, 1996. Comprehensive income includes net income and unrealized
gains and losses from currency translation.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is required to be adopted for
fiscal years beginning after December 15, 1997. This statement requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments including, among other things, a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. As the Company operates only one segment it does not believe the
adoption of FASB No 131 will have a significant impact on its financial
statement presentation.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS
133 must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998). The adoption of SFAS 133 will not have a material
impact on the Company's financial statements since the Company does not
currently or intend to use derivative financial instruments.
F-35
<PAGE> 88
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3. INVENTORIES
Inventories consist of finished goods. Approximately 97% of the Company's
inventories were purchased from Prestige U.S. during the year ended December 31,
1997.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture and equipment..................................... 66,294 115,491
Leasehold improvements...................................... 2,889 --
Display stands.............................................. 224,921 405,234
-------- ---------
294,104 520,725
Less -- Accumulated depreciation............................ (60,385) (121,750)
-------- ---------
Property and equipment, net......................... 233,719 398,975
======== =========
</TABLE>
5. TAXATION
Pty Ltd is in a tax loss position for both accounting and tax purposes, and
as such no tax payable has been recognized. The tax effect associated with the
tax losses arising in the year ended December 31, 1997 has been recognized as an
asset by the Company, as its recoverability is considered more likely than not.
The benefit has been presented in the financial statements as follows:
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------
1997 1997 1998
------------ --------- ---------
<S> <C> <C> <C>
Current......................................... 38,036 8,911 11,057
Deferred........................................ (53,298) (81,734) 20,363
--------- --------- ---------
(15,262) (72,823) 31,420
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current deferred income tax assets....................... 40,737 20,374
Non-current deferred income tax assets................... 12,561 12,561
-------- ---------
53,298 32,935
======== =========
</TABLE>
The tax effect of temporary differences is not material to the results of
the Company. There is not a material difference between the statutory income tax
rates and the effective tax rate provided in the accompanying combined financial
statements.
F-36
<PAGE> 89
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN AUSTRALIAN DOLLARS)
6. COMMITMENTS
Lease Commitments
Future minimum annual operating lease payments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
YEAR 1997
- ---- ------------
<S> <C>
1998................................................. 42,900
1999................................................. 51,000
2000................................................. 51,000
2001................................................. 17,000
-------
161,900
=======
</TABLE>
Pty Ltd has entered into capital lease agreements for the purchase of
display stands and computer equipment. Future minimum capital lease payments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
YEAR 1997
- ---- ------------
<S> <C>
1998................................................. 54,345
1999................................................. 46,098
2000................................................. 37,851
2001................................................. 37,851
2002................................................. 33,976
-------
210,121
Future finance charges............................... (45,659)
-------
Net capital lease obligation......................... 164,462
=======
Reconciled to:
Current obligation................................. 38,553
Non current obligation............................. 125,909
-------
164,462
=======
</TABLE>
Guarantees
Pty Ltd has entered into an overdraft facility of $250,000, secured by a
floating charge over the assets of the Company and Directors' guarantees. The
renewal of this facility is subject to an annual review. Interest is payable on
the amount owing and is calculated using the bank's Indicator Lending Rate plus
a margin of 1.65% per annum. At December 31, 1997, the total rate was 11.40% per
annum.
Litigation
As a marketer of cosmetic products, the Company is subject to product
liability claims from consumers. The nature and use of cosmetic products could
give rise to product liability claims if one or more users of the company's
products were to suffer adverse actions following their use of the products. The
Company maintains insurance coverage for these claims; however, a partially or
completely uninsured successful claim against the Company could have a material
adverse effect on the Company's financial position and results of operations.
F-37
<PAGE> 90
PRESTIGE COSMETICS PTY LTD AND PRESTIGE COSMETICS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN AUSTRALIAN DOLLARS)
Concentrations
The Company is dependent on a limited number of customers for a significant
portion of its revenues. During the year ended December 31, 1997, Coles Myer Ltd
and David Jones Ltd were Pty Ltd's two largest customers, and accounted for
approximately 60% and 15% respectively, of the Company's net sales.
During the year ended December 31, 1997, Colour Cosmetics (Far East)
Limited, Excell China Development Limited and Jess Enterprise Co. Limited were
Limited's largest customers and accounted for approximately 50%, 25% and 15% of
its net sales.
The Company was dependent on Prestige U.S. for supply of approximately 97%
of its product during the year ended December 31, 1997.
Currency Risk
The Company conducts business in transactions denominated in Australian,
United States, and Hong Kong dollars. At the date of these financial statements,
the Hong Kong dollar is tied to the United States dollar. However, if at some
point in the future the tie between the Hong Kong dollar and the United States
dollar is removed, there is potential for significant devaluation in the Hong
Kong denominated assets and liabilities of the Company which could have a
material impact on the Company's combined financial position and results of
operations. Furthermore, the ability of the Company to conduct and generate
sales in Hong Kong that are denominated in United States dollars may become
significantly impaired.
7. RELATED PARTY TRANSACTIONS
The Company had the following amounts due to related parties as of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Due to Directors......................................... 95,988 69,077
------- -------
Due to Prestige U.S...................................... 643,840 592,175
Due to other affiliated parties.......................... 75,468 45,469
------- -------
719,308 637,644
======= =======
</TABLE>
Payables due to Prestige U.S. and other affiliated companies relate
primarily to the purchase of stock. Amounts due to other affiliated parties
represent amounts payable to companies owned directly or indirectly by one of
the directors. The amount due to Directors represents loan funding provided by
Directors of the Company repayable on demand.
Included in prepaid expenses and other current assets in the accompanying
combined balance sheet is 170 and 182 due from Directors as of December 31, 1997
and June 30, 1998 (unaudited), respectively for advances to the Directors.
8. SUBSEQUENT EVENT
The Company is in the process of finalizing an agreement to be acquired by
Prestige U.S. for consideration of 380,000 shares of Prestige U.S.'s common
stock. The transaction will be accounted for as a purchase business combination.
F-38
<PAGE> 91
PRESTIGE COSMETICS CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to
acquisitions by the Company of its affiliates, Les Cosmetiques P.C. Inc.
("Canada"), Prestige Cosmetics PTY and Prestige Cosmetics Limited (collectively,
"Australia") and Prestige Cosmetics s.r.l. ("Italy") (collectively, the
"Affiliates") prior to the Offering.
The following is a summary of the ownership structure of Canada, Australia
and Italy:
<TABLE>
<CAPTION>
AFFILIATE OWNERS PERCENTAGE
- --------- ------ ----------
<S> <C> <C>
Canada............................. Sylvia Bouadena (sister of Jacques 100.00%
and Gabriel Cohen)
Australia.......................... Denilpi Pty Ltd. and affiliates 100%
Italy.............................. So. Ge. Cos. S.A. 88.24%
Mr. Georgio Ventura 6.00%
Mrs. Giuliana Finelli 2.24%
Mrs. Stefania Ventura 1.76%
Mrs. Claudia Ventura 1.76%
</TABLE>
As the merger of the Company and Canada is between entities under common
control, such transaction will be accounted for in a manner similar to a
pooling-of-interests. On a historical basis, the results of operations and
financial position of Canada are not material to the combined results of the
Company. As such, the fiscal 1995 and 1996 financial statements of the Company
will not be restated. The acquisitions of Australia and Italy will be accounted
for as purchases with the excess of purchase price being allocated to
intangibles which will be amortized over their estimated useful lives.
Adjustments have been reflected to present the combined financial position
as of June 30, 1998 on a pro forma basis as if the mergers had occurred on June
30, 1998, and the combined results of operations for the nine month period ended
June 30, 1998 and the year ended September 30, 1997 as if the mergers had
occurred at the beginning of the period presented. Such pro forma results do not
purport to represent the actual combined financial position or combined results
of operations and may not be indicative of future combined operating results.
The accompanying unaudited pro forma statement of operations for the nine
months ended June 30, 1998 includes results of operations for the nine month
period ended June 30, 1998 of the Company and the affiliates.
The accompanying unaudited pro forma statement of operations for the year
ended September 30, 1997 includes the Company's results of operations for the
year ended September 30, 1997, Canada's results of operations for the year ended
December 31, 1997, Australia's results of operations for the year ended December
31, 1997 and Italy's results of operations for the year ended December 31, 1997.
The Company's pro forma operations include subsidiaries which are located
outside of the United States.
Foreign Currency Translation. The foreign subsidiaries' balance sheets and
statements of operations have been translated using a convenience translation
which is translating local currency balances into U.S. dollars using a single,
recent exchange rate. The balance sheets and statements of operations are not
translated under Statement of Financial Accounting Standards No. 52. The
translated amounts are presented solely for the convenience of the user of the
financial statements. The rates used for all periods presented are .6813
Canadian Dollars, .6194 Australian Dollars, .00056116 Lire, for each U.S. dollar
for Canada, Australia and Italy, respectively. The translated amounts should not
be construed as representations that the local currency has been, could have
been, or could in the future be converted into U.S. dollars at this or any rate
of exchange.
Intangible and Other Assets. Intangible and other assets consist primarily
of the cost of acquired businesses in excess of the fair value of net tangible
assets acquired. The cost in excess of the fair value of net
F-39
<PAGE> 92
PRESTIGE COSMETICS CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
tangible assets will be amortized over their estimated average life of
thirty-five years on a straight-line basis. After the date of acquisition, the
Company will continually evaluate whether events and circumstances have occurred
that may warrant revision of the estimated useful life of intangible assets or
whether the remaining balance of intangible assets should be evaluated for
possible impairment. The Company will use an estimate of the related anticipated
undiscounted cash flows over the remaining life of the intangible asset in
measuring its recoverability.
F-40
<PAGE> 93
PRESTIGE COSMETICS CORPORATION
PRO FORMA BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRESTIGE CANADA AUSTRALIA ITALY ADJUSTMENTS PRO FORMA
-------- ------ --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ 36 $ 6 $ 387 $ $ 429
Accounts receivable, net.............. 2,547 337 453 1,142 4,479
Due from related parties.............. 598 37 -- 6 (635)(a) 6
Inventories........................... 3,768 293 280 721 -- 5,062
Deferred income taxes................. 559 -- 13 -- -- 572
Prepaid expenses and other current
assets.............................. 22 27 58 78 -- 185
------ ---- ------ ------ ------ -------
Total current assets................ 7,494 730 810 2,334 (635) 10,733
PROPERTY AND EQUIPMENT, net............. 1,732 34 247 674 (199)(d) 2,488
OTHER ASSETS............................ 161 -- 8 72 8,424(b) 8,665
------ ---- ------ ------ ------ -------
Total assets................... $9,387 $764 $1,065 $3,080 $7,590 $21,886
====== ==== ====== ====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $1,648 $280 $ 178 $ 979 $ -- $ 3,085
Accrued expenses...................... 508 44 73 286 -- 911
Customer deposits..................... 168 -- -- -- -- 168
Line of credit........................ 3,126 161 47 -- 3,334
Current portion of long-term debt..... 83 -- 131 -- 214
Notes payable -- shareholders......... 1,291 43 -- -- 1,334
Due to related parties................ 37 162 395 69 (635) (a) 28
Income taxes payable.................. 479 (6) 22 298 -- 793
Current portion of capital lease
obligations......................... -- -- 25 99 -- 124
------ ---- ------ ------ ------ -------
Total current liabilities........... 7,340 480 897 1,909 (635) 9,991
LONG-TERM DEBT, net of current portion.. 14 -- 264 -- 278
RESERVE FOR TERMINATION INDEMNITIES..... -- -- 507 -- 507
CAPITAL LEASE OBLIGATIONS, NET OF
CURRENT PORTION....................... -- -- 64 -- -- 64
DEFERRED INCOME TAXES................... 46 -- -- -- 46
------ ---- ------ ------ ------ -------
Total liabilities................... 7,400 480 961 2,680 (635) 10,886
------ ---- ------ ------ ------ -------
SHAREHOLDERS' EQUITY
Common stock.......................... 63 1 16 95 (95)(g) 80
Additional paid-in capital............ -- -- -- 8,713(g) 8,713
Cumulative translation adjustment..... -- -- 46 -- (46)(g) --
Retained earnings (deficit)........... 1,924 283 42 305 (347)(g) 2,207
------ ---- ------ ------ ------ -------
Total shareholders' equity.......... 1,987 284 104 400 8,225 11,000
------ ---- ------ ------ ------ -------
Total liabilities and
shareholders' equity......... $9,387 $764 $1,065 $3,080 $7,590 $21,886
====== ==== ====== ====== ====== =======
</TABLE>
F-41
<PAGE> 94
PRESTIGE COSMETICS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRESTIGE CANADA AUSTRALIA ITALY ADJUSTMENTS PRO FORMA
-------- ------ --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET SALES.............................. $12,409 $1,677 $1,844 $3,641 $(1,274)(c) $18,297
COST OF GOODS SOLD..................... 5,191 1,051 934 1,434 (1,274)(c) 7,336
------- ------ ------ ------ ------- -------
Gross profit....................... 7,218 626 910 2,207 -- 10,961
------- ------ ------ ------ ------- -------
OPERATING EXPENSES:
Selling, general and administrative
expenses........................... 5,258 577 663 1,445 -- 7,943
Shareholders' compensation........... 442 44 38 114 (83)(h) 555
Provision for doubtful accounts...... 66 83 -- 11 -- 160
Depreciation and amortization........ 207 4 44 162 181(e) 598
Foreign exchange (gain) loss......... (50) -- 49 11 -- 10
Unrealized foreign exchange (gain)
loss............................... (4) -- -- -- -- (4)
------- ------ ------ ------ ------- -------
Total operating expenses........... 5,919 708 794 1,743 98 9,262
------- ------ ------ ------ ------- -------
Operating income (loss)............ 1,299 (82) 116 464 (98) 1,699
------- ------ ------ ------ ------- -------
OTHER INCOME (EXPENSE):
Interest expense, net................ (152) 1 (7) (42) -- (200)
Interest expense -- related
parties............................ (94) -- -- -- -- (94)
Other................................ -- -- -- (54) -- (54)
------- ------ ------ ------ ------- -------
Total other income (expense)....... (246) 1 (7) (96) -- (348)
------- ------ ------ ------ ------- -------
Income (loss) before provision
(benefit) for income taxes....... 1,053 (81) 109 368 (98) 1,351
PROVISION (BENEFIT) FOR INCOME TAXES... 455 25 8 195 (71)(f) 612
------- ------ ------ ------ ------- -------
Net income......................... $ 598 $(106) $ 101 $ 173 $ (27) $ 739
======= ====== ====== ====== ======= =======
EARNINGS PER SHARE:
Basic and diluted.................... $ .09 $ .09
======= =======
Weighted average shares
outstanding........................ 6,297 123 380 1,200 8,000
======= ====== ====== ====== =======
</TABLE>
F-42
<PAGE> 95
PRESTIGE COSMETICS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRESTIGE CANADA AUSTRALIA ITALY ADJUSTMENTS PRO FORMA
-------- ------ --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET SALES.............................. $20,252 $1,806 $2,076 $4,832 $(2,044)(c) $26,922
COST OF GOODS SOLD..................... 9,022 1,091 1,108 2,082 (2,044)(c) 11,259
------- ------ ------ ------ ------- -------
Gross profit....................... 11,230 715 968 2,750 -- 15,663
------- ------ ------ ------ ------- -------
OPERATING EXPENSES:
Selling, general and administrative
expenses........................... 7,587 531 818 1,455 -- 10,391
Royalties............................ -- -- -- 327 (327)(i) --
Shareholders' compensation........... 1,513 47 45 152 (1,017)(h) 740
Provision for doubtful accounts...... 220 -- -- -- -- 220
Depreciation and amortization........ 256 10 19 265 240(e) 790
Foreign exchange (gain) loss......... (179) -- 18 44 -- (117)
Unrealized foreign exchange (gain)
loss............................... (20) -- -- -- -- (20)
------- ------ ------ ------ ------- -------
Total operating expenses........... 9,377 588 900 2,243 (1,104) 12,004
------- ------ ------ ------ ------- -------
Operating income................... 1,853 127 68 507 1,104 3,659
------- ------ ------ ------ ------- -------
OTHER INCOME (EXPENSE):
Interest expense..................... (139) (1) (14) (58) -- (212)
Interest expense -- related
parties............................ (65) -- -- -- -- (65)
Other................................ (13) 3 (4) (80) -- (94)
------- ------ ------ ------ ------- -------
Total other income (expense)....... (217) 2 (18) (138) -- (371)
------- ------ ------ ------ ------- -------
Income (loss) before provision
(benefit) for income taxes....... 1,636 129 50 369 1,104 3,288
PROVISION (BENEFIT) FOR
INCOME TAXES......................... 793 25 (9) 270 332(f) 1,411
------- ------ ------ ------ ------- -------
Net income (loss).................. $ 843 $ 104 $ 59 $ 99 $ 772 $ 1,877
======= ====== ====== ====== ======= =======
EARNINGS PER SHARE:
Basic and diluted.................... $ .13 $ .23
======= =======
Weighted average shares
outstanding........................ 6,297 123 380 1,200 8,000
======= ====== ====== ====== =======
</TABLE>
F-43
<PAGE> 96
PRESTIGE COSMETICS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following adjustments have been reflected to present the pro forma
financial position and results of operations of Prestige as if the acquisitions
of the Affiliates described in the Introduction to Pro Forma Financial
Statements had been consummated at June 30, 1998 for balance sheet purposes, or
at the beginning of the period presented for statement of operations purposes.
(a) Represents the elimination of amounts receivable from/payable to the Company
and the Affiliates for the sale/purchase of products.
(b) Represents the excess of the merger consideration for Australia and Italy
over the fair value of their merged net assets as follows:
<TABLE>
<S> <C> <C>
Merger consideration (1,579,923 restricted common shares at a
value of $5.525 per share)....................................... $8,729
Fair value of assets acquired.............................. 504
Adjustment to fair value................................... (199)(d)
----
Adjusted fair value of net assets acquired....................... 305
------
Intangible assets........................................... $8,424
======
</TABLE>
(c) Represents the elimination of intercompany sales/purchases. No elimination
of intercompany profit in ending inventory is required as transactions are
made at substantially a cost basis.
(d) Represents an adjustment to conform the accounting policies of Australia to
Prestige related to the acquisition and capitalization of displays.
(e) Represents the amortization of intangible assets, which arise in connection
with the acquisitions of Australia and Italy, over their estimated average
life of 35 years
(f) Represents adjustment to reflect taxes at an overall effective tax rate of
approximately 40%, after consideration of non-deductible intangible asset
amortization.
(g) Represents the elimination of the equity accounts of Australia and Italy and
the issuance of the merger shares.
(h) Represents the elimination of shareholders' compensation to certain
shareholders who will enter into employment agreements upon consummation of
the offering, net of the recording of compensation required by the
employment agreements. The pro forma presentation is shown solely as a
result of the employment agreements that will exist following consummation
of the Offering. The shareholders' duties and responsibilities will not be
diminished after the Offering. This information is necessary to
realistically assess the impact of the Offering.
(i) Represents the elimination of royalty expense incurred by Italy subject to a
royalty agreement with an affiliate of the owner of Prestige that expired
during 1997.
F-44
<PAGE> 97
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS
OF WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 28
Management............................ 39
Certain Transactions.................. 43
Principal Shareholders................ 45
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 48
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 51
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,300,000 SHARES
[LOGO]
PRESTIGE COSMETICS CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
JOSEPHTHAL & CO. INC.
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this registration statement excluding underwriting
discounts and commissions and the Representative's non-accountable expense
allowance will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 6,031.87
NASD filing fee............................................. 2,544.70
Nasdaq National Market listing fee.......................... 43,250.00
Printing expenses........................................... 75,000.00
Accounting fees and expenses................................ 60,000.00
Legal fees and expenses..................................... 150,000.00
Fees and expenses (including legal fees) for qualifications
under state securities laws............................... 15,000.00
Transfer Agent's fees and expenses.......................... 5,000.00
Miscellaneous............................................... 43,923.43
-----------
Total....................................................... $400,750.00
===========
</TABLE>
- ---------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the FBCA to
indemnify its directors and officers to the extent provided for in such statute.
The Registrant's Articles of Incorporation provide that the Registrant will
indemnify and may insure its officers and directors to the full extent permitted
by law. The Registrant has also entered into indemnification agreements with
each of its directors and executive officers where it has agreed to indemnify
each of them to the fullest extent permitted by law. In general, Florida law
permits a Florida corporation to indemnify its directors, officers, employees
and agents, and persons serving at the corporation's request in such capacities
for another enterprise, against liabilities arising from conduct that such
persons reasonably believed to be in, nor not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (b)
deriving an improper personal benefit from a transaction, (c) voting for or
assenting to an unlawful distribution, and (d) willful misconduct or a conscious
disregard for the best interests of the Registrant in a proceeding by or in the
right of the Registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or Federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought from the Registrant, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification from the Registrant by
any officer or director.
II-1
<PAGE> 99
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities that were not registered under the Securities Act have been
issued or sold by the Company within the past three years except as follows:
Set forth below is information relating to certain issuances of an
aggregate of 1,702,923 shares of Common Stock which the Company anticipates will
occur prior to consummation of the Offering.
<TABLE>
<CAPTION>
SHARES
PURCHASER PURCHASED PURCHASE PRICE
--------- ---------- ----------------------
<S> <C> <C>
Sylvia Bouadena 123,000 (1)
Denilpi Pty Ltd. 380,000 (2)
So. Ge. Cos. S.A. 1,058,812 (3)
Giorgio Ventura 71,995 (4)
Giuliana Finelli 26,878 (5)
Stefania Ventura 21,119 (6)
Claudia Ventura 21,119 (7)
</TABLE>
- ---------------
(1) Sylvia Bouadena will receive 123,000 shares of Common Stock in connection
with the Company's acquisition of Prestige Canada.
(2) Denilpi Pty Ltd. will receive 380,000 shares of Common Stock in connection
with the Company's acquisition of Prestige Australia.
(3) So. Ge. Cos. S.A. will receive 1,058,812 shares of Common Stock in exchange
for the 88.24% interest in Prestige Italy, to be acquired by the Company in
connection with its acquisition of Prestige Italy.
(4) Giorgio Ventura will receive 71,995 shares of Common Stock in exchange for
the 6% interest in Prestige Italy, to be acquired by the Company in
connection with its acquisition of Prestige Italy.
(5) Guiliana Finelli will receive 26,878 shares of Common Stock in exchange for
the 2.24% interest in Prestige Italy, to be acquired by the Company in
connection with its acquisition of Prestige Italy.
(6) Stefania Ventura will receive 21,119 shares of Common Stock in exchange for
the 1.76% interest in Prestige Italy, to be acquired by the Company in
connection with its acquisition of Prestige Italy.
(7) Claudia Ventura will receive 21,119 shares of Common Stock in exchange for
the 1.76% interest in Prestige Italy, to be acquired by the Company in
connection with its acquisition of Prestige Italy.
The aforementioned issuances and sales were made in reliance upon the
exemption from the registration provisions of the 1933 Act afforded by Section
4(2) thereof and/or Regulation D promulgated thereunder, as transactions by an
issuer not involving a public offering. The purchasers of the securities
described above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the securities may not be offered, sold or transferred
other than pursuant to an effective registration statement under the 1933 Act,
or an exemption from such registration requirements. The Company will place stop
transfer instructions with its transfer agent with respect to all such
securities.
II-2
<PAGE> 100
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1 Proposed form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation
3.2 Form of Amended and Restated Bylaws
4.1 Form of Representative's Warrant Agreement, including Form
of Representative's Warrants
4.2 Form of Common Stock Certificate**
5.1 Form of Opinion of Greenberg Traurig, P.A. as to the
validity of the Common Stock being registered
10.1 Credit and Security Agreement, dated September 28, 1995, by
and between First Union National Bank of Florida and the
Company.
10.2 Demand, Renewal and Consolidated Revolving Promissory Note,
dated as of April __, 1998, by and between First Union
National Bank of Florida and the Company.**
10.3 Second Additional Term Promissory Note, dated April 15, 1998
by and between First Union National Bank of Florida and the
Company.*
10.4 Form of Tax Indemnity Agreement**
10.5 Guaranty, dated as of September 28, 1995, by and among First
Union National Bank of Florida, the Company, and Gabriel
Cohen, as Guarantor.
10.6 Guaranty, dated as of September 28, 1995, by and among First
Union National Bank of Florida, the Company and Jacques
Cohen, as Guarantor.
10.7 Amendment to Credit and Security Agreement, dated as of May
29, 1997, by and between First Union National Bank of
Florida and the Company.
10.8 Second Amendment to Credit and Security Agreement, dated as
of December 17, 1997, by and between First Union National
Bank of Florida and the Company.
10.9 Third Amendment to Credit and Security Agreement dated as of
April __ , 1998 by and between First Union National Bank and
the Company.*
10.10 1998 Stock Option Plan of the Company.**
10.11 Form of Employment Agreement, by and between Jacques Cohen
and the Company.
10.12 Form of Employment Agreement, by and between Gabriel Cohen
and the Company.
10.13 Form of Employment Agreement, by and between Thomas Winarick
and the Company.
10.14 Form of Employment Agreement, by and between Marc Feller and
the Company.
10.15 Form of Employment Agreement, by and between Chris Dow and
the Company.
10.16 Form of Employment Agreement, by and between Giorgio Ventura
and the Company.
10.17 Net Lease Agreement, dated May 1, 1994, by and between C&C
General Partnership and the Company.
10.18 Lease, dated June 1, 1996 by and between Stemar, as Nominees
Pty. Ltd. and Cosmopak Pty. Ltd.
10.19 Deed of Lease, dated January 3, 1998 by and between 2757800
Canada Inc. and Prestige Canada.
10.20 Promissory Note, dated December 31, 1997 by and between
Jacques Cohen and the Company.
10.21 Promissory Note, dated December 31, 1997 by and between
Gabriel Cohen and the Company.
</TABLE>
II-3
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
23.1 Consent of Greenberg Traurig, P.A. (included in its opinion
to be filed as Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consents of Director Nominees.
24.1 Reference is made to the Signatures section of this
Registration Statement for the Power of Attorney contained
therein.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission (the "Commission") are not
required under the related instructions, the required information is contained
in the financial statements and notes thereto or are not applicable, and
therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
II-4
<PAGE> 102
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(5) To file a post-effective amendment to the registration statement
to include any financial statements required by Rule 3-19 of this chapter
at the start of any delayed offering or throughout a continuous offering.
II-5
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Deerfield Beach, State of Florida, on September 15, 1998.
PRESTIGE COSMETICS CORPORATION
By: /s/ JACQUES COHEN
------------------------------------
Jacques Cohen, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JACQUES COHEN Chairman, President and Chief September 15, 1998
- --------------------------------------------------- Executive Officer (principal
Jacques Cohen executive officer)
/s/ MARC FELLER Chief Financial Officer September 15, 1998
- --------------------------------------------------- (principal financial and
Marc Feller accounting officer)
/s/ GABRIEL COHEN Vice President and Director September 15, 1998
- ---------------------------------------------------
Gabriel Cohen
/s/ THOMAS WINARICK Executive Vice President and September 15, 1998
- --------------------------------------------------- Director
Thomas Winarick
</TABLE>
II-6
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1 Proposed form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation
3.2 Form of Amended and Restated Bylaws
4.1 Form of Representative's Warrant Agreement, including Form
of Representative's Warrants
5.1 Form of Opinion of Greenberg Traurig, P.A. as to the
validity of the Common Stock being registered
10.1 Credit and Security Agreement, dated September 28, 1995, by
and between First Union National Bank of Florida and the
Company.
10.5 Guaranty, dated as of September 28, 1995, by and among First
Union National Bank of Florida, the Company, and Gabriel
Cohen, as Guarantor.
10.6 Guaranty, dated as of September 28, 1995, by and among First
Union National Bank of Florida, the Company and Jacques
Cohen, as Guarantor.
10.7 Amendment to Credit and Security Agreement, dated as of May
29, 1997, by and between First Union National Bank of
Florida and the Company.
10.8 Second Amendment to Credit and Security Agreement, dated as
of December 17, 1997, by and between First Union National
Bank of Florida and the Company.
10.11 Form of Employment Agreement, by and between Jacques Cohen
and the Company.
10.12 Form of Employment Agreement, by and between Gabriel Cohen
and the Company.
10.13 Form of Employment Agreement, by and between Thomas Winarick
and the Company.
10.14 Form of Employment Agreement, by and between Marc Feller and
the Company.
10.15 Form of Employment Agreement, by and between Chris Dow and
the Company.
10.16 Form of Employment Agreement, by and between Giorgio Ventura
and the Company.
10.17 Net Lease Agreement, dated May 1, 1994, by and between C&C
General Partnership and the Company.
10.18 Lease, dated June 1, 1996 by and between Stemar, as Nominees
Pty. Ltd. and Cosmopak Pty. Ltd.
10.19 Deed of Lease, dated January 3, 1998 by and between 2757800
Canada Inc. and Prestige Canada.
10.20 Promissory Note, dated December 31, 1997 by and between
Jacques Cohen and the Company.
10.21 Promissory Note, dated December 31, 1997 by and between
Gabriel Cohen and the Company.
23.1 Consent of Greenberg, Traurig, P.A. (included in its opinion
to be filed as Exhibit 5.1).
23.2 Consent of Authur Andersen LLP.
23.3 Consents of Director Nominees.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 1.1
2,000,000 SHARES OF COMMON STOCK
PRESTIGE COSMETICS CORPORATION
UNDERWRITING AGREEMENT
New York, New York
____________, 1998
JOSEPHTHAL & CO. INC.
As Representative of the Several
Underwriters listed on Schedule A hereto
200 Park Avenue
New York, New York 10166
Ladies and Gentlemen:
Prestige Cosmetics Corporation, a Florida corporation (the "Company"),
confirms its agreement with Josephthal & Co. Inc. ("Josephthal") and each of
the underwriters named in Schedule A hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 11), for whom Josephthal is acting as representative (in
such capacity, Josephthal shall hereinafter sometimes be referred to as "you"
or the "Representative"), with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of the Company's common stock, $.01 par value per
share ("Common Stock"), set forth in Schedule A hereto. Such shares of Common
Stock are hereinafter referred to as the "Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 345,000 shares of Common Stock for the purpose of covering
over-allotments, if any (the "Option Shares"). The Firm Shares and the Option
Shares are sometimes hereinafter referred to as the "Shares." The Company also
proposes to issue and sell to Josephthal warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 230,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of
the Representative's Warrants are hereinafter referred to as the
"Representative's Shares." The Firm Shares, the Option Shares, the
Representative's Warrants and the Representative's Shares (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
<PAGE> 2
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. __________), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Shares and the Option Shares under the Securities Act of 1933, as
amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations (the "Regulations") of the Commission under
the Act. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriters,
and will not file any other amendment thereto to which the Underwriters shall
have objected in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated
therein (including, but not limited to those documents or information
incorporated by reference therein) and all information deemed to be a part
thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations)), is hereinafter called the "Registration Statement," and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or, to the Company's knowledge, threatened. Each of the
Preliminary Prospectus, Registration Statement and Prospectus at the time of
filing thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, Registration Statement or
Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished
to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required
to be delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
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<PAGE> 3
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished
to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
(d) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the state of its
incorporation. The Company owns one hundred percent (100%) of the issued and
outstanding capital of each of Les Cosmetiques P.C. Inc., a Canadian
corporation, Prestige Cosmetics PTY, an Australian corporation and Prestige
Cosmetics SRL, an Italian corporation. Les Cosmetiques P.C. Inc., Prestige
Cosmetics PTY and Prestige Cosmetics SRL are hereinafter collectively referred
to as the "Subsidiaries." Each of the Subsidiaries has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation. Each of the Company and the Subsidiaries has
been duly qualified and licensed and is in good standing as a foreign
corporation in each jurisdiction in which their respective ownership or leasing
of any properties or the character of their respective operations requires such
qualification or licensing. None of the Company nor any of the Subsidiaries
owns, directly or indirectly, an interest in any other corporation,
partnership, trust, joint venture or other business entity except as set forth
in this Section 1(d). Each of the Company and the Subsidiaries has all
requisite corporate power and authority, and each of the Company and the
Subsidiaries has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease their respective properties and conduct their respective business as
described in the Prospectus; each of the Company and the Subsidiaries is and
has been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal, state
and local laws, rules and regulations; and none of the Company nor any of the
Subsidiaries has received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company or the Subsidiaries. The disclosures in the
Registration Statement concerning the effects of federal, state and local laws,
rules and regulations on the Company's and the Subsidiaries' business as
currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
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<PAGE> 4
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and each Option Closing Date, if any, based
upon the assumptions set forth therein, and none of the Company nor any of the
Subsidiaries is a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Representative's
Warrant Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform or, when issued and
paid for, will conform, in all respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of each of the Company and the Subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable and
the holders thereof have no rights of rescission with respect thereto, and are
not subject to personal liability by reason of being such holders; and none of
such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or the Subsidiaries, as the case may be,
or similar contractual rights granted by the Company or the Subsidiaries. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued,
fully paid and non-assessable and will conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely by reason of being such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will
be in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representative, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity
of any kind whatsoever.
(f) The financial statements, including the related notes and
schedules thereto, included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, income,
changes in cash flow, changes in stockholders' equity, and the results of
operations of the Company at the respective dates and for the respective
periods to which they apply and the pro forma financial information included in
the Registration Statement and Prospectus presents fairly, on a basis
consistent with that of the audited financial statements included therein, what
the Company's pro forma capitalization would have been for the respective
periods and as of the respective dates to which they apply after giving effect
to the adjustments described therein. Such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no adverse change or development involving a material
prospective change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company or the Subsidiaries, whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus, and the
outstanding debt, the property, both tangible and intangible, and the business
of the Company and the Subsidiaries conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus. Financial information (including, without limitation, any pro forma
financial information) set forth in the Prospectus under the headings "Summary
4
<PAGE> 5
Financial Data," "Selected Financial Data," "Capitalization," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
fairly present, on the basis stated in the Prospectus, the information set
forth therein, have been derived from or compiled on a basis consistent with
that of the audited financial statements included in the Prospectus; and in the
case of pro forma financial information, if any, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein.
(g) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable and for which payment is due, including,
but not limited to, withholding taxes and amounts payable under Chapters 21
through 24 of the Internal Revenue Code of 1986 (the "Code"), and has furnished
all information returns it is required to furnish pursuant to the Code, (ii)
has established adequate reserves for such taxes which are not due and payable,
and (iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the
Securities to be sold by the Company hereunder and the purchase by Josephthal
of the Representative's Warrants from the Company, (iii) the consummation by
the Company of any of its obligations under this Agreement or the
Representative's Warrant Agreement, or (iv) resales of the Shares in connection
with the distribution contemplated hereby.
(i) Each of the Company and the Subsidiaries maintains
insurance policies, including, but not limited to, general liability, product
liability and property insurance, which insures the Company and the
Subsidiaries and their respective employees, against such losses and risks
generally insured against by comparable businesses. None of the Company nor any
of the Subsidiaries (A) has failed to give notice or present any insurance
claim with respect to any matter, including but not limited to the Company's
and the Subsidiaries' business, property or employees, under the insurance
policy or surety bond in a due and timely manner, (B) has any disputes or
claims against any underwriter of such insurance policies or surety bonds or
has failed to pay any premiums due and payable thereunder, or (C) has failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in
full any valid claim of the Company or any of the Subsidiaries.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or, to the Company's knowledge, threatened against
(or circumstances that may give rise to the same), or involving the properties
or business of, the Company or any of the Subsidiaries which (i) questions the
validity of the capital stock of the Company or any of the Subsidiaries, this
Agreement or the Representative's Warrant Agreement or of any action taken or
to be taken by the Company pursuant to or in connection with this Agreement or
the Representative's Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or
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<PAGE> 6
otherwise, or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the Company or any
of the Subsidiaries.
(k) The Company has full legal right, corporate power and
authority to authorize, issue, deliver and sell the Securities, enter into this
Agreement and the Representative's Warrant Agreement and to consummate the
transactions provided for in such agreements; and this Agreement and the
Representative's Warrant Agreement have each been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement and the
Representative's Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provisions may be limited under applicable
laws or the public policies underlying such laws and (iii) that the remedies of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceedings may be brought. None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company or any of
the Subsidiaries pursuant to the terms of, (i) the certificate of incorporation
or by-laws of the Company or any of the Subsidiaries [CONFIRM PROPER TITLE OF
CHARTER DOCUMENTS OF SUBSIDIARIES], (ii) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries is or may be bound or to which any of their respective
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company or any Subsidiary of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of the Subsidiaries or any of their respective activities or properties.
(l) Except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court, regulatory
body, government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the issuance of the Representative's Warrants and the
Representative's Shares, the performance of this Agreement and the
Representative's Warrant Agreement and the transactions contemplated hereby and
thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Shares, the Representative's Warrants or the
Representative's Shares, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Shares, the
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<PAGE> 7
Representative's Warrants and the Representative's Shares to be sold by the
Company hereunder and under the Representative's Warrant Agreement.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which the Company is a party or by which the
Company or any of the Subsidiaries may be bound or to which any of their
respective assets, properties or business may be subject have been duly and
validly authorized, executed and delivered by the Company or the applicable
Subsidiary, as the case may be, and constitute the legal, valid and binding
agreements of the Company or such Subsidiary, as the case may be, enforceable
against the Company or such Subsidiary, as the case may be, in accordance with
their respective terms. The descriptions in the Registration Statement of
agreements, contracts and other documents are accurate in all material respects
and fairly present the information required to be shown with respect thereto on
Form S-1, and there are no contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required, and
the exhibits which have been filed are in all material respects complete and
correct copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, none of the Company
nor any of the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii) entered
into any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in respect
of their respective capital stock of any class, and there has not been any
change in the capital stock, or any material change in the debt (long or short
term) or liabilities or material adverse change in or affecting the general
affairs, management, financial operations, stockholders' equity or results of
operations of the Company or any of the Subsidiaries.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders' agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound or to which the property or assets (tangible or
intangible) of the Company or any of the Subsidiaries is subject or affected.
(p) Each of the Company and the Subsidiaries has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
any of the Company or the Subsidiaries by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any of the Subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened
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<PAGE> 8
against or involving any of the Company or the Subsidiaries or any predecessor
entity, and none has ever occurred. No representation question exists
respecting the employees of any of the Company or the Subsidiaries, and no
collective bargaining agreement or modification thereof is currently being
negotiated by any of the Company or the Subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or the Subsidiaries. No labor dispute with
the employees of any of the Company or the Subsidiaries exists or is imminent.
(q) Except as described in the Prospectus, none of the Company
nor any of the Subsidiaries maintain, sponsor or contribute to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multiemployer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). None of the Company nor any
of the Subsidiaries maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company or any of the Subsidiaries to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is in
compliance with all reporting, disclosure and other requirements of the Code
and ERISA as they relate to any such ERISA Plan. Determination letters have
been received from the Internal Revenue Service with respect to each ERISA Plan
which is intended to comply with Code Section 401(a), stating that such ERISA
Plan and the attendant trust are qualified thereunder. None of the Company nor
any of the Subsidiaries has ever completely or partially withdrawn from a
"multiemployer plan."
(r) Neither the Company, any of the Subsidiaries, nor any of
its employees, directors, stockholders, partners, or affiliates (within the
meaning of the Rules and Regulations) of any of the foregoing has taken or will
take, directly or indirectly, any action designed to or which has constituted
or which might be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of
the patents, patent applications, trademarks, service marks, service names,
trade names and copyrights, and none of the licenses and rights to the
foregoing presently owned or held by the Company or any of the Subsidiaries are
in dispute or are in any conflict with the right of any other person or entity.
Each of the Company and the Subsidiaries (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
all patents, patent applications, trademarks, service marks, service names,
trade names and copyrights, technology and licenses and rights with respect to
the foregoing, used in the conduct of its business as now conducted or proposed
to be conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) is not obligated or under any
liability whatsoever to make any payment by way of royalties, fees or otherwise
to any owner or licensee of, or other claimant to, any patent, patent
application, trademark, service mark, service name, trade name, copyright,
know-how, technology or other
8
<PAGE> 9
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(t) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or, to the Company's knowledge, threatened (or circumstances
that may give rise to the same) against the Company or any of the Subsidiaries
which challenges the exclusive rights of the Company or any of the Subsidiaries
with respect to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications or licenses or rights to the foregoing
used in the conduct of their respective businesses, or which challenge the
right of the Company or any of the Subsidiaries to use any technology presently
used or contemplated to be used in the conduct of their respective businesses.
(u) Each of the Company and the Subsidiaries owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, technology, designs, processes, works of
authorship, computer programs and technical data and information (collectively
herein "intellectual property") that are material to the development,
manufacture, operation and sale of all products and services sold or proposed
to be sold by the Company or any of the Subsidiaries, free and clear of and
without violating any right, lien, or claim of others, including without
limitation, former employers of its employees; provided, however, that the
possibility exists that other persons or entities, completely independently of
the Company or any of the Subsidiaries, or their respective employees or
agents, could have developed trade secrets or items of technical information
similar or identical to those of the Company or any of the Subsidiaries. None
of the Company nor any of the Subsidiaries is aware of any such development of
similar or identical trade secrets or technical information by others.
(v) Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items
of real and personal property stated in the Prospectus, to be owned or leased
by them free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects, or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus, taxes, lessor's
interests and liens for taxes not yet due and payable.
(w) Arthur Andersen LLP ("Arthur Andersen"), whose report is
filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the Rules
and Regulations.
(x) The Company has caused to be duly executed, legally binding
and enforceable agreements pursuant to which each officer, director and all of
the holders of the Common Stock and all holders of securities exchangeable or
exercisable for or convertible into shares of Common Stock agreed not to,
directly or indirectly, offer to sell, sell, grant any option for the sale of,
assign, transfer, pledge, hypothecate, distribute or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than nine (9) months following the effective
date of the
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<PAGE> 10
Registration Statement without the prior written consent of Josephthal. During
the nine (9) month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of
Josephthal, sell, contract or offer to sell, issue, transfer, assign, pledge,
distribute, or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any options, rights or warrants with respect to any shares of
Common Stock. The Company will cause the Transfer Agent, as defined below, to
mark an appropriate legend on the face of stock certificates representing all of
such securities and to place "stop transfer" orders on the Company's stock
ledgers.
(y) Except as described in the Prospectus under "Underwriting," there
are no claims, payments, issuances, arrangements or understandings, whether oral
or written, for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuance with respect to the Company or
any of its officers, directors, stockholders, partners, employees or affiliates
that may affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(z) The Common Stock has been approved for quotation on the Nasdaq
National Market ("Nasdaq").
(aa) Neither the Company nor any of the Subsidiaries, nor any of their
respective officers, employees, agents, or any other person acting on behalf of
the Company or any of the Subsidiaries, has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company or any of the Subsidiaries (or assist
the Company or any of the Subsidiaries in connection with any actual or proposed
transaction) which (a) might subject the Company or any of the Subsidiaries, or
any other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not given in
the past, might have had a materially adverse effect on the assets, business or
operations of the Company or any of the Subsidiaries, or (c) if not continued in
the future, might adversely affect the assets, business, operations or prospects
of the Company or any of the Subsidiaries. Each of the Company's and the
Subsidiaries' internal accounting controls are sufficient to cause the Company
and the Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977,
as amended.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company or any of the Subsidiaries, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or any of the Subsidiaries, or
(B) purchases from or sells or furnishes to the Company or any of the
Subsidiaries any goods or services, or (ii) a beneficial interest in any
contract or agreement to which the Company or any of the
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<PAGE> 11
Subsidiaries is a party or by which the Company or any of the Subsidiaries may
be bound or affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company or any of the Subsidiaries and any
officer, director, or Principal Shareholder (as such term is defined in the
Prospectus) of the Company or any of the Subsidiaries or any partner, affiliate
or associate of any of the foregoing persons or entities.
(cc) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(dd) The minute books of the Company and the Subsidiaries have been
made available to the Underwriters and contains a complete summary of all
meetings and actions of the directors, stockholders, audit committee,
compensation committee and any other committee of the Board of Directors of the
Company and the Subsidiaries, respectively, since the time of their respective
incorporation, and reflects all transactions referred to in such minutes
accurately in all material respects.
(ee) Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ff) The Company has as of the effective date of the Registration
Statement (i) entered into employment agreements with Jacques Cohen, Gabriel
Cohen, Thomas Winarick, Marc Feller, Chris Dow and Giorgio Ventura in the
forms filed as Exhibit __________, ___________ and ____________, respectively,
to the Registration Statement and (ii) purchased term key-man insurance policies
on the lives of Jacques Cohen, Gabriel Cohen, Thomas Winarick, Marc Feller,
Chris Dow and Giorgio Ventura in the amount of $1,000,000, which policies name
the Company as the sole beneficiary.
2. Purchase, Sale and Delivery of the Securities and Representative's
Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$______ per share [93% of the initial public offering price] of Common Stock,
that number of Firm Shares set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Firm Shares which such Underwriter
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all
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<PAGE> 12
or any part of the Option Shares at a price of $_____ per share [93% of the
initial public offering price] of Common Stock. The option granted hereby will
expire 45 days after (i) the date the Registration Statement becomes effective,
if the Company has elected not to rely on Rule 430A under the Rules and
Regulations, or (ii) the date of this Agreement if the Company has elected to
rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Shares upon notice by the Representative to the Company
setting forth the number of Option Shares as to which the several Underwriters
are then exercising the option and the time and date of payment and delivery for
any such Option Shares. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Representative, but shall not be later than
seven full business days after the exercise of said option, nor in any event
prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon
by the Representative and the Company. Nothing herein contained shall obligate
the Underwriters to make any over-allotments. No Option Shares shall be
delivered unless the Firm Shares shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Shares shall be made at the offices of Josephthal & Co. Inc. at
200 Park Avenue, New York, New York 10166, or at such other place as shall be
agreed upon by the Representative and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on _______________, 1998 or at
such other time and date as shall be agreed upon by the Representative and the
Company, but not less than three (3) nor more than seven (7) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called "Closing Date"). In addition, in the
event that any or all of the Option Shares are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such Option
Shares shall be made at the above mentioned office of the Representative or at
such other place as shall be agreed upon by the Representative and the Company
on each Option Closing Date as specified in the notice from the Representative
to the Company. Delivery of the certificates for the Firm Shares and the Option
Shares, if any, shall be made to the Underwriters against payment by the
Underwriters, severally and not jointly, of the purchase price for the Firm
Shares and the Option Shares, if any, to the order of the Company for the Firm
Shares and the Option Shares, if any, by New York Clearing House funds. In the
event such option is exercised, each of the Underwriters, acting severally and
not jointly, shall purchase that proportion of the total number of Option Shares
then being purchased which the number of Firm Shares set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares, subject in each case to such adjustments as the Representative in its
discretion shall make to eliminate any sales or purchases of fractional shares.
Certificates for the Firm Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriters may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Shares and the Option Shares, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to Closing Date or the relevant Option Closing Date, as
the case may be.
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<PAGE> 13
(d) On the Closing Date, the Company shall issue and sell to
Josephthal, Representative's Warrants at a purchase price of $.0001 per warrant,
which warrants shall entitle the holders thereof to purchase an aggregate of
230,000 shares of Common Stock. The Representative's Warrants shall be
exercisable for a period of four years commencing one year from the effective
date of the Registration Statement at a price equaling one hundred twenty
percent (120%) of the initial public offering price of the shares of Common
Stock. The Representative's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit _____ to the Registration
Statement. Payment for the Representative's Warrants shall be made on the
Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deem advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Shares is required and
has not become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Shares has been completed to
such extent as the Representative, in their discretion deem advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company.
The Company covenants and agrees with each of the Underwriters as
follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representative and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment
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<PAGE> 14
to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information. If the Commission or any state securities
commission authority shall enter a stop order or suspend such qualification at
any time, the Company will make every effort to obtain promptly the lifting of
such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifteenth business day after the effective date of
the Registration Statement.
(d) The Company will give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, that the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state
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<PAGE> 15
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Representative promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
satisfactory to Underwriters' Counsel, and the Company will furnish to the
Underwriters copies of such amendment or supplement as soon as available and in
such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representative, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of seven years after the date hereof, the Company
will furnish to its stockholders annual reports (including financial statements
audited by independent public accountants) and will deliver to the
Representative:
i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of independent
certified public accountants;
iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
v) every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs which was released or prepared by or on behalf of the Company;
and
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<PAGE> 16
vi) any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may request.
During a seven (7) year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiary are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if necessary under
the jurisdiction of incorporation of the Company, a Registrar (which may be the
same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true copies of duly executed,
legally binding and enforceable agreements pursuant to which for a period of not
less than nine (9) months from the effective date of the Registration Statement,
all officers, directors, holders of all shares of Common Stock and holders of
all securities exchangeable or exercisable for or convertible into shares of
Common Stock, will not directly or indirectly, issue, offer to sell, sell, grant
an option for the sale of, assign, transfer, pledge, hypothecate, distribute or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein without the prior written consent of Josephthal (collectively,
the "Lock-up Agreements"). On or before the Closing Date, the Company shall
deliver instructions to the Transfer Agent authorizing it to place appropriate
legends on the certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the Company's
ledgers. During the nine (9) month period commencing with the effective date of
the Registration Statement, the Company shall not, without the prior written
consent of Josephthal, sell, contract or offer to sell, issue, transfer, assign,
pledge, hypothecate, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or warrants with
respect to any shares of Common Stock. During the nine (9) month period
commencing with the effective date of the Registration Statement, the Company
shall not file any registration statement with the Securities and Exchange
Commission on Form S-8 without the prior written consent of Josephthal.
(l) Neither the Company nor any of the Subsidiaries, nor any of its
officers, directors, stockholders, nor any of their respective affiliates
(within the meaning of the Rules and Regulations) will take, directly or
indirectly, any action designed to, or which might in the future
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<PAGE> 17
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. Except as described in the Prospectus, no portion
of the net proceeds will be used, directly or indirectly, to acquire any
securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letter to be
furnished pursuant to Section 6(j) hereof.
(p) The Company shall cause the Common Stock to be quoted on Nasdaq or
a national securities exchange for a period of seven (7) years from the date
hereof, and use its best efforts to maintain the Nasdaq quotation or exchange
listing of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Representative's request and at the
Company's sole expense, (i) daily consolidated transfer sheets relating to the
Common Stock, (ii) the list of holders of all of the Company's securities and
(iii) a Blue Sky "Trading Survey" for secondary sales of the Company's
securities prepared by counsel to the Company.
(r) As soon as practicable, (i) but in no event more than 5 business
days before the effective date of the Registration Statement, file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Securities and (ii) but in no event more than 30 days from the effective date of
the Registration Statement, take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual
and to continue such inclusion for a period of not less than seven (7) years.
(s) The Company hereby agrees that it will not for a period of nine (9)
months from the effective date of the Registration Statement, adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting the grant, issue or sale of any
shares of Common Stock or other securities of the Company (i) in an amount
greater than an aggregate of 750,000 shares of Common Stock, (ii) at an exercise
or sale price per share less than the fair market value of the Common Stock on
the date of grant or sale, (iii) to any direct or indirect beneficial holder on
the date hereof of more
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<PAGE> 18
than 10% of the issued and outstanding shares of Common Stock, (iv) with the
payment for such securities with any form of consideration other than cash, (v)
upon payment of less than the full purchase or exercise price for such shares of
Common Stock or other securities of the Company.
(t) Until the completion of the distribution of the Shares, and for 25
days thereafter, the Company shall not without the prior written consent of the
Representative and Underwriters' Counsel, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representative's Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 (or other appropriate form) for the registration under
the Act of the Representative's Shares.
(v) Subject to the sale of the Shares, Josephthal and its successors
will have the right to designate a nominee for election, and its successors will
have the right to designate a nominee for election, at its or their option, as a
member of the Board of Directors of the Company, and the Company will use its
best efforts to cause such nominee to be elected and continued in office as a
director of the Company until the expiration of five (5) years from the
Effective Date. Following the election of such nominee as a director, such
person shall receive no more or less compensation than is paid to other
non-officer directors of the Company for attendance at meetings of the Board of
Directors of the Company and shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging and transportation. The Company agrees to indemnify and hold
such director harmless, to the maximum extent permitted by law, against any and
all claims, actions, awards and judgments arising out of his service as a
director and, in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include such
director as an insured under such policy. The rights and benefits of such
indemnification and the benefits of such insurance shall, to the extent such
policy permits, extend to Josephthal insofar as it may be or may be alleged to
be responsible for such director.
If Josephthal does not exercise its option to designate a member of the
Company's Board of Directors, Josephthal shall nonetheless have the right to
send a representative (who need not be the same individual from meeting to
meeting) to observe each meeting of the Board of Directors (subject to execution
by such individual of a confidentiality agreement). The Company agrees to give
Josephthal notice of each such meeting and to provide Josephthal with an agenda
and minutes of the meeting no later than it gives such notice and provides such
items to the directors.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement and the Representative's Warrant Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel
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<PAGE> 19
for the Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Shares and the purchase by the Representative of the Representative's
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representative's Warrant Agreement, and
(z) resale of the Shares by the Underwriters in connection with the distribution
contemplated hereby, (iv) the qualification of the Securities under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of Underwriter's Counsel (such fees not to exceed $15,000) in connection
therewith, (v) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent counsel
or consultant retained, (vi) fees and expenses of the transfer agent and
registrar, (vii) applications for assignments of a rating of the Securities by
qualified rating agencies, (viii) the fees payable to the Commission and the
NASD, (ix) the fees and expenses incurred in connection with the quotation of
the Securities on Nasdaq and any other exchange and (x) advertising costs and
expenses, "roadshow" and information meeting and presentation costs.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 6, Section 10(a) or Section 12 hereof, the
Company shall reimburse and indemnify the Representative for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to one
and one-half percent (1 1/2%) of the gross proceeds received by the Company from
the sale of the Firm Shares, twenty-five thousand dollars ($25,000) of which has
been paid to date. In the event the Representative elects to exercise the
over-allotment option described in Section 2(b) hereof, the Company agrees to
pay to the Representative on each Option Closing Date (by certified or bank
cashier's check, or at the Representative's election, by deduction from the
proceeds of the Option Shares) a non-accountable expense allowance equal to one
and one-half percent (1 1/2%) of the gross proceeds received by the Company from
the sale of the Option Shares.
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<PAGE> 20
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, with respect to the
Company as if it had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of their
respective covenants and obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 Noon, New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representative shall have
received from Underwriters' Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as the Representative
request and Underwriters' Counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(d) At Closing Date, the Underwriters shall have received the favorable
opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., counsel
to the Company, dated the Closing Date, addressed to the Underwriters and in
form and substance satisfactory to Underwriters' Counsel, to the effect that:
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<PAGE> 21
i) each of the Company and the Subsidiaries (A) has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of
its operations requires such qualification or licensing, and (C) has
all requisite corporate power and authority; and the Company has
obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as
described in the Prospectus; each of the Company and the Subsidiaries
is and has been doing business in material compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises
and permits and all federal, state and local laws, rules and
regulations; none of the Company nor any of the Subsidiaries has
received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of
operations of the Company or the Subsidiaries. The disclosures in the
Registration Statement concerning the effects of federal, state and
local laws, rules and regulations on the Company's and the
Subsidiaries' businesses as currently conducted and as contemplated are
correct in all material respects and do not omit to state a fact
necessary to make the statements contained therein not misleading in
light of the circumstances in which they were made;
ii) to the best of such counsel's knowledge, none of the Company
nor any of the Subsidiaries own an interest in any other corporation,
partnership, joint venture, trust or other business entity;
iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of Capital
Stock," and none of the Company nor any of the Subsidiaries is a party
to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representative's Warrant
Agreement and as described in the Prospectus. The Securities, and all
other securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company and the Subsidiaries have been
duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of
the Company or any of the Subsidiaries. The Shares, the
Representative's Warrants and the Representative's Shares to be sold by
the Company hereunder and under the Representative's Warrant Agreement
are not and will not be subject to any preemptive or other
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similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders;
all corporate action required to be taken for the authorization, issue
and sale of the Shares, the Representative's Warrants and the
Representative's Shares has been duly and validly taken, and the
certificates representing the Shares and the Representative's Warrants
are in due and proper form. The Representative's Warrants constitute
valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the issuance and
delivery pursuant to this Agreement and the Representative's Warrant
Agreement of the Shares and the Representative's Warrants and the
Representative's Shares, respectively, to be sold by the Company, the
Underwriters and the Representative, respectively, will acquire good
and marketable title to the Shares, the Representative's Warrants and
the Representative's Shares free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever. No transfer tax is payable by or on
behalf of the Underwriters in connection with (A) the issuance by the
Company of the Shares, (B) the purchase by the Underwriters and the
Representative of the Shares and the Representative's Warrants and the
Representative's Shares, respectively, from the Company, (C) the
consummation by the Company of any of its obligations under this
Agreement or the Representative's Warrant Agreement, or (D) resales of
the Shares in connection with the distribution contemplated hereby;
iv) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or, to the best of
such counsel's knowledge, threatened or contemplated under the Act;
v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in
the Registration Statement (or required to be filed under the Exchange
Act if upon such filing they would be incorporated, in whole or in
part, by reference therein) and the Prospectus and
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<PAGE> 23
filed as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies; (B)
the descriptions in the Registration Statement and the Prospectus and
any supplement or amendment thereto of contracts and other documents to
which the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries is bound, including any document to
which the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries is bound, incorporated by reference
into the Prospectus and any supplement or amendment thereto, are
accurate in all material respects and fairly represent the information
required to be shown by Form S-1; (C) there is not pending or, to the
Company's knowledge, threatened against the Company or any of the
Subsidiaries any action, arbitration, suit, proceeding, inquiry,
investigation, litigation, governmental or other proceeding (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign (or circumstances that may give
rise to the same), or involving the properties or business of the
Company or any of the Subsidiaries which (x) is required to be
disclosed in the Registration Statement which is not so disclosed, (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all material respects), (y) questions the
validity of the capital stock of the Company or any of the Subsidiaries
or this Agreement or the Representative's Warrant Agreement, or of any
action taken or to be taken by the Company or any of the Subsidiaries
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E) there
is no action, suit or proceeding pending, or, to the Company's
knowledge, threatened, against or affecting the Company or any of the
Subsidiaries before any court or arbitrator or governmental body,
agency or official (or any basis thereof known to such counsel) in
which there is a reasonable possibility of an adverse decision which
may result in a material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity,
value, operation, properties, business or results of operations of the
Company or any of the Subsidiaries, which could adversely affect the
present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's Warrant
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement or the Representative's Warrant
Agreement;
vii) the Company has full legal right, power and authority to enter
into each of this Agreement and the Representative's Warrant Agreement
and to consummate the transactions provided for herein and therein; and
each of this Agreement and the Representative's Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each of
this Agreement and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of
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<PAGE> 24
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement and
the Representative's Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the
Registration Statement, the Prospectus and any amendments or
supplements thereto, conflicts with or will conflict with or results or
will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company or any of the Subsidiaries pursuant to the
terms of, (A) the certificate of incorporation or by-laws of the
Company or any of the Subsidiaries [CONFIRM PROPER TITLE OF CHARTER
DOCUMENTS OF SUBSIDIARIES], (B) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company or any of the Subsidiaries is a party
or by which the Company or any of the Subsidiaries is or may be bound
or to which any of its respective properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, or (C) any
statute, judgement, decree, order, rule or regulation applicable to the
Company or any of the Subsidiaries of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or any of
their respective activities or properties;
viii) except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory
body, government agency or other body (other than such as may be
required under Blue Sky laws, as to which no opinion need be rendered)
is required in connection with the issuance of the Shares pursuant to
the Prospectus, the issuance of the Representative's Warrants, the
performance of this Agreement and the Representative's Warrant
Agreement and the transactions contemplated hereby and thereby;
ix) the properties and business of the Company and the
Subsidiaries conform in all material respects to the description
thereof contained in the Registration Statement and the Prospectus; and
the Company and the Subsidiaries has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
in each case free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus, and liens for taxes not yet due and
payable;
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x) to the best knowledge of such counsel, none of the Company
nor any of the Subsidiaries is in breach of, or in default under, any
term or provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan
or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound or to which the
property or assets (tangible or intangible) of the Company or any of
the Subsidiaries is subject or affected; and none of the Company nor
any of the Subsidiaries is not in violation of any term or provision of
their respective certificate of incorporation or by-laws [CONFIRM
PROPER TITLE OF CHARTER DOCUMENTS OF SUBSIDIARIES], or in violation of
any franchise, license, permit, judgment, decree, order, statute, rule
or regulation;
xi) the statements in the Prospectus under "BUSINESS,"
"MANAGEMENT," "PRINCIPAL SHAREHOLDERS," "CERTAIN TRANSACTIONS,"
"DESCRIPTION OF CAPITAL STOCK," and "SHARES ELIGIBLE FOR FUTURE SALE"
have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
xii) the Shares have been accepted for quotation on Nasdaq;
xiii) each of the Company and the Subsidiaries owns or possesses,
free and clear of all liens or encumbrances and right thereto or
therein by third parties, the requisite licenses or other rights to use
all material trademarks, service marks, copyrights, service names,
trade names and licenses necessary to conduct their respective business
(including without limitation any such licenses or rights described in
the Prospectus as being owned or possessed by the Company or any of the
Subsidiaries) and there is no material claim or action by any person
pertaining to, or proceeding, pending or threatened, which challenges
the exclusive rights of the Company or any of the Subsidiaries with
respect to any trademarks, service marks, copyrights, service names,
trade names and licenses used in the conduct of the Company's or any of
the Subsidiaries' business (including, without limitation, any such
licenses or rights described in the Prospectus as being owned or
possessed by the Company or any of the Subsidiaries);
xiv) the persons listed under the caption "PRINCIPAL SHAREHOLDERS"
in the Prospectus are the respective "beneficial owners" (as such
phrase is defined in regulation 13d-3 under the Exchange Act) of the
securities set forth opposite their respective names thereunder as and
to the extent set forth therein;
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<PAGE> 26
xv) except as described in the Prospectus, no person,
corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration
statement;
xvi) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangement or any other
arrangements, agreements, understandings, payments or issuances that
may affect the Underwriters' compensation, as determined by the NASD;
xvii) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding
obligations of parties thereto, enforceable against the party and any
subsequent holder of the securities subject thereto in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or contribution may be
limited by applicable law); and
xviii) except as described in the Prospectus, the Company does not
(A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan,
as defined in Section 3(35) of ERISA, and (C) has never completely or
partially withdrawn from a "multiemployer plan".
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters were discussed and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
Such opinion shall not state that it is to be governed or qualified by,
or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991), or any comparable
State bar accord.
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<PAGE> 27
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company, and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative and they are
justified in relying thereon. Such opinion shall also state that Underwriters'
Counsel is entitled to rely thereon.
At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., counsel to the Company, dated the Option Closing Date, addressed
to the Underwriters and in form and substance satisfactory to Underwriters'
Counsel confirming as of the Option Closing Date the statements made by
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. in its opinion
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(f) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects, stockholders' equity or the business activities of the Company or any
of the Subsidiaries, whether or not in the ordinary course of business, from the
latest dates as of which such condition is set forth in the Registration
Statement and Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by the Company or any of the
Subsidiaries, from the latest date as of which the financial condition of the
Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) none of the Company nor any of the
Subsidiaries shall be in default under any provision of any instrument relating
to any outstanding indebtedness; (iv) except as set forth in the Prospectus,
none of the Company nor any of the Subsidiaries shall have issued any securities
(other than the Securities); none of the Company nor any of the Subsidiaries
shall have declared or paid any dividend or made any distribution in respect of
their respective capital stock of any class; and there has not been any change
in the capital stock of the Company, or any material change in the debt (long or
short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company or any of the
Subsidiaries shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the
27
<PAGE> 28
Company or any of the Subsidiaries, or affecting any of their respective
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may adversely affect the business, operations,
prospects or financial condition or income of the Company or any of the
Subsidiaries, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated, threatened or contemplated by the
Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of
each of such person's knowledge, after due inquiry are contemplated or
threatened under the Act;
iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue statement of
a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (A) none of the
Company nor any of the Subsidiaries has incurred up to and including
the Closing Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (B) none of the Company nor any
of the Subsidiaries has paid or declared any dividends or other
distributions on its capital stock; (C) none of the Company nor any of
the Subsidiaries has entered into any transactions not in the ordinary
course of business; (D) there has not been any change in the capital
stock of the Company or any of the Subsidiaries or any material change
in the debt (long or short-term)
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<PAGE> 29
of the Company or any of the Subsidiaries; (E) none of the Company nor
any of the Subsidiaries has sustained any material loss or damage to
their respective property or assets, whether or not insured; (F) there
is no litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any of the Subsidiaries, or
any affiliated party of any of the foregoing which is required to be
set forth in an amended or supplemented Prospectus which has not been
set forth; and (G) there has occurred no event required to be set forth
in an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Arthur Anderson LLP:
i) confirming that they are independent public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representative may rely upon the
opinion of Arthur Anderson LLP with respect to such financial
statements and supporting schedules included in the Registration
Statement;
iii) stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of
the stockholders and board of directors and the various committees of
the board of directors of the Company, consultations with officers and
other employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A) the pro
forma financial information contained in the Registration Statement and
Prospectus does not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or is not fairly presented in conformity with generally
accepted accounting principles applied on a basis consistent with that
of the audited financial statements of the Company or the unaudited pro
forma financial information included in the Registration
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<PAGE> 30
Statement, (B) the unaudited financial statements and supporting
schedules of the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are
not fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited financial statements of the Company included in the
Registration Statement, (C) at a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there
has been any change in the capital stock of the Company, any change in
the long-term debt of the Company, or any decrease in the stockholders'
equity of the Company or any decrease in the net current assets or net
assets of the Company as compared with amounts shown in the March 31,
1998 balance sheet included in the Registration Statement, other than
as set forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of such
change or decrease, or (C) during the period from March 31, 1998 to a
specified date not more than five (5) days prior to the effective date
of the Registration Statement, there was any decrease in net revenues
or net earnings of the Company or increase in net earnings per common
share of the Company, in each case as compared with the corresponding
period beginning March 31, 1998 other than as set forth in or
contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement; and
v) statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Arthur Andersen LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
Section 6(i) hereof, except that the specified date referred to shall be a date
not more than five days prior to the Closing Date or the Option Closing Date, as
the case may be, and, if the Company has elected to rely on Rule 430A of the
Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (iv) of Section 6(i) hereof with respect to
certain amounts, percentages and financial information as specified by the
Representative and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (iv).
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(k) The Company shall have delivered to the Representative a letter
from Arthur Andersen addressed to the Company stating that they have not during
the immediately preceding two year period brought to the attention of the
Company's management any "weakness" as defined in Statement of Auditing
Standards No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(l) On each of the Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Shares.
(m) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (f) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(n) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit ____ to the Registration Statement in
final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(o) On or before the Closing Date, the Shares shall have been duly
approved for quotation on Nasdaq, subject to official notice of issuance.
(p) On or before the Closing Date, there shall have been delivered
Josepththal all of the Lock-up Agreements, in form and substance satisfactory to
Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriters" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriters ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including but not limited to any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriters or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
31
<PAGE> 32
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange, (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in addition to
any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the
32
<PAGE> 33
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which it may have under this Section 7 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action, investigation, inquiry, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action, investigation, inquiry, suit or proceeding on behalf of
the indemnified party or parties), in any of which events such fees and expenses
of one additional counsel shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action,
investigation, inquiry, suit or proceeding or separate but similar or related
actions, investigations, inquiries, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle compromise or consent to the entry of
any judgment with respect to any pending or threatened claim, action,
investigation, inquiry, suit or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not the indemnified parties
are actual or potential parties to such claim or action), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party form all liability arising out of such claim, action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes claim for indemnification pursuant to
this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such
33
<PAGE> 34
proportion as is appropriate to reflect the relative benefits received by each
of the contributing parties, on the one hand, and the party to be indemnified on
the other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company, on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations, inquiries,
suits or proceedings in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action, claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subsection (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subsection (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this subsection
(d), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (d), or to the extent
that such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person
34
<PAGE> 35
of any Underwriter, the Company, and shall survive termination of this Agreement
or the issuance, sale and delivery of the Securities to the Underwriters and the
Representative, as the case may be.
9. Effective Date.
This Agreement shall become effective at 10:00 a.m., New York City
time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Representative, in their discretion, shall release the Securities for sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Shares to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such shares for offering or the release by the Representative
for publication of the first newspaper advertisement which is subsequently
published relating to the Shares.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representative
shall have the right to terminate this Agreement, after the date hereof, (i) if
any domestic or international event or act or occurrence has materially
disrupted, or in the Representative's opinion will in the immediate future
materially adversely disrupt the financial markets; or (ii) any material adverse
change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Boston Stock Exchange, the
Commission or any other government authority having jurisdiction; or (iv) if
trading of any of the securities of the Company shall have been suspended, or
any of the securities of the Company shall have been delisted, on any exchange
or in any over-the-counter market; or (v) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (vi) if a banking moratorium has
been declared by a state or federal authority; or (vii) if a moratorium in
foreign exchange trading has been declared; or (viii) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Representative's
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Securities or (ix) if Jacques Cohen, Gabriel Cohen or Thomas
Winarick shall no longer serve the Company in their present capacities.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 10(a) or Section 12 hereof, the Company shall
promptly reimburse and indemnify the Representative for all of their actual
out-of-pocket expenses, including the fees
35
<PAGE> 36
and disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried out within
the time specified herein, or any extension thereof granted to the
Representative, by reason of any failure on the part of the Company to perform
any undertaking or satisfy any condition of this Agreement by it to be performed
or satisfied (including, without limitation, pursuant to Section 6, Section
10(a) or Section 12 hereof) then, the Company shall promptly reimburse and
indemnify the Representative for all of their actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and expenses and
filing fees. Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of Section 5 and Section
7 hereof shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
i) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Shares to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
ii) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Shares, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriters (or, if such default
shall occur with respect to any Option Shares to be purchased on an
Option Closing Date, the Underwriters may at the Representative's
option, by notice from the Representative to the Company, terminate the
Underwriters' obligation to purchase Option Shares from the Company on
such date).
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
36
<PAGE> 37
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Shares which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Shares to be purchased on an Option Closing Date, the Underwriters may at
the Representative's option, by notice from the Representative to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section 12 shall relieve the Company from
liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative c/o Josephthal & Co. Inc. at 200 Park Avenue, New York, New York
10166, Attention: Mr. Scott Weisman, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi
Finkelstein, Esq. Notices to the Company shall be directed to the Company at
1441 West Newport Center Drive, Deerfield Beach, Florida 33442, Attention:
Jacques Cohen, with a copy to Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., 1221 Brickell Avenue, Miami, Florida 33131, Attention: Gary
Epstein, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company, and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal Representative and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
37
<PAGE> 38
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
PRESTIGE COSMETICS CORPORATION
By:
-------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written.
JOSEPHTHAL & CO. INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
------------------------------------
Name:
Title:
38
<PAGE> 39
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------
<S> <C>
Josephthal & Co. Inc.
TOTAL 2,000,000
=========
</TABLE>
39
<PAGE> 1
Exhibit 3.1
CERTIFICATE
RE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LANCETTI COSMETICS CORPORATION
Lancetti Cosmetics Corporation, a Florida corporation (the
"Corporation"), hereby certifies, pursuant to and in accordance with Section
607.1007 of the Florida Business Corporation Act (the "Act") for the purpose of
filing its Amended and Restated Articles of Incorporation with the Department of
State of the State of Florida, that:
1. The name of the Corporation shall be changed effective as of
the date hereof from Lancetti Cosmetics Corporation to
Prestige Cosmetics Corporation.
2. The Corporation's Amended and Restated Articles of
Incorporation attached hereto (the "Restated Articles")
contain certain amendments to the Corporation's Articles of
Incorporation.
3. The Restated Articles contain certain amendments to the
Corporation's Articles of Incorporation which require
shareholder approval, and the Restated Articles were
unanimously adopted and approved on August ___, 1998 by the
Corporation's Board of Directors and the shareholders of the
Corporation pursuant to a written consent, the number of votes
cast being sufficient for approval, effective as of August
___, 1998, in the manner prescribed by Section 607.1003 of the
Act.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
August __, 1998.
LANCETTI COSMETICS CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE> 2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LANCETTI COSMETICS CORPORATION
Pursuant to Sections 607.1003, 607.1006 and 607.1007 of the Florida
Business Corporation Act, the undersigned Corporation adopts the following
Amended and Restated Articles of Incorporation. The original Articles of
Incorporation were filed with the Secretary of State on February 20, 1980.
ARTICLE I
NAME
----
The name of the corporation is PRESTIGE COSMETICS CORPORATION
(hereinafter called the "Corporation").
ARTICLE II
PURPOSE
-------
The purposes of the Corporation shall be to engage in any activities or
business permitted under the laws of the United States of America and the State
of Florida.
ARTICLE III
PRINCIPAL OFFICE
----------------
The address of the principal office and the mailing address of the
Corporation is 1441 West Newport Center Drive, Deerfield Beach, Florida 33442.
ARTICLE IV
CAPITAL STOCK
-------------
The maximum number of shares of all classes of capital stock which the
Corporation is authorized to issue is Thirty-Five Million (35,000,000) shares,
consisting of (i) Thirty Million (30,000,000) shares of common stock, par value
$0.01 per share (the "Common Stock"), and (ii) Five Million (5,000,000) shares
of preferred stock, par value $0.01 per share (the "Preferred Stock").
<PAGE> 3
ARTICLE V
COMMON STOCK
------------
Except as otherwise required by law or as may be provided by the
resolutions of the Board authorizing the issuance of any class or series of the
Preferred Stock, as hereinabove provided, all rights to vote and all voting
power shall be vested exclusively in the holders of the Common Stock.
Subject to the rights of the holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive when, as and if
declared by the Board, out of funds legally available therefor, dividends and
other distributions payable in cash, property, stock (including shares of any
class or series of the Corporation, whether or not shares of such class or
series are already outstanding) or otherwise.
Upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred Stock
shall have been paid in full the amounts to which they shall be entitled, if
any, or a sum sufficient for such payment in full shall have been set aside, the
remaining net assets of the Corporation shall be distributed pro rata to the
holders of the Common Stock in accordance with their respective rights and
interests, to the exclusion of the holders of the Preferred Stock.
ARTICLE VI
PREFERRED STOCK
---------------
The Preferred Stock may be issued from time to time in one or more
classes or series, the shares of each class or series to have such designations
and powers, preferences and rights, and qualifications, limitations and
restrictions thereof as are stated and expressed herein and in the resolution or
resolutions providing for the issue of such class or series adopted by the Board
of Directors (the "Board") as hereinafter prescribed.
Authority is hereby expressly granted to and vested in the Board to
authorize the issuance of the Preferred Stock from time to time in one or more
classes or series, to determine and take necessary proceedings fully to effect
the issuance and redemption of any such Preferred Stock and, with respect to
each class or series of the Preferred Stock, to fix and state, by resolution or
resolutions from time to time adopted providing for the issuance thereof, the
following:
(i) whether or not the class or series is to have voting rights, full
or limited, or is to be without voting rights;
(ii) the number of shares to constitute the class or series and the
designations thereof;
(iii) the preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations or restrictions
thereof, if any, with respect to any class or series;
3
<PAGE> 4
(iv) whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time or
times at which and the terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall be subject to
the operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and if such retirement or sinking fund
or funds be established, the annual amount thereof and the terms and provisions
relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash, stock of
the Corporation or other property, the conditions upon which and the times when
such dividends are payable, the preference to or the relation to the payment of
the dividends payable on any other class or classes or series of stock, whether
or not such dividend shall be cumulative or non-cumulative, and, if cumulative,
the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof that the holders
of any class or series thereof shall be entitled to receive upon the voluntary
or involuntary dissolution of, or upon any distribution of the assets of, the
Corporation;
(viii) whether or not the shares of any class or series shall be
convertible into, or exchangeable for, the shares of any other class or classes
or of any other series of the same or any other class or classes of the
Corporation and the conversion price or prices or ratio or ratios or the rate or
rates at which such conversion or exchange may be made, with such adjustments,
if any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
(ix) such other special rights and protective provisions with respect
to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may vary from
the shares of any other class or series thereof in any or all of the foregoing
respects. The Board may increase the number of shares of Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized and unissued shares of the Preferred Stock not designated
for any other class or series. The Board may decrease the number of shares of
the Preferred Stock designated for any existing class or series by a resolution,
subtracting from such series unissued shares of the Preferred Stock designated
for such class or series, and the shares so subtracted shall become authorized,
unissued and undesignated shares of the Preferred Stock.
ARTICLE VII
SHARE RECLASSIFICATION
----------------------
On the date of filing of the Amended and Restated Certificate
of Incorporation with the Secretary of State of Florida, the 500 issued and
outstanding shares of the Corporation's previously authorized common stock, par
value $.01 per share (the "Old Common Stock") shall thereby and thereupon be
classified and converted into 6,453,000 validly issued, fully paid and
non-assessable shares of Common Stock reflecting a conversion of 12,994 shares
of Common Stock for each one share of Old Common Stock. Each certificate that
heretofore represented
4
<PAGE> 5
shares of Old Common Stock shall thereafter represent the number of whole shares
of Common Stock into which the shares of Old Common Stock represented by such
certificate were reclassified and converted; provided, however, that each person
holding of record a stock certificate or certificates that represented shares of
Old Common Stock shall receive, upon surrender of each such certificate or
certificates, a new certificate or certificates evidencing and representing the
number of shares of Common Stock to which such person is entitled.
ARTICLE VIII
BOARD OF DIRECTORS
------------------
The Corporation's Board of Directors shall consist of at least one
director, with the exact number to be fixed from time to time in the manner
provided in the Corporation's Bylaws.
ARTICLE IX
BYLAWS
------
Unless otherwise provided by law, the Bylaws of the Corporation may be
altered, amended or repealed, in whole or in part, or new Bylaws may be adopted,
by the affirmative vote of a majority of the directors in office or the
affirmative vote of holders of a majority of the shares entitled to vote on the
matter.
ARTICLE IX
INDEMNITY
---------
The Corporation shall indemnify and shall advance expenses on behalf of
its oficers and directors, to the fullest extent permitted by law in existence
either now or hereafter.
ARTICLE XI
REGISTERED OFFICE AND AGENT
---------------------------
The street address of the Corporation's registered office shall be
_________ and the registered agent for the Corporation at such address shall be
_______________.
5
<PAGE> 6
IN WITNESS WHEREOF, the Corporation has caused these Amended and
Restated Articles of Incorporation to be executed by its Chairman of the Board
this ____ day of _______________, 1998.
LANCETTI COSMETICS CORPORATION
By:
---------------------------------
Jacques Cohen
Chairman of the Board
6
<PAGE> 7
ACCEPTANCE OF REGISTERED AGENT
Having been named as registered agent and to accept service of process
for Prestige Cosmetics Corporation at the place designated in the Amended and
Restated Articles of Incorporation, I hereby accept the appointment as
Registered Agent and agree to act in this capacity. I further agree to comply
with the provisions of all statutes relating to the proper and complete
performance of my duties, and I am familiar with and accept the obligations of
my position as registered agent.
Dated: ____________________
________________________________________
7
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
PRESTIGE COSMETICS CORPORATION
(A FLORIDA CORPORATION)
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
ARTICLE ONE - OFFICES.....................................................................1
1. Registered Office.......................................................1
2. Other Offices...........................................................1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS....................................................1
1. Place...................................................................1
2. Time of Annual Meeting..................................................1
3. Call of Special Meetings................................................1
4. Conduct of Meetings.....................................................1
5. Notice and Waiver of Notice.............................................1
6. Business of Special Meeting.............................................2
8. Voting Per Share........................................................2
9. Voting of Shares........................................................2
10. Proxies.................................................................3
11. Shareholder List........................................................3
12. Action Without Meeting..................................................4
13. Fixing Record Date......................................................4
14. Inspectors and Judges...................................................4
15. Voting for Directors....................................................5
ARTICLE THREE - DIRECTORS.................................................................5
1. Number, Election and Term...............................................5
2. Vacancies...............................................................5
3. Powers..................................................................5
4. Place of Meetings.......................................................5
5. Annual Meeting..........................................................5
6. Regular Meetings........................................................6
7. Special Meetings and Notice.............................................6
8. Quorum; Required Vote; Presumption of Assent............................6
9. Action Without Meeting..................................................6
10. Conference Telephone or Similar Communications Equipment Meetings.......6
11. Committees..............................................................7
12. Compensation of Directors...............................................7
13. Chairman of the Board...................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE FOUR - OFFICERS...................................................................7
1. Positions...............................................................7
2. Election of Specified Officers by Board.................................8
3. Election or Appointment of Other Officers...............................8
4. Salaries................................................................8
5. Term; Resignation.......................................................8
6. President...............................................................8
7. Vice Presidents.........................................................8
8. Secretary...............................................................8
9. Treasurer...............................................................9
10. Other Officers, Employees and Agents....................................9
ARTICLE FIVE - CERTIFICATES FOR SHARES....................................................9
1. Issue of Certificates...................................................9
2. Legends for Preferences and Restrictions on Transfer....................9
3. Facsimile Signatures...................................................10
4. Lost Certificates......................................................10
5. Transfer of Shares.....................................................10
6. Registered Shareholders................................................10
7. Redemption of Control Shares...........................................10
ARTICLE SIX - GENERAL PROVISIONS.........................................................11
1. Dividends..............................................................11
2. Reserves...............................................................11
3. Checks.................................................................11
4. Fiscal Year............................................................11
5. Seal...................................................................11
6. Gender.................................................................11
ARTICLE SEVEN - AMENDMENTS OF BYLAWS.....................................................11
</TABLE>
ii
<PAGE> 4
PRESTIGE COSMETICS CORPORATION
BYLAWS
------
ARTICLE ONE
OFFICES
-------
1. REGISTERED OFFICE. The registered office of PRESTIGE COSMETICS
CORPORATION, a Florida corporation (the "Corporation"), shall be located in the
City of Deerfield Beach, State of Florida, unless otherwise designated by the
Board of Directors.
2. OTHER OFFICES. The Corporation may also have offices at such other
places, either within or without the State of Florida, as the Board of Directors
of the Corporation (the "Board of Directors") may from time to time determine or
as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
------------------------
1. PLACE. All annual meetings of shareholders shall be held at such
place, within or without the State of Florida, as may be designated by the Board
of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
2. TIME OF ANNUAL MEETING. Annual meetings of shareholders shall be
held on such date and at such time fixed, from time to time, by the Board of
Directors, provided that there shall be an annual meeting held every year at
which the shareholders shall elect a Board of Directors and transact such other
business as may properly be brought before the meeting.
3. CALL OF SPECIAL MEETINGS. Special meetings of the shareholders shall
be held if called by the Board of Directors, the President, or if the holders of
not less than [fifty percent (50%)] of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting sign, date, and
deliver to the Secretary one or more written demands for the meeting describing
the purpose or purposes for which it is to be held.
4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his absence,
the President or such other designee of the Chairman of the Board) shall preside
at the annual and special meetings of shareholders and shall be given full
discretion in establishing the rules and procedures to be followed in conducting
the meetings, except as otherwise provided by law or in these Bylaws.
5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by law,
written or printed notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten (10) nor more than sixty (60) days
before the day of the meeting, either personally or by first-class
<PAGE> 5
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than
first-class. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid. If a meeting is adjourned to another time and/or place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the Board
of Directors, after adjournment, fixes a new record date for the adjourned
meeting. Whenever any notice is required to be given to any shareholder, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether signed before, during or after the time of the meeting stated
therein, and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records, shall be equivalent to the giving of such notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the shareholders need be specified in any written waiver of
notice. Attendance of a person at a meeting shall constitute a waiver of (a)
lack of or defective notice of such meeting, unless the person objects at the
beginning to the holding of the meeting or the transacting of any business at
the meeting, or (b) lack of defective notice of a particular matter at a meeting
that is not within the purpose or purposes described in the meeting notice,
unless the person objects to considering such matter when it is presented.
6. BUSINESS OF SPECIAL MEETING. Business transacted at any special
meeting shall be confined to the purposes stated in the notice thereof.
7. QUORUM. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of these shares exists with
respect to that matter. Except as otherwise provided in the Articles of
Incorporation or by law, a majority of the shares entitled to vote on the matter
by each voting group, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders, but in no event shall a quorum consist of
less than one-third (1/3) of the shares of each voting group entitled to vote.
If less than a majority of outstanding shares entitled to vote are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. After a quorum has been established at
any shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting below the number
required for a quorum, shall not affect the validity of any action taken at the
meeting or any adjournment thereof. Once a share is represented for any purpose
at a meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting.
8. VOTING PER SHARE. Except as otherwise provided in the Articles of
Incorporation or by law, each shareholder is entitled to one (1) vote for each
outstanding share held by him on each matter voted at a shareholders' meeting.
9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such
2
<PAGE> 6
corporate shareholder or, in the absence of any applicable bylaw, by such person
or persons as the board of directors of the corporate shareholder may designate.
In the absence of any such designation, or, in case of conflicting designation
by the corporate shareholder, the chairman of the board, the president, any vice
president, the secretary and the treasurer of the corporate shareholder, in that
order, shall be presumed to be fully authorized to vote such shares. Shares held
by an administrator, executor, guardian, personal representative, or conservator
may be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name or the name
of his nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes, in person or by proxy, his act binds all; (b) if more than one vote, in
person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
10. PROXIES. Any shareholder of the Corporation, other person entitled
to vote on behalf of a shareholder pursuant to law, or attorney-in-fact for such
persons may vote the shareholder's shares in person or by proxy. Any shareholder
of the Corporation may appoint a proxy to vote or otherwise act for him by
signing an appointment form, either personally or by his attorney-in-fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, shall be deemed a sufficient appointment form. An appointment
of a proxy is effective when received by the Secretary of the Corporation or
such other officer or agent which is authorized to tabulate votes, and shall be
valid for up to 11 months, unless a longer period is expressly provided in the
appointment form. The death or incapacity of the shareholder appointing a proxy
does not affect the right of the Corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the secretary or other
officer or agent authorized to tabulate votes before the proxy exercises his
authority under the appointment. An appointment of a proxy is revocable by the
shareholder unless the appointment is coupled with an interest.
11. SHAREHOLDER LIST. After fixing a record date for a meeting of
shareholders, the Corporation shall prepare an alphabetical list of the names of
all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists
3
<PAGE> 7
between the record date and the meeting and continuing through the meeting at
the Corporation's principal office, at a place identified in the meeting notice
in the city where the meeting will be held, or at the office of the
Corporation's transfer agent or registrar. Any shareholder of the Corporation or
his agent or attorney is entitled on written demand to inspect the shareholders'
list (subject to the requirements of law), during regular business hours and at
his expense, during the period it is available for inspection. The Corporation
shall make the shareholders' list available at the meeting of shareholders, and
any shareholder or his agent or attorney is entitled to inspect the list at any
time during the meeting or any adjournment.
12. ACTION WITHOUT MEETING. Any action required by law to be taken at a
meeting of shareholders, or any action that may be taken at a meeting of
shareholders, may be taken without a meeting or notice if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted with respect to the subject matter thereof,
and such consent shall have the same force and effect as a vote of shareholders
taken at such a meeting.
13. FIXING RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purposes, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of shareholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which the notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 13, such determination
shall apply to any adjournment thereof, except where the Board of Directors
fixes a new record date for the adjourned meeting or as required by law.
14. INSPECTORS AND JUDGES. The Board of Directors in advance of any
meeting may, but need not, appoint one or more inspectors of election or judges
of the vote, as the case may be, to act at the meeting or any adjournment(s)
thereof. If any inspector or inspectors, or judge or judges, are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by the Board of
Directors in advance of the meeting, or at the meeting by the person presiding
thereat. The inspectors or judges, if any, shall determine the number of shares
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or
4
<PAGE> 8
judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
15. VOTING FOR DIRECTORS. Unless otherwise provided in the Articles of
Incorporation, directors shall be elected by a plurality of the votes cast by
the shares entitled to vote in the election at a meeting at which a quorum is
present.
ARTICLE THREE
DIRECTORS
---------
1. NUMBER, ELECTION AND TERM. The number of directors of the
Corporation shall be fixed from time to time, within the limits specified by the
Articles of Incorporation, by resolution of the Board of Directors; provided,
however, no director's term shall be shortened by reason of a resolution
reducing the number of directors. The directors shall be elected at the annual
meeting of the shareholders, except as provided in Section 2 of this Article,
and each director elected shall hold office for the term for which he is elected
and until his successor is elected and qualified or until his earlier
resignation, removal from office or death. Directors must be natural persons who
are 18 years of age or older but need not be residents of the State of Florida,
shareholders of the Corporation or citizens of the United States. Any director
may be removed at any time, with or without cause, at a special meeting of the
shareholders called for that purpose.
2. VACANCIES. A director may resign at any time by giving written
notice to the Corporation, the Board of Directors or the Chairman of the Board.
Such resignation shall take effect when the notice is delivered unless the
notice specifies a later effective date, in which event the Board of Directors
may fill the pending vacancy before the effective date if they provide that the
successor does not take office until the effective date. Any vacancy occurring
in the Board of Directors and any directorship to be filled by reason of an
increase in the size of the Board of Directors shall be filled by the
affirmative vote of a majority of the current directors though less than a
quorum of the Board of Directors, or may be filled by an election at an annual
or special meeting of the shareholders called for that purpose, unless otherwise
provided by law. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, or until the next election of one
or more directors by shareholders if the vacancy is caused by an increase in the
number of directors.
3. POWERS. Except as provided in the Articles of Incorporation and by
law, all corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the direction
of, its Board of Directors.
4. PLACE OF MEETINGS. Meetings of the Board of Directors, regular or
special, may be held either within or without the State of Florida.
5. ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be held, without call or notice, immediately following each
annual meeting of shareholders.
5
<PAGE> 9
6. REGULAR MEETINGS. Regular meetings of the Board of Directors may
also be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
Written notice of special meetings of the Board of Directors shall be given to
each director at least forty-eight (48) hours before the meeting. Except as
required by statute, neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting. Notices to directors shall be
in writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be received. Notice to
directors may also be given by telegram, teletype or other form of electronic
communication. Notice of a meeting of the Board of Directors need not be given
to any director who signs a written waiver of notice before, during or after the
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting and a waiver of any and all objections to the place of
the meeting, the time of the meeting and the manner in which it has been called
or convened, except when a director states, at the beginning of the meeting or
promptly upon arrival at the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened.
8. QUORUM; REQUIRED VOTE; PRESUMPTION OF ASSENT. A majority of the
number of directors fixed by, or in the manner provided in, these bylaws shall
constitute a quorum for the transaction of business; provided, however, that
whenever, for any reason, a vacancy occurs in the Board of Directors, a quorum
shall consist of a majority of the remaining directors until the vacancy has
been filled. The act of a majority of the directors present at a meeting at
which a quorum is present when the vote is taken shall be the act of the Board
of Directors. A director of the Corporation who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken shall be presumed to have assented to the action taken, unless
he objects at the beginning of the meeting, or promptly upon his arrival, to
holding the meeting or transacting specific business at the meeting, or he votes
against or abstains from the action taken.
9. ACTION WITHOUT MEETING. Any action required or permitted to be taken
at a meeting of the Board of Directors or a committee thereof may be taken
without a meeting if a consent in writing, setting forth the action taken, is
signed by all of the members of the Board of Directors or the committee, as the
case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this section is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT MEETINGS.
Members of the Board of Directors may participate in a meeting of the Board by
means of conference telephone or similar communications equipment by means of
which all persons participating in the
6
<PAGE> 10
meeting can hear each other at the same time. Participation in such a meeting
shall constitute presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground the meeting is not lawfully called or
convened.
11. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the full Board of Directors, may designate from among its members an
executive committee and one or more other committees, each of which, to the
extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee shall be filled by the Board of
Directors at a regular or special meeting of the Board of Directors. The
executive committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a chairman of the board who shall preside at meetings of the
shareholders and of the directors and shall be an ex officio member of all
standing committees. The Chairman of the Board shall have such other powers and
shall perform such other duties as shall be designated by the Board of
Directors. The Chairman of the Board shall be a member of the Board of Directors
but no other officers of the Corporation need be a director. The Chairman of the
Board shall serve until his successor is chosen and qualified, but he may be
removed at any time by the affirmative vote of a majority of the Board of
Directors.
ARTICLE FOUR
OFFICERS
--------
1. POSITIONS. The officers of the Corporation shall consist of a
President, a Secretary and a Treasurer, and, if elected by the Board of
Directors by resolution, a Chairman of the Board and/or one or more Vice
Presidents. Any two or more offices may be held by the same person.
7
<PAGE> 11
2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of Directors at
its first meeting after each annual meeting of shareholders shall elect a
President, a Secretary, a Treasurer and may elect one or more Vice Presidents.
3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other officers and
assistant officers and agents as may be deemed necessary may be elected or
appointed by the Board of Directors, or, unless otherwise specified herein,
appointed by the President of the Corporation. The Board of Directors shall be
advised of appointments by the President at or before the next scheduled Board
of Directors meeting.
4. SALARIES. The salaries of all officers of the Corporation to be
elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
5. TERM; RESIGNATION. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors or the President of the Corporation may be
removed, with or without cause, by the Board of Directors. Any officers or
agents appointed by the President of the Corporation pursuant to Section 3 of
this Article Four may also be removed from such officer positions by the
President, with or without cause. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise shall be filled by the
Board of Directors, or, in the case of an officer appointed by the President of
the Corporation, by the President or the Board of Directors. Any officer of the
Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation is effective when delivered unless
the notice specifies a later effective date. If a resignation is made effective
at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until the effective date.
6. PRESIDENT. The President shall be the Chief Executive Officer of the
Corporation, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence of the Chairman of the Board
or in the event the Board of Directors shall not have designated a chairman of
the board, the President shall preside at meetings of the shareholders and the
Board of Directors.
7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President may
from time to time delegate.
8. SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders
8
<PAGE> 12
and record all the proceedings of the meetings of the shareholders and of the
Board of Directors in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. He shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision he shall be. He
shall keep in safe custody the seal of the Corporation and, when authorized by
the Board of Directors, affix the same to any instrument requiring it.
9. TREASURER. The Treasurer shall have the custody of corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings or when the
Board of Directors so requires an account of all his transactions as treasurer
and of the financial condition of the Corporation unless otherwise specified by
the Board of Directors, the Treasurer shall be the Corporation's Chief Financial
Officer.
10. OTHER OFFICERS, EMPLOYEES AND AGENTS. Each and every other officer,
employee and agent of the Corporation shall possess, and may exercise, such
power and authority, and shall perform such duties, as may from time to time be
assigned to him by the Board of Directors, the officer so appointing him and
such officer or officers who may from time to time be designated by the Board of
Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
-----------------------
1. ISSUE OF CERTIFICATES. The Corporation shall deliver certificates
representing all shares to which shareholders are entitled; and such
certificates shall be signed by the Chairman of the Board, President or a Vice
President, and by the Secretary or an Assistant Secretary of the Corporation,
and may be sealed with the seal of the Corporation or a facsimile thereof.
2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized upon
the certificate, or the certificate shall indicate that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
such restrictions. If the Corporation issues any shares that are not registered
under the Securities Act of 1933, as amended, and registered or qualified under
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<PAGE> 13
the applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME."
3. FACSIMILE SIGNATURES. The signatures of the Chairman of the Board,
the President or a Vice President and the Secretary or Assistant Secretary upon
a certificate may be facsimiles, if the certificate is manually signed by a
transfer agent, or registered by a registrar, other than the Corporation itself
or an employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of the
issuance.
4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Florida.
7. REDEMPTION OF CONTROL SHARES. As provided by the Florida Business
Corporation Act, if a person acquiring control shares of the Corporation does
not file an acquiring person statement with the Corporation, the Corporation may
redeem the control shares at fair market value at any time during the 60-day
period after the last acquisition of such control shares. If a person acquiring
control shares of the Corporation files an acquiring person statement with the
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<PAGE> 14
Corporation, the control shares may be redeemed by the Corporation only if such
shares are not accorded full voting rights by the shareholders as provided by
law.
ARTICLE SIX
GENERAL PROVISIONS
------------------
1. DIVIDENDS. The Board of Directors may from time to time declare, and
the Corporation may pay, dividends on its outstanding shares in cash, property,
or its own shares pursuant to law and subject to the provisions of the Articles
of Incorporation.
2. RESERVES. The Board of Directors may by resolution create a reserve
or reserves out of earned surplus for any proper purpose or purposes, and may
abolish any such reserve in the same manner.
3. CHECKS. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
the Board of Directors and may be otherwise changed from time to time by
resolution of the Board of Directors.
5. SEAL. The corporate seal shall have inscribed thereon the name and
state of incorporation of the Corporation. The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
6. GENDER. All words used in these Bylaws in the masculine gender shall
extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENTS OF BYLAWS
--------------------
Unless otherwise provided by law, these Bylaws may be altered, amended
or repealed or new Bylaws may be adopted by action of the Board of Directors.
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<PAGE> 1
Exhibit 4.1
- -------------------------------------------------------------------------------
PRESTIGE COSMETICS CORPORATION
AND
JOSEPHTHAL & CO. INC.
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF ______________, 1998
- -------------------------------------------------------------------------------
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT dated as of ______________, 1998
between PRESTIGE COSMETICS CORPORATION, a Florida corporation (the "Company")
and JOSEPHTHAL & CO. INC. (hereinafter referred to as the "Holder" or the
"Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative or its
designees warrants ("Warrants") to purchase up to an aggregate 230,000 shares
of common stock of the Company ("Common Stock"); and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between
Josephthal & Co. Inc., as the Representative of the several Underwriters named
in Schedule A thereto, and the Company to act as the Representative in
connection with the Company's proposed public offering of up to 2,300,000
shares of Common Stock at a public offering price of $[_____] per share of
Common Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the
Representative acting as the Representative pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate of twenty dollars ($20.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
<PAGE> 3
SECTION 1. Grant. The Representative is hereby granted the right
to purchase, at any time from ___________, 1998 [the date hereof], until 5:30
P.M., New York time, on ______________, 2003 [five years from the effective
date of the registration statement], up to an aggregate of 230,000 shares of
Common Stock (the "Shares") at an initial exercise price (subject to adjustment
as provided in Section 8 hereof) of $[_____] per share [120% of the initial
public offering price per share] of Common Stock subject to the terms and
conditions of this Agreement. Except as set forth herein, the Shares issuable
upon exercise of the Warrants are in all respects identical to the shares of
Common Stock being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
SECTION 2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A, attached hereto and made
a part hereof, with such appropriate insertions, omissions, substitutions, and
other variations as required or permitted by this Agreement.
SECTION 3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially
are exercisable at an aggregate initial exercise price (subject to adjustment
as provided in Section 8 hereof) per share of Common Stock set forth in Section
6 hereof payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock purchased at the
Company's principal offices in Deerfield Beach, Florida (presently located at
1441 West Newport Center Drive, Deerfield Beach, Florida 33442) the registered
holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not
as to fractional shares of the Common Stock underlying the Warrants). Warrants
may be exercised to purchase all or part of the shares
2
<PAGE> 4
of Common Stock represented thereby. In the case of the purchase of less than
all the shares of Common Stock purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition
to the method of payment set forth in Section 3.1 and in lieu of any cash
payment required thereunder, the Holders of the Warrants shall have the right
at any time and from time to time to exercise the Warrants in full or in part
by surrendering the Warrant Certificate in the manner specified in Section 3.1
in exchange for the number of Shares equal to the product of (x) the number of
Shares as to which the Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined in Section 3.3
below) of the Shares less the Exercise Price and the denominator of which is
such Market Price. Solely for the purposes of this paragraph, Market Price
shall be calculated either (i) on the date which the form of election attached
hereto is deemed to have been sent to the Company pursuant to Section 13 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the
five trading days preceding the Notice Date, whichever of (i) or (ii) is
greater.
Section 3.3 Definition of Market Price. As used herein,
the phrase "Market Price" at any date shall be deemed to be the last reported
sale price, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days,
in either case as officially reported by the principal securities exchange on
which the Common Stock is listed or admitted to trading or by the Nasdaq
National Market ("NNM"), or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted by NNM, the average
closing bid price as furnished by the NASD through NNM or similar organization
if NNM is no longer reporting such information, or if the Common Stock is not
quoted on NNM, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
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<PAGE> 5
SECTION 4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holders thereof including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 5 and 7 hereof) be issued in the name
of, or in such names as may be directed by, the Holders thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holders, and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
underlying the Warrants (and/or other securities, property or rights issuable
upon the exercise of the Warrants) shall be executed on behalf of the Company
by the manual or facsimile signature of the then Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
SECTION 5. Restriction On Transfer of Warrants. The Holders of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
4
<PAGE> 6
SECTION 6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except
as otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $[_____] per share [120% of the initial public offering price
per share] of Common Stock. The adjusted exercise price shall be the price
which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price"
herein shall mean the initial exercise price or the adjusted exercise price,
depending upon the context.
SECTION 7. Registration Rights.
Section 7.1 Registration Under the Securities Act of
1933. The Warrants, the Shares, and any of the other securities issuable upon
exercise of the Warrants have been registered under the Securities Act of 1933,
as amended (the "Act"), pursuant to the Company's Registration Statement on
Form S-1 (Registration No. _________) (the "Registration Statement"). All of
the representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus
and Prospectus (as such terms are defined in the Underwriting Agreement) and
made as of the dates provided therein, are hereby incorporated by reference.
The Company agrees and covenants promptly to file post-effective amendments to
such Registration Statement as may be necessary in order to maintain its
effectiveness and otherwise to take such action as may be necessary to maintain
the effectiveness of the Registration Statement as long as any Warrants are
outstanding. In the event that, for any reason, whatsoever, the Company shall
fail to maintain the effectiveness of the Registration Statement, upon
exercise, in part or in whole, of the Warrants, certificates representing the
Shares underlying the Warrants, and any of the other securities issuable upon
exercise of the Warrants (collectively, the "Warrant Securities") shall bear
the following legend:
5
<PAGE> 7
The securities represented by this certificate
have not been registered under the Securities
Act of 1933, as amended ("Act"), and may not be
offered or sold except pursuant to (i) an
effective registration statement under the Act,
(ii) to the extent applicable, Rule 144 under
the Act (or any similar rule under such Act
relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion
shall be reasonably satisfactory to counsel to
the issuer, that an exemption from registration
under such Act is available.
Section 7.2 Piggyback Registration. If, at any time
commencing after the date hereof and expiring six (6) years from the date
hereof, the Company proposes to register any of its securities under the Act
(other than in connection with a merger or pursuant to Form S-8) it will give
written notice by registered mail, at least thirty (30) days prior to the
filing of each such registration statement, to the Representative and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Representative or other Holders of the Warrants and/or Warrant
Securities notify the Company within twenty (20) days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Representative and such
Holders of the Warrants and/or Warrant Securities the opportunity to have any
such Warrant Securities registered under such registration statement (sometimes
referred to herein as the "Piggyback Registration").
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and
expiring five (5) years from the effective date of the Public Offering, the
Holders of the Warrants and/or Warrant
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<PAGE> 8
Securities representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Warrants) shall have the right
(which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representative and Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale of their respective Warrant Securities for nine (9)
consecutive months by such Holders and any other Holders of the Warrants and/or
Warrant Securities who notify the Company within ten (10) days after receiving
notice from the Company of such request.
(b) In addition to the registration rights under Section
7.2 hereof and subsection (a) of this Section 7.3, at any time commencing after
the date hereof and expiring five (5) years after the effective date of the
Public Offering, any Holder of Warrants and/or Warrant Securities shall have
the right, exercisable by written request to the Company, to have the Company
prepare and file, on one occasion, with the Commission a registration statement
so as to permit a public offering and sale for nine (9) consecutive months by
any such Holder of its Warrant Securities, provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders making such request.
(c) The Company covenants and agrees to give written
notice of any registration request under this Section 7.3 by any Holder or
Holders to all other registered Holders of the Warrants and the Warrant
Securities within ten (10) days from the date of the receipt of any such
registration request.
7
<PAGE> 9
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within forty-five (45) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holders' counsel, filing fees and any underwriting or selling
commissions), fees and expenses in connection with all registration statements
filed pursuant to Section 7.2 and 7.3(a) hereof including, without limitation,
the Company's legal and accounting fees, printing expenses and blue sky fees
and expenses. The Holders shall pay all costs, fees and expenses in connection
with any registration statement filed pursuant to Section 7.3(b) hereof. If the
Company shall fail to comply with the provisions of Section 7.4, the Company
shall, in addition to any other equitable or other relief available to the
Holders, be liable for any or all incidental or special damages sustained by
the Holders requesting registration of their Warrant Securities.
(c) The Company will take all necessary action which may
be required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holders, provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holders of the Warrant
Securities to be sold pursuant to any registration statement and each person,
if any, who controls
8
<PAGE> 10
such Holders within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against
all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holders of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed
as requiring the Holders to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other
registration statement to be or remain effective during the
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<PAGE> 11
effectiveness of a registration statement filed pursuant to Section 7.3 hereof,
without the prior written consent of the Holders of the Warrants and Warrant
Securities representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating
in the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel to the
Company, dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall, as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement. The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below and
to the managing underwriters, copies of all correspondence between the
Commission and the Company, its counsel or auditors with respect to the
registration statement and permit each Holder and underwriter to do such
investigation,
10
<PAGE> 12
upon reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the National Association of
Securities Dealers, Inc. ("NASD"). Such investigation shall include access to
books, records and properties and opportunities to discuss the business of the
Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(j) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such
managing underwriter(s), and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter(s). The Holders shall
be parties to any underwriting agreement relating to an underwritten sale of
their Warrant Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriter(s) except as
are customarily made by selling securityholders in underwritten offerings.
(k) In addition to the Warrant Securities, upon the
written request therefor by any Holders, the Company shall include in the
registration statement any other securities of the Company held by such Holders
as of the date of filing of such registration statement, including without
limitation restricted shares of Common Stock, options, warrants or any other
securities convertible into shares of Common Stock.
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<PAGE> 13
(l) For purposes of this Agreement, the term "Majority"
in reference to the Holders of Warrants or Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
and (ii) have not been resold to the public pursuant to a registration
statement filed with the Commission under the Act.
SECTION 8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the
Company shall at any time subdivide or combine the outstanding shares of Common
Stock, the Exercise Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case
the Company shall pay a dividend in, or make a distribution of, shares of
Common Stock or of the Company's capital stock convertible into Common Stock,
the Exercise Price shall forthwith be proportionately decreased. An adjustment
made pursuant to this Section 8.2 shall be made as of the record date for the
subject stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon
each adjustment of the Exercise Price pursuant to the provisions of this
Section 8, the number of Warrant Securities issuable upon the exercise at the
adjusted exercise price of each Warrant shall be adjusted to the nearest whole
number by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Securities
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
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<PAGE> 14
Section 8.4 Definition of Common Stock. For the purpose
of this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value.
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holders a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall
have the right thereafter (until the expiration of such Warrant) to receive,
upon exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in this
Section 8. The above provision of this subsection shall similarly apply to
successive consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain
Cases. No adjustment of the Exercise Price shall be made:
Upon the issuance or sale of the Warrants or the
shares of Common Stock issuable upon the exercise of the Warrants;
If the amount of said adjustment shall be less than
two cents (2 cents) per Warrant Security, provided, however, that in
such case any adjustment that
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<PAGE> 15
would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents (2 cents) per Warrant Security.
SECTION 9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holders at the principal executive office of the Company, for
a new Warrant Certificate of like tenor and date representing in the aggregate
the right to purchase the same number of Warrant Securities in such
denominations as shall be designated by the Holders thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
SECTION 10. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of shares of
Common Stock upon the exercise of the Warrants, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
SECTION 11. Reservation and Listing of Securities. The Company
shall at all times reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issuance upon the exercise of the
Warrants, such number of shares of Common Stock
14
<PAGE> 16
or other securities, properties or rights as shall be issuable upon the
exercise thereof. The Company covenants and agrees that, upon exercise of the
Warrants and payment of the Exercise Price therefor, all shares of Common Stock
and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. As long as the Warrants shall be outstanding, the Company
shall use its best efforts to cause all shares of Common Stock issuable upon
the exercise of the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock issued to the
public in connection herewith may then be listed and/or quoted.
SECTION 12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote
or to consent or to receive notice as a stockholder in respect of any meetings
of stockholders for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(i) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(ii) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
15
<PAGE> 17
(iii) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
SECTION 13. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed to have
been duly made and sent when delivered, or mailed by registered or certified
mail, return receipt requested:
(i) If to the registered Holders of the Warrants, to
the address of such Holders as shown on the books of the Company; or
(ii) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may designate
by notice to the Holders.
SECTION 14. Supplements and Amendments. The Company and
the Representative may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or
16
<PAGE> 18
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Representative may deem necessary or desirable and which the Company and the
Representative deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
SECTION 15. Successors. All the covenants and provisions
of this Agreement shall be binding upon and inure to the benefit of the
Company, the Holders and their respective successors and assigns hereunder.
SECTION 16. Termination. This Agreement shall terminate
at the close of business on ______________, 2004. Notwithstanding the
foregoing, the indemnification provisions of Section 7 shall survive such
termination until the close of business on ______________, 2010.
SECTION 17. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be deemed to
be a contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State without giving
effect to the rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 13 hereof. Such mailing
shall be
17
<PAGE> 19
deemed personal service and shall be legal and binding upon the party so served
in any action, proceeding or claim. The Company, the Representative and the
Holders agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action or proceeding
and/or incurred in connection with the preparation therefor.
SECTION 18. Entire Agreement; Modification. This
Agreement (including the Underwriting Agreement to the extent portions thereof
are referred to herein) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement
of the modification or amendment is sought.
SECTION 19. Severability. If any provision of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Agreement.
SECTION 20. Captions. The caption headings of the
Sections of this Agreement are for convenience of reference only and are not
intended, nor should they be construed as, a part of this Agreement and shall
be given no substantive effect.
SECTION 21. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company and the Representative and any other registered Holders of the
Warrant Certificates or Warrant Securities any legal or equitable right, remedy
or claim under this Agreement; and this Agreement shall be for the sole benefit
of the Company and the Representative and any other registered Holders of
Warrant Certificates or Warrant Securities.
18
<PAGE> 20
SECTION 22. Counterparts. This Agreement may be executed
in any number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and such counterparts shall together
constitute but one and the same instrument.
19
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
PRESTIGE COSMETICS CORPORATION
By:
--------------------------------
Name:
Title:
Attest:
-------------------------
JOSEPHTHAL & CO. INC.
By:
--------------------------------
Name:
Title:
20
<PAGE> 22
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ______________, 2003
No. W-___ Warrants to Purchase ____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is
the registered holder of ________Warrants to purchase initially, at any time
from ___________, 1999 [one year from the effective date of the Registration
Statement] until 5:30 p.m. New York time on ____________, 2003 [five years from
the effective date of the Registration Statement] ("Expiration Date"), up to
__________ fully-paid and non-assessable shares of common stock, ("Common
Stock") of PRESTIGE COSMETICS CORPORATION, a Florida corporation (the
"Company"), (one share of Common Stock referred to individually as a "Security"
and collectively as the "Securities") at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $____ per share [120%
of the initial public offering price per share] of Common Stock upon surrender
of this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in
the warrant agreement dated as of ______________, 1998 between the Company and
JOSEPHTHAL & CO. INC. (the "Warrant Agreement"). Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
<PAGE> 23
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of
this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the Holders (the words "holder" or "Holders" meaning the registered
holder or registered Holders) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered Holders hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holders hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ___________, 1998
PRESTIGE COSMETICS CORPORATION
By:
---------------------------------
Name:
Title:
[SEAL]
Attest:
----------------------
Secretary
3
<PAGE> 25
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
_______ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of Prestige
Cosmetics Corporation in the amount of $____, all in accordance with the terms
of Section 3.1 of the Representative's Warrant Agreement dated as of
______________, 1998 between Prestige Cosmetics Corporation and Josephthal &
Co. Inc. The undersigned requests that a certificate for such securities be
registered in the name of _________ whose address is ________ and that such
Certificate be delivered to _________ whose address is _________.
Dated:
Signature
-----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
---------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE> 26
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
__________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ___________, 1998 between Prestige Cosmetics Corporation
and Josephthal & Co. Inc. The undersigned requests that a certificate for such
securities be registered in the name of __________whose address is __________
and that such Certificate be delivered to _________ whose address is
________________.
Dated:
Signature
------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
---------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE> 27
[FORM OF ASSIGNMENT]
(To be executed by the registered holder
if such holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________ hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
--------------
Signature:
---------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
-------------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE> 1
Exhibit 5.1
September , 1998
Prestige Cosmetics Corporation
1441 West Newport Center Drive
Deerfield Beach, Florida 33442
RE: PRESTIGE COSMETICS CORPORATION
------------------------------
Ladies and Gentlemen:
On June 16, 1998, Prestige Cosmetics Corporation, a Florida corporation
(the "Company"), filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (Registration No. 333-56995) (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"). Such Registration Statement relates to the sale by the Company of up to
2,645,000 shares (the "Shares") of the Company's Common Stock, par value $0.01
per share (the "Common Stock"). We have acted as counsel to the Company in
connection with the preparation and filing of the Registration Statement.
In connection therewith, we have examined and relied upon copies of (i)
the Company's Amended and Restated Articles of Incorporation and the Company's
Amended and Restated Bylaws; (ii) resolutions of the Company's Board of
Directors authorizing the offering and the issuance of the Shares to be sold by
the Company and related matters; (iii) the Registration Statement and all
amendments and exhibits thereto; and (iv) such other documents and instruments
as we have deemed necessary for the expression of opinions herein contained. In
making the foregoing examinations, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies. As to various questions of fact material to
this opinion, we have relied, to the extent we deemed reasonably appropriate,
upon representations or certificates of officers or directors of the Company,
without independently verifying the accuracy of such documents, records and
instruments.
Based upon the foregoing examination, we are of the opinion that the
Shares have been duly and validly authorized and, when issued and delivered in
accordance with the terms of the Underwriting Agreement filed as Exhibit 1.1 to
the Registration Statement, will be validly issued, fully paid and
nonassessable.
<PAGE> 2
Prestige Cosmetics Corporation
September , 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Very truly yours,
GREENBERG TRAURIG, P.A.
<PAGE> 1
EXHIBIT 10.1
CREDIT AND SECURITY AGREEMENT
BETWEEN
LANCETTI COSMETICS CORPORATION, a Florida corporation
"BORROWER"
AND
FIRST UNION NATIONAL BANK OF FLORIDA,
a national banking association
"Bank"
DATED: SEPTEMBER ___, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Definitions..............................................................................................1
1.1. Defined Terms...................................................................................1
1.2. Financial Terms.................................................................................6
1.3. Other Terms.....................................................................................6
2. Representations and Warranties...........................................................................6
2.1. Valid Existence and Power.......................................................................6
2.2. Authority.......................................................................................7
2.3. Financial Condition.............................................................................7
2.4. Financial Statements............................................................................7
2.5. Litigation; Government Regulation...............................................................7
2.6. Agreements, Etc.................................................................................7
2.7. Authorizations..................................................................................8
2.8. Title...........................................................................................8
2.9. Collateral......................................................................................8
2.10. Location........................................................................................8
2.11. Taxes...........................................................................................8
2.12. Withholding Taxes...............................................................................9
2.13. Labor Law Matters...............................................................................9
2.14. Accounts........................................................................................9
2.15. Use and Location of Collateral..................................................................9
2.16. Judgment Liens..................................................................................9
2.17. Intent and Effect of Transactions...............................................................9
2.18. Subsidiaries...................................................................................10
2.19. Hazardous Materials............................................................................10
2.20. ERISA..........................................................................................10
2.21. Investment Company Act.........................................................................10
3. The Loans...............................................................................................10
3.1. Discretionary Revolving Loan...................................................................10
3.2. Limitations on Advances of Revolving Loan......................................................11
3.3. Notice and Manner of Borrowing.................................................................11
3.4. Disbursement of Term Loan......................................................................12
3.5. Special Loan Account...........................................................................12
3.6. Calculation of Interest........................................................................12
3.7. Overdue Amounts................................................................................12
3.8. Sales Tax......................................................................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4. Conditions Precedent to Borrowing.......................................................................12
4.1. Conditions Precedent to Initial Advance........................................................12
4.2. Conditions Precedent to EachAdvance............................................................13
5. Covenants of the Borrower...............................................................................14
5.1. Use of Loan Proceeds...........................................................................14
5.2. Maintenance of Business and Properties.........................................................14
5.3. Insurance......................................................................................15
5.4. Notice of Default..............................................................................15
5.5. Inspections/Audits.............................................................................15
5.6. Financial Information..........................................................................15
5.7. Limitation on Debt.............................................................................15
5.8. Liens..........................................................................................16
5.9. Dividends......................................................................................17
5.10. Merger, Sale, Etc..............................................................................17
5.11. Loans, Guaranties and Other Investments........................................................17
5.12. Change in Fiscal Year..........................................................................17
5.13. Certificate of Full Compliance From Accountant.................................................18
5.14. Reports and Proxies............................................................................18
5.15. Change in Business/Control.....................................................................18
5.16. Accounts.......................................................................................18
5.17. Encumbrances...................................................................................18
5.18. Transactions with Affiliates...................................................................18
5.19. Payment of Other Debt..........................................................................18
5.20. No Change in Name, Offices; Removal of Collateral..............................................18
5.21. No Sale, Leaseback.............................................................................19
5.22. Margin Stock...................................................................................19
5.23. Payment of Taxes, Etc..........................................................................19
5.24. Subordination..................................................................................19
5.25. Compliance; Hazardous Materials................................................................19
5.26. Subsidiaries...................................................................................19
5.27. Compliance with Assignment Laws................................................................19
5.28. Further Assurances.............................................................................19
5.29. Withholding Taxes..............................................................................19
5.30. Other Covenants................................................................................19
6. Default.................................................................................................20
6.1. Events of Default..............................................................................20
6.2. Remedies.......................................................................................21
6.3. Receiver.......................................................................................22
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
7. Security Agreement......................................................................................22
7.1. Security Interest..............................................................................22
7.2. Remedies.......................................................................................22
7.3. Power of Attorney..............................................................................23
7.4. Entry..........................................................................................23
7.5. Deposits; Insurance............................................................................23
7.6. Other Rights...................................................................................23
7.7. Accounts.......................................................................................24
7.8. Tangible Collateral............................................................................24
7.9. Waiver of Marshalling..........................................................................24
7.10. Waiver of Automatic Stay.......................................................................24
8. Miscellaneous...........................................................................................24
8.1. No Waiver, Remedies Cumulative.................................................................24
8.2. Survival of Representations....................................................................24
8.3. Expenses.......................................................................................25
8.4. Notices........................................................................................25
8.5. Governing Law..................................................................................25
8.6. Successors and Assigns.........................................................................25
8.7. Counterparts...................................................................................26
8.8. No Usury.......................................................................................26
8.9. Powers.........................................................................................26
8.10. Approvals......................................................................................26
8.11. Jurisdiction, Service of Process...............................................................26
8.12. Multiple Borrowers.............................................................................27
8.13. Waiver of Jury Trial...........................................................................27
</TABLE>
iii
<PAGE> 5
CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of the _____ day of
_______________, 1995, between Lancetti Cosmetics Corporation, a Florida
corporation (the "Borrower"), and FIRST UNION NATIONAL BANK OF FLORIDA, a
national banking association (the "Bank");
W I T N E S S E T H
In consideration of the mutual covenants herein contained and to induce
the Bank to extend credit to the Borrower, the parties agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
1.1. DEFINED TERMS.
"ACCOUNTS" shall mean all accounts, accounts receivable,
contract: rights, notes, bills, acceptances, choses in action, chattel paper,
instruments, documents, and other forms of obligations at any time owing to the
Borrower, and all "Accounts," as that term is defined in the Code, the proceeds
thereof and all of the Borrower's rights with respect to any goods represented
whereby, whether or not delivered, goods returned by customers and all rights as
an unpaid vendor or lienor, including rights of stoppage in transit and of
recovering possession by proceedings including replevin and reclamation,
together with all customer lists, books and records, ledger and account cards,
computer tapes, disks, printouts and records, whether now in existence or
hereafter created, relating to Accounts.
"ACCOUNT DEBTOR" shall mean any Person who is or who
may become obligated to the Borrower under, with respect to, or on account of an
Account.
"ADVANCE" shall mean an advance of proceeds of the
Revolving Loan to the Borrower pursuant to this Agreement, on any given Advance
Date.
"ADVANCE DATE" shall mean the date as of which an
Advance is made.
"ADVANCE REQUEST" shall mean the written request for
an Advance under the Revolving Loan as identified in SECTION 3.1 hereof.
"AFFILIATE" of a named Person shall mean (a) any
Person owning 5% or more of the voting stock or rights of such named Person or
of which the named Person owns 5% or more of such voting stock or rights; (b)
any Person controlling, controlled by or under common control with such named
Person; (c) any officer or director of such named Person or any Affiliates of
the named Person; and (d) an, family member of the named Person or any Affiliate
of such named Person.
<PAGE> 6
"BOND FACILITY" shall mean that certain $1,736,000.00
Bond Facility evidenced in part by that certain Indenture of Trust dated as of
May 1, 1994 by and between Broward County, Florida and First Union National Bank
of Florida as Trustee and that certain Loan Agreement dated as of May 1, 1994 by
and between Broward County, Florida and C&C General Partnership and Lancetti
Cosmetics Corporation d/b/a Prestige Cosmetics and secured in part by that
certain Mortgage and Security Agreement dated as of the lst day of May, 1994 by
and between C&C General Partnership and Florida general partnership and Broward
County, Florida, a political subdivision of the State of Florida.
"BORROWING BASE" shall have the meaning set forth in
SECTION 3.2 hereof.
"BUSINESS DAY" shall mean a weekday on which
commercial banks are open for business in Jacksonville, Florida.
"CHATTEL PAPER" shall mean all writing or writings
which evidence both a monetary obligation and a security interest in or the
lease of specific goods and in addition includes all property included in the
definition of "chattel paper" as used in the Code, together with any guaranties,
letters of credit and other security therefor.
"CODE" shall mean the Uniform Commercial Code, as in
effect in Florida from Lime to time.
"COLLATERAL" means the following property of the
Borrower, wherever located and whether now owned by Borrower or hereafter
acquired: (a) all Inventory; (b) all General Intangibles; (c) all Accounts and.
Chattel Paper and any other instrument or intangible representing payment for
goods or services; (d) all Equipment; (e) all funds on deposit with or under the
control of the Bank or its agents or correspondents; (f) any Key-Man Life
Insurance policies insuring the life of Jacques Cohen now or hereafter assigned
to Bank; and (g) all parts, replacements, substitutions, profits, products and
cash and non-cash proceeds of any of the foregoing (including insurance proceeds
payable by reason of loss or damage thereto) in any form and wherever located.
Collateral shall include all written or electronically recorded records relating
to any such Collateral and other rights relating thereto.
"DEBT" shall mean all liabilities of a Person as
determined under generally accepted accounting principles and all obligations
which such Person has guaranteed or endorsed or is otherwise secondarily or
jointly liable, and shall include, without limitation (a) all obligations for
borrowed money or purchased assets, (b) obligations secured by assets whether or
not any personal liability exists, (c) the capitalized amount of any capital or
finance lease obligations, (d) the unfunded portion of pension or benefit plans
or other similar liabilities, (e) obligations as a general partner, (f)
contingent obligations pursuant to guaranties, endorsements, letters of credit
and other secondary liabilities, and (g) obligations for deposits.
"DEFAULT" or "DEFAULT" shall mean any of such events,
whether or not any such requirement for the giving of time or the notice or
the laps happening of any further condition, event or act shall have been
satisfied.
2
<PAGE> 7
"DEFAULT RATE" shall mean the highest lawful rate of
interest per annum specified in the Note to apply after a default under the
Note.
"ELIGIBLE ACCOUNTS" shall mean all Accounts (valued
net of any sales tax included in the invoiced amount, the maximum amount of any
discounts or other reductions) of the Borrower payable not more than forty-five
(45) days after the date of invoice and as to which the Bank has a first
priority perfected Lien subject only to Permitted Liens, excluding (a)
Accounts outstanding for ninety (90) days or more from the date of invoice; (b)
all Accounts owed by an Account Debtor if more than 50% of the Accounts owed
by such Account Debtor (or any Affiliate) to the Borrower are ineligible because
they are aged beyond ninety (90) days; (c) Accounts owing from any Affiliate of
the Borrower; (d) Accounts owed by a creditor of the Borrower or which are in
dispute or subject to any counterclaim, contra-account or offset; (e) Accounts
owing by any Account debtor which is insolvent or generally unable to pay its
debts as they become due; (f) Accounts arising from a sale on a bill-and-hold,
guaranteed sale, sale-or-return, sale-on-approval, consignment or similar basis
or which is subject to repurchase, return, rejection, repossession, loss or
damage; (g) Accounts owed by an Account Debtor outside the United States; (h)
Accounts as to which the goods giving rise to the Account have not been
delivered to and accepted by the Account Debtor or the service giving rise to
the Account has not been completely performed or which do not represent a final
sale; (i) Accounts owed by the United States of America unless the Borrower
shall have complied with the Federal Assignment of Claims Act; (j) Accounts
which are on a C.O.D. basis; (k) the total Accounts owed by an Account Debtor
and its Affiliates exceeds a credit limit-- established by the Bank in its
discretion (to the extent of such excess); (1) the Account is evidenced by a
note or other instrument, or Chattel Paper or reduced to judgment; (m) the total
unpaid Accounts of the Account Debtor and its Affiliates and subsidiaries at an,
of their locations exceed 10% of the total Accounts of the Borrower (to the
extent of such excess); (n) Accounts which, by contract, subrogation, mechanics'
lien laws or otherwise, are subject to claims by the Borrower's creditors or
other third parties or which are owed by Account Debtors as to whom any creditor
of the borrower (including any bonding company) has lien rights; and (o)
Accounts for which the validity, collectibility or amount of which is determined
in good faith by the Borrower or the Bank to be doubtful. No Accounts shall be
Eligible Accounts if any representation, warranties or covenants herein relating
thereto shall be in default.
"ELIGIBLE INVENTORY" shall mean Inventory consisting
of finished goods of the Borrower as to which the Bank has a first priority
perfected Lien subject only to Permitted Liens, of a kind usually and
customarily sold by the Borrower located at the Borrower's main operating
facility in Deerfield Beach, Florida and which is not, because of damage, age,
unmerchantability, obsolescence or any other condition or circumstance,
materially impaired in condition, value or marketability in the good faith
opinion of the Bank or the Borrower. No Inventory shall be Eligible Inventory if
any representation, warranty, or covenant herein relating to such Inventory is
in default.
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"EQUIPMENT" shall mean all furniture, fixtures,
equipment, motor vehicles, rolling stock and other tangible property of a Person
of every description, except Inventory, and in addition includes all property
included in the definition of "equipment" as used in the Code.
"EVENT OF DEFAULT" shall mean any event specified as
such in SECTION 6.1 hereof, provided that there shall have been satisfied any
requirement in connection with such event for the giving of notice or the lapse
of time, or both;
"GENERAL INTANGIBLES" shall mean all intangible
personal property (including things in action) except Accounts, Chattel Paper
and instruments (as defined in the Code), including all contract rights,
copyrights, trademarks, trade names, service marks, patents, patent drawings,
designs, formulas, rights to a Person's name itself, customer lists, rights to
all prepaid expenses, marketing expenses, rights to receive future contracts,
fees, commissions and orders relating in any respect to any business of a
Person, all licenses and permits, all computer programs and other software owned
by a Person, or which a Person has the right to use, and all rights for breach
of warranty or other claims for funds to which a Person may be entitled, and in
addition includes ail property included in the definition of general
intangibles" as used in the Code.
"GUARANTOR" shall mean any Person now or hereafter
guaranteeing, endorsing or otherwise becoming liable for any Indebtedness.
"GUARANTY AGREEMENT" shall mean any guaranty
instrument now or hereafter executed and delivered by any Guarantor to the Bank,
as it may be modified.
"INDEBTEDNESS" shall mean all obligations now or
hereafter owed to the Bank by the Borrower, whether related or unrelated to the
Revolving Loan, including, without limitation, amounts owed or to be owed under
the terms of the Loan Documents, or arising cut of the transactions described
therein, including, without limitation, the Revolving Loan, sums advanced to
pay overdrafts on any account maintained by the Borrower with the Bank,
reimbursement obligations for outstanding letters of credit or banker's
acceptances issued to the account of the Borrower, or its Subsidiaries, amounts
paid by the Bank under letters of credit or drafts accepted by the Bank for the
account of the Borrower or its Subsidiaries, together with all interest accruing
thereon, all fees, all costs of collection, attorneys' fees and expenses of or
advances by the Bank: which the Bank pays or incurs in discharge of obligations
of the Borrower or to repossess, protect, preserve, store or dispose of any
Collateral, whether such amounts are now due or hereafter become due, direct or
indirect and whether such amounts due are from time to time reduced or entirely
extinguished and thereafter re-incurred.
"INVENTORY" means all goods, merchandise and other
personal property of a Person which is held for sale or lease or furnished or to
be furnished under a contract for services or raw materials, and all work in
process and materials used or consumed or to be used or consumed in a Person's
business, and in addition, includes all property included in the definition of
"inventory" as used in the Code.
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<PAGE> 9
"LIEN" shall mean any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim,
security interest, easement or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the UCC or comparable law of any jurisdiction).
"LOAN(S)" shall mean collectively the Revolving Loan
identified in SECTION 3.1 hereof and the Term Loan identified in SECTION 3.5
hereof.
"LOAN DOCUMENTS" shall mean this Agreement, any other
Security Agreement, any Note, any Guaranty Agreement, the Advance Requests,
UCC-1 financing statements and all other documents and instruments now or
hereafter evidencing, describing, guaranteeing or securing the Indebtedness
contemplated hereby or delivered in connection herewith, as they may be
modified.
"MAXIMUM LOAN AMOUNT" shall mean $1,700,000.00 as to
the Revolving Loan and $250,000.00 as to the Term Loan or such other amount as
the Bank may consent to in writing from time to time.
"NOTE" shall mean collectively the Revolving Note and
the Term Note, and any other promissory note now or hereafter evidencing any
Indebtedness, and all modifications, extensions and renewals thereto.
"PERMITTED DEBT" shall mean (a) the Indebtedness; (b)
Debt payable to suppliers and other trade creditors in the ordinary course of'
business on ordinary and customary trade terms and which is not past due; and
(c) Debt secured by Permitted Liens, provided that such Indebtedness never may
not be increased from the amount outstanding- as of the date hereof; and (d)
such other Debt as the Bank may consent to in writing from time to time.
"PERMITTED LIENS" shall mean (a) Liens securing the
Indebtedness, (b) Liens for taxes and other statutory Liens, landlord's Liens
and similar Liens arising out of operation of law (provided they are subordinate
to the Bank's Liens on Collateral) so long as the obligations secured thereby
are not past due or are being contested as permitted herein; (c) Liens described
on Exhibit 1.1 hereto (if any), provided, however, that no debt not now secured
by such Liens shall become secured by such Liens hereafter and such Liens shall
not encumber any other assets; and (d) such other Liens as the Bank may consent
to in writing from time to time.
"PERSON" shall mean any natural person, corporation,
unincorporated organization, trust, joint-stock company, joint venture,
association, company, limited or general partnership, any government, or any
agency or political subdivision of any government.
"REVOLVING LOAN" shall mean that certain
$1,700,000.00 revolving line of credit made by Bank to Borrower as evidenced by
the Demand Note.
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<PAGE> 10
"REVOLVING NOTE" Loan shall mean that certain Demand
Revolving Promissory Note executed by Borrower of even date herewith and all
renewals and modifications thereto.
"SECURITY AGREEMENT" shall mean this Agreement as it
relates to a Lien on the Collateral, and any other mortgage, security agreement
or similar instrument now or hereafter executed by the Borrower or other Person
granting the Bank a Lien on any Collateral to secure the Indebtedness.
"SUBSIDIARY" shall mean any corporation, partnership
or other Person in which the Borrower, directly or indirectly, owns more than
fifty percent (50%) of the stock, capital or income interests, or other
beneficial interests, or which is effectively controlled by the Borrower whether
such subsidiary not exists or is hereafter created.
"TERM LOAN" shall mean that certain $250,000 term
loan made by Bank to Borrower as evidenced by the Term Note.
"TERM NOTE" shall mean that certain $250,000 Term
Promissory Note made by Bank to Borrower of even date herewith, and all
modifications and renewals thereto.
1.2. FINANCIAL TERMS. All financial terms used herein shall
have the meanings assigned to them under generally accepted accounting
principles consistently applied and maintained on a basis for the Borrower
throughout the period indicated and consistent with the prior financial practice
of the Borrower, unless another meaning shall be specified ("GAAP").
1.3. OTHER TERMS. All other terms contained in this
Agreement shall, when the context so indicates, have the meanings provided for
by the Code to the extent the same are used or defined therein.
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this Agreement and to make the Revolving Loan provided for herein,
the Borrower makes the following representations and warranties, all of which
shall survive the execution and delivery of the Loan Documents and the making of
Advances thereunder. Unless otherwise specified, such representations and
warranties shall be deemed made as of the date hereof and as of the Advance Date
of any Advance by the Bank to the Borrower:
2.1. VALID EXISTENCE AND POWER. The Borrower and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization is duly
qualified or licensed to transact business in all places where the failure to be
so qualified would have a material adverse effect on it. The Borrower and each
other Person which is a party to any Loan Document (other than the Bank) has the
power to make and perform the Loan Documents executed by it and all such
instruments will constitute the legal, valid and binding obligations of such
Person, enforceable in accordance with their respective terms.
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<PAGE> 11
2.2. AUTHORITY. The execution, delivery and performance
thereof by the Borrower and each other Person (other than the Bank) executing
any Loan Document have been duly authorized by all necessary action of such
Person, and do not and will not violate any provisions of law or regulation, or
any writ, order or decree of any court or governmental or regulatory authority
or agency or any provision of the governing instruments of such Person, and do
not and will not, with the passage of time or the giving of notice, result in a
breach of, or constitute a default or require any consent under, or result in
the creation of any Lien upon any property or assets of such Person pursuant to,
any law, regulation, instrument or agreement to which any such Person is a party
or by which any such Person or its respective properties may be subject, bound
or affected.
2.3. FINANCIAL CONDITION. Other than as disclosed in
financial statements delivered on or prior to the date hereof to the Bank,
neither the Borrower nor any Subsidiary nor (to the knowledge of the Borrower)
any Guarantor has any direct or contingent obligations or liabilities (including
any guarantees or leases) or any material unrealized or anticipated losses from
any commitments of such Person. The Borrower is not aware of any material
adverse fact (other than facts which are generally available to the public and
not particular to the Borrower, such as general economic or industry trends)
concerning the conditions or future prospects of the Borrower or any Subsidiary
or any Guarantor which has not been fully disclosed to the Bank, including any
adverse change in the operations or financial condition of such Person since the
date of the most recent financial statements delivered to the Bank.
2.4. FINANCIAL STATEMENTS. The financial statements
delivered to Bank have been prepared in accordance with GAAP, contain no
misstatement or omission, and fairly present the financial position, assets and
liabilities of the Borrower as of the respective dates thereof and the results
of operations and cash flows of the Borrower and its Subsidiaries for the
respective periods then ended.
2.5. LITIGATION; GOVERNMENT REGULATION. Except as disclosed
on EXHIBIT 2.5 (if any), there are no actions, suits or proceedings pending or,
to the knowledge of the Borrower, threatened against or affecting the Borrower
or any Guarantor at law or in equity before any court or administrative officer
or agency which might result in a material adverse change in the business or
financial condition of the Borrower or either Guarantor or impair the Borrower's
or either Guarantor's ability to perform its obligations under the Loan
Documents. Neither the Borrower nor any Guarantor is in violation of or in
default under any applicable statute, rule, order, decree, writ, injunction or
regulation of any governmental body (including any court).
2.6. AGREEMENTS, Etc. Neither the Borrower nor any
Subsidiary is a party to any agreement or instrument or subject to any court
order, governmental decree or any charter or other corporate restriction,
adversely affecting its business, properties or assets, operations or condition
(financial or otherwise) nor is any such Person in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, or any law,
regulation, decree, order or the like.
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2.7. AUTHORIZATIONS. All authorizations, consents, approvals
and licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by the Borrower or any Subsidiary or
for the conduct of any business in which it is engaged have been duly issued and
are in full force and effect, and it: is not in default, nor has any event
occurred which with the passage of time or the giving of notice, or both, would
constitute a default, under any of the terms or provisions of any part thereof,
or under any order, decree, ruling, regulation, closing agreement. or other
decision or instrument of any governmental commission, bureau or other
administrative agency or public regulatory body having jurisdiction over such
Person, which default would have a material adverse effect on such Person.
Except as noted herein, no approval, consent or authorization of, or filing or
registration with, any governmental commission, bureau or other regulator,
authority or agency is required with respect to the execution, delivery or
performance of any Loan Document.
2.8. TITLE. The Borrower and each Subsidiary has good title
to the Collateral, free and clear of all Liens, except Permitted Liens. The
Borrower alone has full ownership rights in all Collateral.
2.9. COLLATERAL. The Liens granted to the Bank herein and
pursuant to any other Security Agreement (a) constitute and, as to subsequently
acquired property included in the Collateral covered by the Security Agreement,
will constitute, Liens under applicable law including, without limitation, the
Code entitled to all of the rights, benefits and priorities provided by
applicable law including, without limitation, the Code and (b) are, and as to
such subsequently acquired Collateral will be fully perfected, superior and
prior to the rights of all third persons, now existing or hereafter arising,
subject only to Permitted Liens. All of the Collateral is intended for use
solely in the Borrower's business.
2.10. LOCATION. The chief executive office of the Borrower
where the Borrower's business records are located is the address designated for
notices in SECTION 8.4 and the Borrower has no other places of business, except
as shown on EXHIBIT 2.10 (if any).
2.11. TAXES. The Borrower and each Subsidiary has filed all
federal and state income and other tax returns which, to the best knowledge of
the Borrower, are required to be filed, and have paid all taxes as shown on said
returns and all taxes, including AD VALOREM taxes, shown on all assessments
received by it to the extent that such taxes have become due. Neither the
Borrower nor any Subsidiary is subject to any federal, state or local tax Liens
nor has such Person received any notice of deficiency or other official notice
to pay any taxes. The Borrower and each Subsidiary has paid all sales and excise
taxes payable by it.
2.12. WITHHOLDING TAXES. The Borrower and each Subsidiary
has paid all withholding, FICA and other payments required by federal, state or
local governments with respect to any wages paid to employees.
2.13. LABOR LAW MATTERS. No goods or services have been or
will be produced by the Borrower or any Subsidiary in violation of any
applicable labor laws or regulations or any
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<PAGE> 13
collective bargaining agreement or other labor agreements or in violation of any
minimum wage, wage-and-hour or other similar laws or regulations.
2.14. ACCOUNTS. Each Account, instrument, Chattel Paper and
other writing constituting any portion of the Collateral is (a) genuine and
enforceable in accordance with its terms except for such limits thereon arising
from BANKRUPTCY and similar laws relating to creditors' rights; (b) not subject
to any defense, setoff, claim or counterclaim of a material nature against the
Borrower except as to which the Borrower has notified the Bank in writing; and
(c) not subject to any other circumstances that would impair the validity,
enforceability or amount of such Collateral except as to which the Borrower has
notified the Bank in writing. Each Account included in any Advance Request,
report or other document as an Eligible Account meets all the requirements of an
Eligible Account set forth herein.
2.15. USE AND LOCATION OF COLLATERAL. The Collateral is
located only, and shall at all times be kept and maintained only, at the
Borrower's location or locations as described herein, which are owned and
operated by the Borrower, or for which Borrower has delivered to the Bank a
landlord's lien waiver, in accordance with SECTION 4.1(e) hereof. No such
Collateral is attached or affixed to any real. property so as to be classified
as a fixture unless the Bank has otherwise agreed in writing.
2.16. JUDGMENT LIENS. Neither the Borrower nor any Subsidiary,
nor any of their assets, are subject to any unpaid judgments (whether or not
stayed) or any judgment liens in any jurisdiction.
2.17. INTENT AND EFFECT OF TRANSACTIONS. This Agreement and
the transactions contemplated herein (a) are not made or incurred with intent to
hinder, delay or defraud any person to whom the Borrower has been, is now, or
may hereafter become indebted; (b) do not render the Borrower insolvent nor is
the Borrower insolvent on the date of this Agreement; (c) do not leave the
Borrower with an unreasonably small capital with which to engage in its
business or in any business or transaction in which it intends to engage; and
(d) are not entered into with the intent to incur, or with the belief that the
Borrower would incur, debts that would be beyond its ability to pay as such
debts mature.
2.18. SUBSIDIARIES. Borrower has no Subsidiaries, except as
set forth on Exhibit 2.18 (if any), attached hereto.
2.19. HAZARDOUS MATERIALS. The Borrower's property and
improvements hereon have not in the past been used, are not presently being
used, and will not in the future be used for, nor does the Borrower or any
Subsidiary engage in, the handling, storage, manufacture, disposition,
processing, transportation, use or disposal of hazardous or toxic materials, in
violation of applicable environmental laws.
2.20. ERISA. Neither the Borrower nor any subsidiary has any
pension, profit-sharing or other benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
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<PAGE> 14
2.21. INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" as defined in the Investment Company Act
of 1940, as amended.
3. The LOANS.
3.1. DISCRETIONARY REVOLVING LOAN. The Bank may in its
discretion lend to the Borrower a total principal amount not to exceed
$1,700,000.00 (the "Maximum Revolving Loan Amount") for working capital to be
used in the operation of the Borrower's business. The Revolving Loan shall be
evidenced by and payable in accordance with the terms of a promissory note in
the face amount of the Revolving Note. The Revolving Note shall evidence the
outstanding principal balance of the Loan, as it may change from time to time.
ADVANCES HEREUNDER ARE DISCRETIONARY WITH THE BANK AND THE PRINCIPAL BALANCE OF
THE REVOLVING LOAN, OR SO MUCH THEREOF AS MAY BE ADVANCED, SHALL BE PAYABLE IN
FULL ON DEMAND. Advances under the Revolving Loan shall be subject to the
following terms:
(a) Advances of proceeds of the Revolving Loan shall
be limited to the face amount of the Revolving Note at any time outstanding;
(b) Should there occur any overdraft of any deposit
account maintained by the Borrower with the Bank, the Bank may, at its option,
disburse funds (whether or not in excess of the Maximum Revolving Loan Amount)
to eliminate such overdraft and such disbursement shall be deemed an Advance of
Revolving Loan proceeds hereunder entitled to all of the benefits of the Loan
Documents. Nothing herein shall be deemed an authorization of or consent to the
creation of an overdraft in any account or create any obligations on the part of
the Bank;
(c) All Advances by the Bank to or for the account of
the Borrower, whether or not in excess of the Maximum Revolving Loan Amount,
shall be considered part of the Indebtedness under the Note, shall bear interest
as provided in the Note, and shall be entitled to all rights and benefits
hereunder and under all other Loan Documents; and
(d) The Borrower shall not request and the Bank will
not be required to consider requests for Advances after the Maturity Date (as
defined in the Note); provided that the Bank may in its discretion extend such
date in writing and further provided that the repayment obligations of the
Borrower for Advances made by the Bank after such date (as it may be extended)
shall be binding on the Borrower and any Guarantor or other persons liable for
any Indebtedness to the same extent as obligations with respect to Advances made
prior to such date.
3.2. LIMITATIONS ON ADVANCES OF REVOLVING LOAN. The
outstanding balance of the Revolving Loan may increase and decrease from time to
time, and Advances thereunder may be repaid and reborrowed, but the total of
Advances outstanding at any one time under the Revolving Loan shall never exceed
the lesser of:
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<PAGE> 15
(1) the maximum Revolving Loan Amount; or
(2) the "Borrowing Base," which shall be calculated
by:
(i) adding (A) a sum equal to seventy-five
(75%) percent of the total amount of Eligible Accounts to (B) a sum equal to the
lesser of $250,000.00 or (b) fifteen percent (15%) of the lesser of cost or fair
market value of Eligible Inventory of the Borrower; and
(ii) subtracting from the total obtained
under Section (2) (i) above an amount equal to the aggregate amounts described
on Exhibit 3.2 (if any) plus any foreign exchange contract exposure.
The Borrower shall immediately pay to the Bank any amount by
which the Revolving Loan exceeds the Borrowing Base or the Maximum Revolving
Loan Amount, whichever is less. The Bank may, in its discretion, make, or permit
to remain outstanding, Advances to the Borrower in excess of the Borrowing Base
and/or the Maximum Loan Amount and all such amounts shall be part of the
Revolving Loan and Indebtedness, shall bear interest as provided in the Note,
shall be payable in accordance herewith and with the Note and shall be entitled
to all rights and security provided for herein, in the Guaranty, the Security
Agreement and all other Loan Documents.
3.3. NOTICE AND MANNER OF BORROWING. Unless another
satisfactory procedure for disbursements is agreed upon in writing by the
parties, the following procedure will be used for disbursement of proceeds of
the Revolving Loan. The Borrower shall deliver a written and signed Advance
Request to the Bank not later than 12:00 noon, EST, on the Business Day of the
proposed Advance Date, in the form attached hereto as EXHIBIT 3.2, setting forth
the amount of the requested Advance, setting forth the Eligible Accounts and the
Eligible Inventory of the Borrower, and a reconciliation from the previous
Advance Request (or monthly report), specifying the date (which shall be a
Business Day), and the amount of the proposed Advance of proceeds, and providing
such other information as the Bank may require.
3.4. DISBURSEMENT OF TERM LOAN. The proceeds of the Term Loan
shall only be used by Borrower to purchase new machinery or equipment less than
one year old from (original invoice date) related to Borrower's now existing
core business. Each request for advance under the Term Loan shall be made in
writing no later than three Business Days prior to the date the disbursement is
to be made and shall be supported by an invoice containing the serial number and
description of the machinery or equipment being purchased.
3.5. SPECIAL LOAN ACCOUNT. The Borrower shall establish and
maintain with the Bank, during the term of the Loan, a demand deposit account
(the "Special Loan Account") into which the Borrower shall deposit, as received,
all proceeds from the sale of Inventory and collection of Accounts and other
Collateral in the form of checks, cash, drafts or the like, and all such
proceeds shall constitute Collateral. The Bank shall debit funds from the
Special Loan Account and apply the balance thereof against the outstanding
balance of the Revolving Note
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<PAGE> 16
on or after the Business day following the Business day of deposit. The Bank
may, but shall not be required to, apply to the Loans any amounts represented by
uncleared checks, subject to collection. unless the Bank shall agree to other
arrangements, the Borrower shall direct (by instruction on invoices or
otherwise) all Account Debtors to make payment to a designated post office box
under the control of the Bank, which payments shall be deposited directly into
the special Loan Account. The Borrower shall pay the Bank's reasonable fees and
charges in connection with such lock-box arrangement.
The Bank may debit the Special Loan Account and/or make
Advances to the Borrower (whether or not in the excess of the Maximum Revolving
Loan Amount or the Borrowing Base) and apply such amounts to the payment of
interest, fees, expenses and other amounts to which the Bank may be entitled
from time to time and the Bank is hereby irrevocably authorized to do so without
consent of the Borrower. With regard hereto, the Bank shall use its best efforts
to notify the Borrower by facsimile transmission at least one (1) day prior to
debiting the Special Loan Account pursuant to the terms hereof.
3.6. CALCULATION OF INTEREST. All interest under the Note or
hereunder shall be calculated on the basis of a 360-day year for the actual
number of days elapsed in an interest period (actual/360 method), unless the
Bank shall otherwise elect.
3.7. OVERDUE AMOUNTS. Any payments not made as and when due
shall bear interest from the date due until paid at the Default Rate.
3.8. SALES TAX. The Borrower shall notify the Bank if any
Account includes any sales or other similar tax and the Bank may, but shall not
be obligated to, remit any such taxes directly to the taxing authority and make
Advances therefor. In no event shall the Bank be Liable for any such taxes.
4. CONDITIONS PRECEDENT TO BORROWING. Prior to any Advance of the
proceeds of the Loans, the following conditions shall have been satisfied, in
the sole opinion of the Bank and its counsel:
4.1. CONDITIONS PRECEDENT TO INITIAL ADVANCE. In addition to
any other requirement set forth in this Agreement, the Bank will not make the
Initial Advance under the Loans unless and until the following conditions shall
have been satisfied:
(a) LOAN DOCUMENTS. The Borrower and each other party
to any Loan Documents, as applicable, shall have executed and delivered this
Agreement, the Term Note, the Revolving Note and other required Loan Documents,
all in form and substance satisfactory to the Bank.
(b) OPINION OF COUNSEL TO THE BORROWER AND GUARANTOR.
The Bank shall have received the opinion of counsel for the Borrower and each
Guarantor as to the transactions contemplated by this Agreement, in form and
substance satisfactory to the Bank.
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<PAGE> 17
(c) SUPPORTING DOCUMENTS. The Borrower shall cause to
be delivered to the Bank the following documents:
(i) A copy of the governing instruments of
the Borrower and each Subsidiary, and a good standing certificate of the
Borrower and each subsidiary, certified by the appropriate official of its state
of incorporation and the State of Florida, if different;
(ii) Bylaws of the Borrower certified by an
officer of the Borrower;
(iii) Incumbency certificate and certified
resolutions of the board of directors (or other appropriate Persons) of the
Borrower and each other Person executing any Loan Documents authorizing the
execution, delivery and performance of the Loan Documents; and
(iv) UCC-11 searches and other Lien searches
showing no existing Liens on the Collateral other than the Liens of the Bank, or
except as approved by the Bank in its sole and absolute discretion.
(d) INSURANCE. The Borrower shall have delivered to
the Bank satisfactory evidence of insurance meeting the requirements of SECTION
5.3.
(e) PERFECTION OF LIENS. UCC-1 financing statements
and, if applicable, certificates of title covering the Collateral executed by
the Borrower shall duly have been recorded or filed in the manner and places
required by law to establish, preserve, protect and perfect the interests and
rights created or intended to be created by this Agreement and any other
Security Agreement; and all taxes, fees and other charges in connection with the
execution, delivery and filing of this Agreement, the Security Agreement and the
financing statements shall duly have been paid.
(f) SUBORDINATIONS. The Bank shall have received, in
form and content satisfactory to Bank (i) waiver from all lessors that might
have landlord's Liens on any Collateral and (ii) subordinations from all
Guarantors and Affiliates as required by SECTION 5.24.
(g) ADDITIONAL DOCUMENTS. The Borrower shall have
delivered to the Bank all additional opinions, documents, certificates and other
assurances that the Bank or its counsel may require.
4.2. CONDITIONS PRECEDENT TO EACH ADVANCE. The following
conditions, in addition to any other requirements set forth in this Agreement,
shall have been met or performed by the Advance Date with respect to any Advance
Request:
(a) PRIOR CONDITIONS. The Borrower shall have
satisfied (i) all conditions precedent for the making of the initial Advance, as
set forth in SECTION 4.1 above, and
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(ii) all conditions precedent set forth elsewhere in this Agreement and in any
other Loan Document.
(b) ADVANCE REQUEST. The Borrower shall have
delivered to the bank an Advance Request and other information, as required in
SECTION 3.1.
(c) NO DEFAULT. No Default shall have occurred and be
continuing or will occur upon the making of the Advance in question and the
Borrower shall have delivered to the Bank an officer's certificate to such
effect, which may he incorporated in the Advance Request.
(d) CORRECTNESS OF REPRESENTATIONS. All
representations and warranties made by the Borrower and any Guarantor herein or
otherwise in writing in connection herewith shall he true and correct with the
same effect as though the representations and warranties had been made on and as
of the proposed Advance Date, and the Borrower shall have delivered to the Bank
an officer's certificate to such effect, which may be incorporated in the
Advance Request.
(e) NO ADVERSE CHANGE. There shall have been no
material adverse change in the condition, financial or otherwise, of the
Borrower, any Subsidiary or any Guarantor from such condition as it existed on
the date of the most recent financial statements of such Person delivered prior
to date hereof.
(f) PERIODIC REPORT. The Bank shall have received a
current Accounts Receivable Report and a current Inventory Report (as required
by SECTION 5.6) sufficient in form and substance to calculate and verify the
Borrowing Base.
(g) FURTHER ASSURANCES. The Borrower shall have
delivered such further documentation or assurances as the Bank may reasonably
require.
5. COVENANTS OF THE BORROWER. The Borrower covenants and agrees that
from the date hereof and until payment in full of the Indebtedness and the
formal termination of this Agreement, unless the Bank shall otherwise consent in
writing, the Borrower and each Subsidiary:
5.1. USE OF LOAN PROCEEDS. Shall use the proceeds of the
Revolving Loan only for the commercial purposes permitted herein or otherwise
permitted by the Bank and furnish the Bank all evidence that it may reasonably
require with respect to such use.
5.2. MAINTENANCE OF BUSINESS AND PROPERTIES. Shall at all
times maintain, preserve and protect all Collateral and all the remainder of
its material property used or useful in the conduct of its business, and keep
the same in good repair, working order and condition, and from time to time
make, or cause to he made, all material needful and proper repairs, renewals,
replacements, betterments and improvements thereto so that the business carried
on in connection therewith may be conducted properly and in accordance with
standards generally
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accepted in businesses of a similar type and size at all times, and maintain and
keep in full force and effect all licenses and permits necessary to the proper
conduct of its business.
5.3. INSURANCE. Shall maintain such liability insurance,
workers' compensation insurance, business interruption insurance and casualty
insurance as may be required by law, customary and usual for prudent businesses
in its industry or as may be reasonably required by the Bank and shall insure
and keep insured all Collateral and other properties in good and responsible
insurance companies satisfactory to the Bank. All hazard insurance covering
Collateral shall be in amounts and shall contain co-insurance and deductible
provisions approved by the Bank, shall name and directly insure the Bank as
secured party and loss payee under a long-form New York standard loss payee
clause, or its equivalent, and shall not be terminable except upon 30 days'
written notice to the Bank.
5.4. NOTICE OF DEFAULT. Shall provide to the Bank immediate
notice of (a) the occurrence of a Default, (b) any material litigation or
material changes in existing litigation or any judgment against it or its
assets, (c) any material damage or loss to property, (d) any notice from taxing
authorities as to claimed deficiencies or any tax lien or any notice relating to
alleged ERISA violations, (e) any Reportable Event, as defined in ERISA, (f) any
rejection, return, offset, dispute, loss or other circumstance having a material
adverse effect on any Collateral, and (g) any loss or threatened loss of
material licenses or permits.
5.5. INSPECTIONS/AUDITS. Shall permit inspections of the
Collateral and the records of such Person pertaining thereto, at such times and
in such manner as may be reasonably required by the Bank and shall further
permit such inspection, review and audits of its other records and its
properties (with such reasonable frequency and at such reasonable times as the
Bank may desire) by the Bank as the Bank may deem necessary or desirable from
time to time. The cost of such audits, reviews and inspections shall be borne by
the Borrower.
5.6. FINANCIAL INFORMATION. Shall maintain books and records
in accordance with GAAP and shall furnish to the Bank the following periodic
financial information:
(a) PERIODIC BORROWING BASE REPORTS. Within five (5)
Business Days of the 15th and 30th of each month (or more frequently if required
by the Bank), (i) a report listing Accounts and all Eligible Accounts of the
Borrower as of the last Business Day of such month (the "Accounts Receivable
Report") which shall include the amount and age of each Account, the name and
mailing address of each Account Debtor, which shall delineate Eligible Accounts
from Accounts which are ineligible under this Agreement and such other
information as the Bank may require in order to verify the Eligible Accounts,
all in reasonable detail and in form acceptable to the Bank (ii) a report
listing all Inventory and all Eligible Inventory of the Borrower as of the last
Business Day of such month which shall distinguish between raw materials,
components and finished goods, and shall reflect the cost thereof, and shall
have such other information as the Bank may require relating thereto, all in
form acceptable to the Bank (the "Inventory Report") and (iii) an accounts
payable agings report in a form satisfactory to Bank;
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(b) MONTHLY REPORTS. Within 30 days after the end of each
calendar month, an income statement, a balance sheet and statement of cash
flows, all with supporting schedules, prepared in accordance with GAAP, as of
the end of and for such month and year-to-date, each certified by the chief
financial officer or president of the Borrower as being true and accurate;
(c) ANNUAL REPORTS. Within 90 days after the end of each
calendar year, an income statement and a reconciliation of surplus statement of
the Borrower and its Subsidiaries for such year, a balance sheet as of the end
of such year, and statement of cash flows, all with supporting schedules,
prepared in accordance with GAAP, audited and prepared on an unqualified-basis
by an independent certified public accountant of recognized standing selected by
the Borrower and satisfactory to the Bank together with a copy of Borrower's
projections for its next fiscal year as well as a copy of Borrower's management
letter prepared by its certified public accountant (if any); and
(d) NO DEFAULT CERTIFICATES. On a quarterly and an annual
basis with the reports required under subsections (b) and (c) above, a
certificate of its president or chief financial officer that no Default or Event
of Default then exists and Borrower is in full compliance with each of the
financial covenants listed on EXHIBIT 5.26 hereto or if a Default or Event of
Default _______________ _______________ nature and duration thereof and the
Borrower's _______________ _______________ with respect thereto, and in
addition, shall cause the _______________ _______________ independent auditors
(if applicable) to submit to the Bank, together with its audit report, a
statement that, in the course of such audit, it discovered no circumstances
which it believes would result in a Default or Event of Default or if it
discovered any such circumstances, the mature and duration thereof; and shall
also cause each Guarantor to submit a signed personal financial statement not
less frequently than annually, in a form reasonably satisfactory to the Bank. If
the Borrower has Subsidiaries, the financial statements required above shall be
in consolidated and, if required by the Bank, consolidating form for the
Borrower and all Subsidiaries required by GAAP, to be consolidated for financial
reporting purposes. In addition to the financial statements required herein, the
Bank reserves the right to require other or additional financial or other
information concerning the Borrower, its Subsidiaries, the Guarantors and/or the
Collateral.
(e) TAX RETURNS. Simultaneously with filing thereof with
any governmental authority, Borrower and Guarantor shall deliver to Bank copies
of their federal, state and local income tax returns, as applicable.
5.7. LIMITATION ON DEBT. Borrower, any Guarantor or any
subsidiary of any Guarantor shall not, directly or indirectly, create, incur,
assume or become liable, contingently or otherwise, for any debt if, upon giving
effect to such incurrence on a pro forma basis, the aggregate amount of debt
incurred by Borrower, any Guarantor or any Subsidiaries of any Guarantor shall
exceed $50,000.00.
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5.8. LIENS. Shall not create or permit to Exist any Liens on
any of the Collateral, except Permitted Liens.
5.9. DIVIDENDS. Shall not pay or declare any dividends (other
than stock dividends) or other distribution or purchase, redeem or otherwise
acquire any stock or other equity interests or pay or acquire any debt
subordinate to the Indebtedness; provided, however, that any Subsidiary may pay
dividends to the Borrower or another Subsidiary wholly-owned by the Borrower and
the Borrower may issue dividends not exceeding fifty percent (50%) of its Net
Income in any fiscal year.
5.10. MERGER, SALE, Etc. Shall maintain its corporate
existence, good standing and necessary qualifications to do business, and shall
not, without the prior written consent of Bank, do or permit: any other Person
to (i) merge or consolidate with any Person or acquire all or substantially all
of the assets of, or 50% or more of any class of equity interest of, any Person,
(ii) transfer, directly or indirectly, in the aggregate 10% or more of the
issued and. outstanding stock in Borrower as of the date hereof, (iii) issue any
additional stock of Borrower, after the date hereof, or (iv) sell, lease, assign
or otherwise dispose of any Collateral or substantial portion of its other
assets (other than sales of obsolete or worn-out equipment and sales of
Inventory in the ordinary course of business) or sell or otherwise dispose of
stock of any Subsidiary; provided however, that the foregoing shall not operate
to prevent: (A) mergers or consolidations of any subsidiary into Borrower or a
sale, transfer or lease of assets by any subsidiary to Borrower; or (3) a merger
of any corporation or entity into Borrower. For any merger or consolidation
transaction contemplated above, Borrower shall be the surviving or continuing
corporation or entity and, after giving effect to such transaction: (1) Borrower
shall be in full compliance with the terms of this Agreement, and (2) the
management of Borrower shall be substantially unchanged.
Any transfer described above shall be deemed to have occurred
where such purported transfer shall be (i) a direct transfer, sale, or
conveyance by a stockholder, (ii) the result of an encumbrance or pledge of such
stock, or (iii) the result of action by any Person against such stockholder.
5.11. LOANS, GUARANTIES AND OTHER INVESTMENTS. Shall not make
or permit to exist any advances or loans to, or guarantee or become contingently
liable, directly or indirectly, in connection with the obligations, leases,
stock or dividends of, or own, purchase or make any commitment to purchase any
stock, bonds, notes, debentures or other securities of, or any interest in, or
make any capital contributions to (all of which are sometimes collectively
referred to herein as "Investments") any Person except for (a) purchases of
direct obligations of the federal government, (b) deposits in commercial banks
having a TIER 1 capital ratio of not less than 6i and then in an amount not
exceeding 10% of the issuing loan's unimpaired capital and surplus, (d) existing
investments in subsidiaries, (e) endorsement of negotiable instruments for
collection in the ordinary course of business, or (f) loans which do not exceed
$50,000.00 in the aggregate.
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5.12. CHANGE IN FISCAL YEAR. Borrower nor any Guarantor nor
any Subsidiary or Guarantor shall not change its fiscal year without the prior
written consent of Bank.
5.13. CERTIFICATE OF FULL COMPLIANCE FROM ACCOUNTANT.
Borrower shall deliver to Bank, with the annual financial statements required
above, a certification by Borrower's independent certified public accountant
that Borrower is in full compliance with this Agreement.
5.14. REPORTS AND PROXIES. Borrower shall deliver to Bank,
promptly a copy of ail financial statements, reports, and proxy statements, sent
by Borrower, any of its _______________, to stockholders, and all regular or
periodic reports _______________ be filed by Borrower with any governmental
agency or authority.
5.15. CHANGE IN BUSINESS/CONTROL. Shall not enter into any
business which is substantially different from the business or businesses in
which it is presently engaged or allow a change it its management whereby
Jacques Cohen would no longer have management control over Borrower.
5.16. ACCOUNTS. (a) shall not sell, assign or discount any
of its Accounts, Chattel Paper or any promissory notes held by it other than the
discount of such notes in the ordinary course of business for collection; and
(b) shall notify the Bank promptly in writing with any discount, offset or other
deductions not shown on the face of an Account invoice and any dispute over an
Account, and any information relating to an adverse change in any Account
Debtor's financial condition or ability to pay its obligations.
5.17. ENCUMBRANCES. Shall not crate, assume, or permit to
exist any mortgage, security deed, deed of trust, pledge, lien, charge or other
encumbrance on any of its assets, whether now owned or hereafter acquired, other
than: (i) security interests required by Bank in related security instruments;
(ii) liens for taxes contested in good faith; or (iii) liens accruing by law for
employee benefits.
5.18. TRANSACTIONS WITH AFFILIATES. Shall not directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, in the ordinary course of
business or otherwise, any Affiliate (other than a Subsidiary); provided,
however, that any acts or transactions prohibited by this Section may be
performed or engaged in, after written notice to the Bank, if upon terms not
less favorable to the Borrower or such Subsidiary than if no such relationship
existed. Any such Affiliate may be a director, officer, employee of the Borrower
or any Subsidiary, subject to the limitations on compensation contained in this
section and elsewhere in this Agreement.
5.19. PAYMENT OF OTHER DEBT. Shall not retire any long-term
debt entered into prior to the date of this Agreement at a date in advance of
its legal obligation to do so.
5.20. NO CHANGE IN NAME, OFFICES; REMOVAL OF COLLATERAL.
Shall not, unless it shall have given 60 days' advance written notice thereof to
the Bank, (a) change its name or the location of its chief executive office or
other office where books or records are kept or (b) permit
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any Inventory or other tangible Collateral to be located at any location other
than as specified in SECTION 2.10.
5.21. NO SALE, LEASEBACK. Shall not enter into any
sale-and-leaseback, or similar transaction.
5.22. MARGIN STOCK. Shall not use any proceeds of the Loans
or otherwise purchase, or carry any margin stock (within the meaning of
Regulation U of the Board of Governors of Federal Reserve System) or extend
credit to others for the purpose of purchasing or carrying any margin stock.
5.23. PAYMENT OF TAXES, Etc. Shall pay before delinquent
all of its debts and taxes except that the Bank shall not unreasonably withhold
its consent to nonpayment of taxes being actively contested in accordance with
law (provided that the Bank may require bonding or other assurances).
5.24. SUBORDINATION. Shall cause all Debt and other
obligations now or hereafter owed to any Guarantor or Affiliate to be
subordinated in right of payment and security to the indebtedness in accordance
with subordination agreements satisfactory to the Bank.
5.25. COMPLIANCE; HAZARDOUS MATERIALS. Shall strictly
comply with all laws, regulations, ordinances and other legal requirements,
specifically including, without limitation, ERISA, all securities laws and all
laws relating to hazardous materials and the environment. Unless approved in
writing by the Bank, neither the Borrower nor any Subsidiary shall engage in the
storage, manufacture, disposition, processing, handling, use or transportation
of any hazardous or toxic materials, whether or not in compliance with
applicable laws and regulations.
5.26. SUBSIDIARIES. Shall not acquire, form or dispose of any
Subsidiaries or permit any Subsidiary to issue capital stock except to its
parent.
5.27. COMPLIANCE WITH ASSIGNMENT LAWS. Shall if required by
the Bank comply with the Federal Assignment of Claims Act and any other
applicable law relating to assignment of government contracts, and Accounts
arising from the performance thereof.
5.28. FURTHER ASSURANCES. Shall take such further action and
provide to the Bank such further assurances as may be reasonably requested to
ensure compliance with the intent of this Agreement and the other Loan
Documents.
5.29. WITHHOLDING TAXES. Pay as and when due all employee
withholding, FICA and other payments required by federal, state and local
governments with respect to wages paid to employees.
5.30. OTHER COVENANTS. Shall comply with such additional
covenants as may be set forth in EXHIBIT 5.26 hereto.
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6. DEFAULT.
6.1. EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default:
(a) Any representation or warranty made by the
Borrower or any other party to any Loan Document (other than the Bank) herein or
therein or in any certificate or report furnished in connection herewith or
therewith shall prove to have been untrue or incorrect in any material respect
when made; or
(b) There shall occur any default by the Borrower in
the payment, when due, of any principal of or interest on the Note, any amounts:
due hereunder or any other Loan Document or any other Indebtedness or under the
Bond Facility (not cured within any grace period provided in such Note or in the
document or instrument evidencing such Indebtedness); or
(c) There shall occur any default by the Borrower or
any other party to any Loan Document (other than the Bank) in the performance of
any agreement, covenant or obligation contained in this Agreement or such Loan
Document not provided for elsewhere in this Section and such default is not
cured within any grace period provided in this Agreement or such other Loan
Document; or
(d) Any other obligation now or hereafter owed by the
Borrower or any Subsidiary or Guarantor to the Bank shall be in default and not
cured within any period of grace provided therein or any such Person shall be in
default under any obligation in excess of $10,000 owed to any other obligee,
which default entitles the obligee to accelerate any such obligations or
exercise other remedies with respect thereto; or
(e) The Borrower or any Subsidiary or Guarantor shall
(i) voluntarily liquidate or terminate operations or apply for or consent to,
the appointment of, or the taking of possession BY, a receiver, custodian,
trustee or liquidator of such Person or of all or of a substantial part of its
assets, (ii) admit in writing its inability, or be generally unable, to pay its
debts as the debts become due, (iii) make a general assignment for the benefit
of its creditors, (iv) commence a voluntary case under the federal BANKRUPTCY
Code (as now or hereafter in effect), (v) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, (vi) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the BANKRUPTCY Code, or (vii) take any
corporate action for the purpose of effecting any of the foregoing; or
(f) Without its application, approval or consent, a
proceeding shall be commenced, in any court of competent jurisdiction, seeking
in respect of such Person any remedy under the federal BANKRUPTCY Code, the
liquidation, reorganization, dissolution, winding-up, or composition or
readjustment of debt, the appointment of a trustee, receiver, liquidator or the
like of such Person, or of all or any substantial part of the assets of such
Person, or other like
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relief under any law relating to BANKRUPTCY, insolvency, reorganization,
winding-up, or composition or adjustment of debts; or
(g) Any Lien of the Bank hereunder or under any other
Security Agreement shall not constitute a perfected first priority Lien in the
Collateral thereby encumbered, subject only to Permitted Liens; or
(h) There shall occur any material loss, theft,
damage or destruction of any of the Collateral, which loss is not fully insured;
or
(i) A judgment in excess of $10,000 shall be rendered
against the Borrower or any Subsidiary or Guarantor and shall remain
undischarged, undisclosed and unstayed for more than ten days (except judgments
validly covered by insurance with a deductible of not more than $10,000) or
there shall occur any levy upon, or attachment, garnishment or other seizure of,
any material portion of the Collateral or other assets of the Borrower, any
Subsidiary or any Guarantor by reason of the issuance of any tax levy, judicial
attachment or garnishment or levy of execution; or
(j) The Borrower, any Subsidiary or any Guarantor
shall fail to pay, on demand, any returned or dishonored draft, check, or other
item which has been presented to the Bank and for which the Borrower has
received provisional credit; or
(k) Any Guarantor shall repudiate or revoke any
Guaranty Agreement; or
(l) The Bank, in good faith, shall deem itself
insecure.
THE FOREGOING EVENTS OF DEFAULT NOTWITHSTANDING, NOTHING HEREIN SHALL BE DEEMED
TO LIMIT, RESTRICT, IMPAIR OR DIMINISH THE ABSOLUTE RIGHT OF THE BANK TO DEMAND
REPAYMENT OF THE LOANS IN FULL, AT ANY TIME, WITHOUT CAUSE.
6.2. REMEDIES. If any Default shall occur, the Bank may,
without notice to the Borrower, at its option, withhold further Advances to the
Borrower of proceeds of the Loans. should (a) any Event of Default under SECTION
6 occur and not be cured within ten (10) days following delivery of written
notice thereof by the Bank to the Borrower (which notice shall be complete upon
hand or overnight delivery, or upon facsimile delivery or mailing by certified
mail, return receipt requested) or (b) any other Event of Default occur, the
Bank may declare any or all Indebtedness to be immediately due and payable,
bring suit against the Borrower to collect the Indebtedness, exercise any remedy
available to the Bank hereunder and take any action or exercise any remedy
provided herein or in any other Loan Document or under applicable law. No remedy
shall be exclusive of other remedies or impair the right of the Bank to exercise
any other remedies.
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6.3. RECEIVER. In addition to any other remedy available to
it, the Bank shall have the absolute right, upon the occurrence of an Event of
Default, to seek and obtain the appointment of a receiver to take possession of
and operate and/or dispose of the business and assets of the Borrower and any
costs and expenses incurred by the Bank in connection with such receivership
shall bear interest at the Default Rate and shall be secured by all collateral.
7. SECURITY AGREEMENT.
7.1. SECURITY INTEREST.
(a) As security for the payment and performance of
any and all of the Indebtedness and the performance of all other obligations and
covenants of the Borrower hereunder and under the other Loan Documents, certain
or contingent, now existing or hereafter arising, which are now, or may at any
time or times hereafter be owing by the Borrower to the Bank, the Borrower
hereby pledges to the Bank and gives the Bank a continuing and general Lien upon
and right of set-off against, all right, title and interest of the Borrower in
and to the Collateral, whether now owned or hereafter acquired by the Borrower.
(b) Except as herein or by applicable law otherwise
expressly provided, the Bank shall not be obligated to exercise any degree of
care in connection with any Collateral in its possession, to take any steps
necessary to preserve any rights in any of the Collateral or to preserve any
rights therein against prior parties, and the Borrower agrees to take such
steps. In any case the Bank shall be deemed to have exercised reasonable care if
it shall have taken such steps for the care and preservation of the Collateral
or rights therein as the Borrower may have reasonably requested the Bank to take
and the Bank's omission to take any action not requested by the Borrower shall
not be deemed a failure to exercise reasonable care. No segregation or specific
allocation by the Bank of specified items of collateral against any liability of
the Borrower shall waive or affect any Lien against other items of Collateral or
any of the Bank's options, powers or rights under this Agreement or otherwise
arising.
(c) The Bank may at any time and from time to time,
with or without notice to the Borrower, (i) transfer into the name of the Bank
or the name of the Bank's nominee any of the Collateral, (ii) notify any Account
Debtor or other obligor of any Collateral to make payment thereon direct to the
Bank of any amounts due or to become due thereon and (iii) receive and after a
default direct the disposition of any proceeds of any Collateral.
7.2. REMEDIES.
(a) If an Event of Default shall have occurred,
without waiving any of its other rights hereunder or under any other Loan
Documents, the Bank shall have all rights and remedies of a secured party under
the Code (and the Uniform Commercial Code of any other applicable jurisdiction)
and such other rights and remedies as may be available hereunder, under other
applicable law or pursuant to Contract. If requested by the Bank, the Borrower
will promptly assemble the Collateral and make it available to the Bank at a
place to be designated by the Bank. The Borrower agrees that any notice by the
Bank of the sale or disposition of the
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Collateral or any other intended action hereunder, whether required by the Code
or otherwise, shall constitute reasonable notice to the Borrower if the notice
is mailed to the Borrower by regular or certified mail, postage prepaid, at
least five days before the action to be taken. The Borrower shall be liable for
any deficiencies in the event the proceeds of the disposition of the Collateral
do not satisfy the Indebtedness in full.
(b) If an Event of Default shall have occurred, the
Bank may demand, collect and sue for all amounts owed pursuant to Accounts,
General Intangibles, Chattel Paper or for proceeds of any Collateral (either in
the Borrower's name or the Bank's name at the latter's option), with the right
to enforce compromise, settle or discharge any such amounts. The Borrower
appoints the Bank as the Borrower's attorney-in-fact to endorse the Borrower's
name on all checks, commercial paper and other instruments pertaining to
Collateral or proceeds.
7.3. POWER OF ATTORNEY. The Borrower authorizes the Bank at
the Borrower's expense to file any financing statements relating to the
Collateral (without the Borrower's signature thereon) which the Bank deems
appropriate and the Borrower irrevocably appoints the Bank as its
attorney-in-fact to execute any such financing statements in the Borrower's name
and to perform all other acts which the Bank deems appropriate to perfect and to
continue perfection of the Liens of the Bank. The Borrower hereby appoints the
Bank as the Borrower's attorney-in-fact to endorse, present and collect on
behalf of the Borrower and in the Borrower's name any draft, checks or other
documents necessary or desirable to collect any amounts which the Borrower may
be owed.
7.4. ENTRY. The Borrower hereby irrevocably consents to any
act by the Bank or its agents in entering upon any premises for the purposes of
either (i) inspecting the Collateral or (ii) taking possession of the Collateral
and the Borrower hereby waives its right to assert against the Bank or its
agents any claim based upon trespass or any similar cause of action for entering
upon any premises where the Collateral may be located.
7.5. DEPOSITS; INSURANCE. Upon the occurrence of an Event of
Default, the Borrower authorizes the Bank to collect and apply against the
Indebtedness when due any cash or deposit accounts in its possession, and any
refund of insurance premiums or any insurance proceeds payable on account of the
loss or damage to any of the Collateral and irrevocably appoints the Bank as its
attorney-in-fact to endorse any check or draft or take other action necessary to
obtain such funds.
7.6. OTHER RIGHTS. The Borrower authorizes the Bank without
affecting the Borrower's obligations hereunder or under any other Loan Document
from time to time (i) to take from any party and hold additional Collateral or
guaranties for the payment of the Indebtedness or any part thereof, and to
exchange, enforce or release such collateral or guaranty of payment of the
Indebtedness or any part thereof and to release or substitute any endorser or
guarantor or any party who has given any Lien on any collateral as security or
the payment of the Indebtedness or any part thereof or any party in any way
obligated to pay the Indebtedness or any part thereof; and (ii) upon the
occurrence of any Event of Default to direct the manner of the
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disposition of the Collateral and the enforcement of any endorsements,
guaranties, letters of credit or other security relating to the Indebtedness or
any part thereof as the Bank in its sole discretion may determine.
7.7. ACCOUNTS. Before or after any Event of Default, the
Bank may notify any Account Debtor of the Bank's Lien and may direct such
Account Debtor to make payment directly to the Bank for application against the
Indebtedness. Any such payments received by or on behalf of the Borrower at any
time, whether before or after default, shall be the property of the Bank, shall
be held in trust for the Bank and not commingled with any other assets of any
Person (except to the extent they may be commingled with other assets of the
Borrower in an account with the Bank) and shall be immediately delivered to the
Bank in the form received. The Bank shall have the right to apply any proceeds
of Collateral to such of the Indebtedness as it may determine.
7.8. TANGIBLE COLLATERAL. Except as otherwise provided
herein or agreed to in writing by the Bank, no Inventory or other tangible
collateral shall be commingled with, or become an accession to or part of, any
property of any other Person so long as such property is Collateral. Upon the
occurrence of any Event of Default, the Borrower shall, upon the request of the
Bank, promptly assemble all tangible Collateral for delivery to the Bank or its
agents. No tangible Collateral shall be allowed to become a fixture unless the
Bank shall have given its prior written authorization.
7.9. WAIVER OF MARSHALLING. The Borrower hereby waives any
right it may have to require marshalling of its assets.
7.10. WAIVER OF AUTOMATIC STAY. The Borrower hereby waives
the application of the automatic stay of enforcement provided in Section 362 of
the United States BANKRUPTCY Code and agrees that the Bank may proceed with
enforcement and collection notwithstanding the filing of a petition in
BANKRUPTCY.
8. MISCELLANEOUS.
8.1. NO WAIVER, REMEDIES CUMULATIVE. No failure on the part
of the Bank to exercise, and no delay in exercising, any right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are in addition to any other remedies provided by
law, any Loan Document or otherwise.
8.2. SURVIVAL OF REPRESENTATIONS. All representations and
warranties made herein shall survive the making of the Revolving Loan hereunder
and the delivery of the Notes, and shall continue in full force and effect so
long as any Indebtedness is outstanding, there exists any commitment by the Bank
to the Borrower, and until this Agreement is formally terminated in writing.
24
<PAGE> 29
8.3. EXPENSES. Whether or not the Revolving Loan herein
provided for shall be made, the Borrower shall pay all reasonable costs and
expenses in connection with the preparation, execution, delivery, amendment: and
enforcement of this Agreement and any Loan Document, including the reasonable
fees and disbursements of counsel for the Bank in connection therewith, whether
suit be brought or not and whether incurred at trial or on appeal, and all costs
of repossession, storage, disposition, protection and collection of Collateral.
If the Borrower should fail to pay any tax or other amount required by this
Agreement to be paid or which may be reasonably necessary to protect or preserve
any Collateral or the Borrower's or Bank's interests therein, the Bank may make
such payment and the amount thereof shall be payable on demand, shall bear
interest at the Default Rate from the date of demand until paid and shall be
deemed to be Indebtedness entitled to the benefit and security of the Loan
Documents. In addition, the Borrower agrees to pay and save the Bank harmless
against any liability for payment of any state documentary stamp taxes,
intangible taxes or similar taxes (including interest or penalties, if any)
which may now or hereafter be determined to be payable in respect to the
execution, delivery or recording of any Loan Document or the making of any
Advance, whether originally thought to be due or not, and regardless of any
mistake of fact or law on the part of the Bank or the Borrower with respect to
the applicability of such tax. The provisions of this section shall survive
payment in full of the Revolving Loan and termination of this Agreement.
8.4. NOTICES. Any notice or other communication hereunder to
any party hereto shall be by hand delivery, overnight delivery, facsimile,
telegram, telex or registered or certified mail and unless otherwise provided
herein shall be deemed to have been given or made when delivered, telegraphed,
telexed, faxed or deposited in the mails, postage prepaid, addressed to the
party at its address specified below (or at any other address that the party may
hereafter specify to the other parties in writing):
The Bank: First Union National Bank of Florida
200 Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Ms. Angela Rosacker
The Borrower: 1330 West Newport Center Drive
Deerfield Beach, Florida 33442
8.5. GOVERNING LAW. This Agreement and the Loan Documents
shall be deemed contracts made under the laws of the State of Florida and shall
be governed by and construed in accordance with the laws of said state except
insofar as the laws of another jurisdiction may govern the perfection, priority
and enforcement of Liens on Collateral located in another jurisdiction.
8.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Borrower and the Bank, and their
respective successors and assigns;
25
<PAGE> 30
provided, that the Borrower may not assign any of its rights hereunder without
the prior written consent of the Bank, and any such assignment made without such
consent will be void.
8.7. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which when taken together shall constitute but one and the same instrument.
8.8. NO USURY. Notwithstanding anything contained in this
Agreement, the Note, or in any other Loan Document to the contrary, in no event
will interest or other charges deemed to be interest be chargeable against the
Borrower if such amount (combined with any other amounts considered to be in the
nature of interest) would exceed the maximum amount permitted by law from time
to time while any of the Indebtedness is outstanding, and in the event any
amount in excess of the lawful maximum is charged or collected by the Bank or
paid by the Borrower, the Borrower shall be entitled to the reimbursement of
such excess together with interest thereon at the highest lawful rate at the
time of such overcharge.
8.9. POWERS. All powers of attorney granted to the Bank are
coupled with an interest and are irrevocable.
8.10. APPROVALS. If this Agreement calls for the approval or
consent of the Bank, such approval or consent may be given or withheld in the
discretion of the Bank unless otherwise specified herein.
8.11. JURISDICTION, SERVICE OF PROCESS.
(a) Any suit, action or proceeding against the
Borrower with respect to this Agreement, the Collateral or any Loan Document or
any judgment entered by any court in respect thereof may be brought in the
courts of Dade County, Florida or in the U.S. District court for the Southern
District of Florida as the Bank (in its sole discretion) may elect, and the
Borrower hereby accepts the nonexclusive jurisdiction of those courts for the
purpose of any suit, action or proceeding. Service of process in any such case
may be had against the Borrower by delivery in accordance with the notice
provisions herein or as otherwise permitted by law, and the Borrower agrees that
such service shall be valid an a respects for establishing personal jurisdiction
over it.
(b) In addition, the Borrower hereby irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, the Loan Documents, the Collateral
or any judgment entered by any court in respect thereof brought in Dade County,
Florida or the U.S. District Court for the Southern District of Florida, as
selected by the Bank, and hereby further irrevocably waives any claim that any
suit, action or proceedings brought in Dade County, Florida or in such District
Court has been brought in an inconvenient forum.
<PAGE> 31
8.12. MULTIPLE BORROWERS. If more than one Person is named
herein as the Borrower, all obligations, representations and covenants herein
and in other Loan Documents to which the Borrower is a party shall be joint and
several.
8.13. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED UPON THIS
AGREEMENT OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY
OTHER LOAN DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LANCETTI COSMETICS CORPORATION, a
Florida corporation
By:
-----------------------------------
Name: Jacques Cohen
Title: President
FIRST UNION NATIONAL BANK OF
FLORIDA, a national banking association
By:
-----------------------------------
Name: Angela Rosacker
Title: Vice President
27
<PAGE> 32
SCHEDULE OF EXHIBITS
(IF ANY EXHIBIT IS OMITTED, THE INFORMATION CALLED FOR THEREIN
SHALL BE CONSIDERED "NONE" OR "NOT APPLICABLE")
Exhibit 1.1 Permitted Liens
Exhibit 2.5 Pending Litigation
Exhibit 2.10 Borrower's Location
Exhibit 2.18 Borrower's Subsidiaries
Exhibit 3.2 Reductions to Borrowing Base
Exhibit 3.2 Form of Advance Request
Exhibit 5.26 Other Additional Covenants
<PAGE> 33
EXHIBIT 1.1
PERMITTED LIENS
[None]
<PAGE> 34
EXHIBIT 2.5
PENDING LITIGATION
[To be completed by Borrower, None if blank]
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 35
EXHIBIT 2.10
BORROWER'S LOCATION
[To be completed by Borrower, None if blank]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 36
EXHIBIT 2.18
BORROWER'S SUBSIDIARIES
[To be completed by Borrower, None if blank]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 37
EXHIBIT 3.2
FORM OF ADVANCE REQUEST
FIRST UNION NATIONAL BANK
ADVANCE REQUEST FORM
Borrower Name:___________________________ Exhibit Number___________________
Invoice Number(s):_________________ through ____________________________________
Credit Memo Numbers(s):____________ through ____________________________________
In consideration of your continuing to make available to the undersigned certain
credit accommodations, we certify that the following figures accurately the
entire amount of accounts receivable owing to the undersigned and inventory of
the under-signed; and that such amounts continue to be pledged to u as
collateral security to all loans owing by this company to you under agreement
dated __________________, 19___, free and clear of all liens and encumbrances
except in your favor.
Previous Request as of:_________________________ This Request as of:____________
CERTIFIED ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance of A/R from previous request (line 1f) $___________________
Plus new A/R +_____________________
Less collections -_____________________
Less non cash cr to A/R (cr memo) -_____________________
Other (Inter-company, etc.) -_____________________
Total certified A/R (1a+1b-1c-1d-1e) ___________________
- -----------------------------------------------------------------------------------------
NET A/R ELIGIBILITY:
Past due and marginal -_____________________
Net eligible accounts receivable (1f-2a-2b) ___________________
</TABLE>
<PAGE> 38
EXHIBIT 3.2 (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
CERTIFIED INVENTORY:
Inventory Balance from previous request (line 3e) $________________
Plus purchases +_________________
Less COGS -_________________
Other Adjustments -_________________
Total certified Inventory (3a+3b-3c-3d) _________________
- ------------------------------------------------------ ---------------------------------- ---------------------------
NET INVENTORY ELIGIBILITY:
Ineligible Inventory -_________________
Net eligible Inventory (3f-4a) _________________
- ------------------------------------------------------ ---------------------------------- ---------------------------
BORROWING BASE:
_______% of eligible A/R (2c) +_________________
_______% of eligible Inventory (4b) +_________________
Minus Foreign Exchange Exposure -_________________
Total Borrowing Base (5a+5b-5c) _________________
Loan Limit _________________
- ------------------------------------------------------ ---------------------------------- ---------------------------
TRANSACTION SUMMARY:
Loan balance from previous report (line 6d) _________________
Less collections on account -_________________
Plus amount of new advance +_________________
New outstanding loan balance (6a-6b+6c) _________________
Additional advance available lesser of (5d or 5e)-6d _________________
Authorized by:____________________ Title:_________________ Date:_________
</TABLE>
2
<PAGE> 39
EXHIBIT 5.26
OTHER COVENANTS
1. FINANCIAL COVENANTS. At all times, the Borrower shall be in
compliance with the following financial covenants:
(a) Beginning on September 30, 1995 and continuing until
September 29, 1996, Borrower shall maintain a Tangible Net Worth (as hereinafter
defined) of not less than $1,300,000.00. Borrower's Tangible Net Worth as of
September 30, 1996 and thereafter shall not be less than $1,500,000.00.
AS USED HEREIN, TANGIBLE NET WORTH SHALL MEAN THE AGGREGATE AMOUNT
OF ASSETS SHOWN ON THE BALANCE SHEET OF BORROWER AT ANY PARTICULAR DATE
INCLUDING SUBORDINATED SHAREHOLDER DEBT (AS HEREINAFTER DEFINED) (BUT EXCLUDING
FROM SUCH ASSETS CAPITALIZED, ORGANIZATION AND DEVELOPMENT COSTS, CAPITALIZED
INTEREST, DEBT DISCOUNT AND EXPENSE, GOODWILL, PATENTS, TRADEMARKS, COPYRIGHTS,
FRANCHISES, LICENSES, AMOUNTS DUE FROM OFFICERS, EMPLOYEES, DIRECTORS,
STOCKHOLDERS AND AFFILIATES, AND SUCH OTHER ASSETS AS ARE PROPERLY CLASSIFIED
"INTANGIBLE ASSETS" UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) LESS
LIABILITIES AT SUCH DATE, ALL COMPUTED IN ACCORDANCE WITH GAAP. SUBORDINATED
SHAREHOLDER DEBT SHALL MEAN ALL DEBT OWED BY THE BORROWER TO ANY SHAREHOLDER,
OFFICER, OR DIRECTOR OF THE BORROWER WHICH HAS BEEN FULLY AND PROPERLY
SUBORDINATED TO THE LOAN IN FORM AND CONTENT SATISFACTORY TO THE BANK.
(b) At any and all times throughout the term of the Loans,
Borrower shall not permit the ratio of Total Liabilities to Tangible Net Worth
(as hereinafter defined) to be more than the ratios shown below during the
period corresponding thereto:
PERIOD RATIO
------ -----
September 30, 1995 - September 29, 1996 2.5 to 1.0
September 30, 1996 and thereafter 3.5 to 1.0
"Total Liabilities" shall mean all liabilities which would be
shown on the liability side of a Borrower's balance sheet prepared in accordance
with GAAP MINUS Subordinated Shareholder Debt.
(c) The Borrower shall not permit Subordinated Shareholder
Debt at any time during the term of the Loans to be less than $500,000.00.
(d) The Borrower shall not issue dividends in any fiscal year
in excess of fifty percent (50%) of its Net Income.
(e) Borrower shall maintain, throughout the term of the Loans
a consolidated Current Ratio (as herein defined) equal to or greater than 1.10
to 1. This ratio shall be tested quarterly in accordance with GAAP. The term
Current Ratio shall mean the quotient of current assets (not including amounts
due from affiliates, employees and shareholders) divided by
<PAGE> 40
current liabilities (which shall include all amounts due to affiliates,
employees or shareholders unless subordinated to Bank).
(f) Borrower shall maintain throughout the term of the Loans
a Minimum Debt Service Coverage Ratio (as herein defined) of 1.0 to 1.
THE NUMERATOR OF THE DEBT SERVICE COVERAGE RATIO IS TO BE
CALCULATED AS FOLLOWS: NET INCOME PLUS DEPRECIATION MINUS UNFINANCED CAPITAL
EXPENDITURES PLUS DIVIDENDS. UNFINANCED CAPITAL EXPENDITURES SHALL BE DETERMINED
BY TAKING ACTUAL CAPITAL EXPENDITURES FOR THE PERIOD BEING MEASURED MINUS THE
INCREASE IN LONG-TERM DEBT FOR THE PERIOD BEING MEASURED.
THE DENOMINATOR OF THE DEBT SERVICE COVERAGE RATIO IS TO BE
CALCULATED AS FOLLOWS: INTEREST EXPENSE PLUS CURRENT MATURITIES OF LONG TERM
DEBT. CURRENT MATURITIES OF LONG TERM DEBT WILL BE PRORATED FOR THE QUARTER
BEING TESTED (E.G., WHEN TESTING AT JUNE 30 USE 75% OF CURRENT MATURITIES OF
LONG TERM DEBT). EACH QUARTERLY TEST WILL BE BASED ON FISCAL YEAR-TO-DATE
RESULTS (NOT QUARTERLY RESULTS).
(g) Each of the financial covenants (a) through (f) above
shall be tested at the end of each fiscal quarter based upon the most recent
financial statements provided to Bank.
2. BANK ACCOUNTS: Borrower shall, during the term of the Revolving
Loan, maintain with Bank all of its operating accounts.
3. CHANGE IN MANAGEMENT OF BORROWER; Borrower shall not cause or
permit any material change in the presents management or control of Borrower,
without the prior written consent of the Bank, which consent may be withheld in
the sole and absolute discretion of the Bank.
2
<PAGE> 1
Exhibit 10.5
GUARANTY
--------
Dated as of September __, 1995
DEFINITIONS:
In this Guaranty the following terms shall have the following indicated
meanings:
1. BORROWER: Lancetti Cosmetics Corporation, a Florida corporation
2. LENDER: First Union National Bank of Florida, a national banking
association.
3. GUARANTOR: Gabriel Cohen.
4. OBLIGATIONS: All indebtedness, liabilities, covenants, promises,
agreements, terms, conditions and other obligations of every nature whatsoever
(whether secured or unsecured) of the Borrower (including all indebtedness,
obligations and liabilities of partnerships and joint ventures, created or
arising while the Borrower may have been or may be a member thereof) to the
Lender or any of Lender's affiliates and all renewals, modifications and
extensions thereof howsoever, evidenced, whether now existing or hereafter
created or arising, direct or indirect, absolute or contingent, joint or
several, liquidated or unliquidated, matured or unmatured, and howsoever now or
hereafter owned, held or acquired by Lender or any of Lender's affiliates,
whether through discount, overdraft, purchase, direct loan or as collateral, or
otherwise, including without limitation: (i) any letter of credit issued by
Lender for the account of Borrower, (ii) all principal and interest, (including,
without limitation, all interest accruing after a petition is filed in
bankruptcy or similar proceedings, notwithstanding that Borrower's obligation to
pay such interest may have ceased to exist by operation of law), (iii) all costs
of collection, including reasonable attorneys' fees, paralegals' fees and legal
assistants' fees (whether incurred with collection, trial, appeal, bankruptcy
proceedings or otherwise notwithstanding that Borrower's obligation to pay such
fees may have ceased to exist by operation of law), (iv) all documentary stamp
tax and intangible tax (including interest and penalties, if any) determined to
be due in connection with any evidence of said indebtedness, obligations and
liabilities, and (v) all other amounts which Borrower is obligated to pay Lender
under any instruments evidencing, relating to or securing said indebtedness,
obligations and liabilities or any part thereof.
CONSIDERATION:
As a material inducement to the Lender to extend credit to the Borrower
and because the Guarantor will benefit from any credit extended to Borrower, the
Guarantor makes this Guaranty.
<PAGE> 2
TERMS, COVENANTS AND CONDITIONS:
1. NATURE AND SCOPE OF GUARANTY.
1.1 The Guarantor irrevocably, absolutely and unconditionally
guarantees to the Lender, the due and punctual payment and performance of the
Obligations.
1.2 This Guaranty is an absolute and unconditional guaranty of
payment and performance and not one of collection and all Obligations guaranteed
hereby shall be conclusively presumed to have been created in reliance hereon.
1.3 Guarantor will make all payments hereunder in lawful money of
the United States of America in immediately available funds without set-off or
counterclaim.
1.4 Guarantor's liability hereunder shall remain unchanged
irrespective of any invalidity, illegality or unenforceability of or any
defense(whether arising by reason of disability, dissolution or liquidation of
the Borrower, or lack of corporate or partnership power or authority of the
Borrower, or otherwise) to the Obligations or any portion thereof, or of any
security for the Obligations, or any portion thereof, it being understood and
agreed that each Guarantor shall be and remain fully bound hereunder regardless
of whether Borrower shall be found not liable on the Obligations or any other
guarantor be relieved or released from liability for any reason whatsoever.
1.5 In case of the dissolution, liquidation or insolvency (howsoever
evidenced) of the Borrower, or in case any bankruptcy, reorganization, debt
arrangement, adjustment, composition, or other proceeding under any bankruptcy
or insolvency law, or any dissolution, liquidation or receivership proceeding is
instituted by or against the Borrower, or Borrower admits in writing its
inability to pay its debts as they mature, all Obligations then existing shall
at the option of the Lender, without notice to anyone, immediately become due
and payable by the Guarantor.
1.6 Guarantor acknowledges that Lender has no obligations or duties
to Guarantor under this Guaranty.
2. DISCHARGE OF GUARANTOR. Guarantor shall be discharged from liability
hereunder only upon the full payment and performance of the Obligations;
provided, however, that if any sums paid to and applied by Lender toward the
Obligations are thereafter required to be repaid to the Borrower or to any
affiliate of Borrower, or to any trustee, receiver or other person, by reason of
the application of the Bankruptcy Code, the Uniform Fraudulent Transfer Act or
any other law relating to creditors' rights generally, then this Guaranty shall
be reinstated, AB INITIO, as if such portion of the Obligations had never been
paid.
3. TERMINATION OF GUARANTY AS TO FUTURE OBLIGATIONS. This Guaranty can
only be terminated by an instrument in writing (the "Notice of Termination")
executed by Guarantor with
2
<PAGE> 3
the formalities of a deed, acceptable for recording in the State of Florida,
making specific reference to this Guaranty and delivered to, received by and
receipted for by Lender.
4. ASSENT TO AGREEMENTS MADE BY BORROWER. Guarantor assents, without
notice to Guarantor, to all terms and agreements heretofore or hereafter made by
Borrower with Lender insofar as same may affect the Obligations.
5. CONSENT TO LENDER'S ACTIONS OR INACTIONS REGARDING THE BORROWER, THE
GUARANTOR, AND THE COLLATERAL. Guarantor consents that Lender may at any time
and from time to time, (whether before or after termination of this Guaranty in
accordance with Section 3 hereof) before or after any default by the Borrower,
with or without further notice to or assent from Guarantor:
5.1 Either with or without consideration to the Borrower, any
guarantor, pledgor, or grantor of any collateral, exchange, release, surrender
(in whole or in part), or fail to protect or to preserve the value of any
collateral now or hereafter held as security for the Obligations, or waive,
release, or subordinate any lien or security interest (in whole or in part) in
or on any such collateral;
5.2 Waive or delay the exercise of any of its rights or remedies
against the Borrower or any other person or entity, including, without
limitation, any guarantor; notwithstanding any waiver or delay, the Lender shall
not be precluded from further exercise of any of its rights, powers or
privileges expressly provided for herein or otherwise available, it being
understood that all such rights and remedies are cumulative;
5.3 Waive or extend the time of Borrower's performance of any and
all terms, provisions and conditions set forth in any instrument or agreement
evidencing or relating to the Obligations;
5.4 Release the Borrower or any other person or entity, including,
without limitation, any guarantor, from all or any portion of the Obligations;
5.5 Proceed against the Guarantor without first proceeding against
or joining the Borrower or any guarantor or any endorser of any note or other
agreement evidencing the Obligations, or any property securing the payment or
performance of the Obligations;
5.6 Renew, extend or modify the terms of the Obligations or any
instrument or agreement evidencing or relating to the Obligations;
5.7 Apply payments by the Borrower, the Guarantor, or any other
person or entity to the reduction of the Obligations in such manner and in such
amounts and at such time or times and in such order and priority as Lender may
see fit; and
5.8 Generally deal with the Borrower or any of the security for the
Obligations or other person or party as the Lender may see fit.
3
<PAGE> 4
The Guarantor shall remain bound under this Guaranty notwithstanding any such
exchange, release, surrender, subordination, waiver (whether or not such waiver
is oral or written), delay, proceeding, renewal, extension, modification,
application, act or failure to act, or other dealing described in Subsections
5.1 through 5.8, inclusive, above even though done without notice to or consent
from the Guarantor.
6. WAIVER OF NOTICE. Guarantor waives all notices whatsoever with
respect to this Guaranty and with respect to the Obligations, including, but not
limited to, notice of:
6.1 The Lender's acceptance of this Guaranty or its intention to
act, or its action, in reliance hereon;
6.2 The extension of credit by Lender to Borrower;
6.3 Presentment and demand for payment of the Obligations or any
portion thereof;
6.4 Protest and notice of dishonor or non-payment with respect to
the Obligations or any portion thereof;
6.5 Any default by Borrower or any pledgor, grantor of security, or
any guarantor, including the Guarantor;
6.6 Any other notices to which the Guarantor may otherwise be
entitled; and
6.7 Any demand for payment under this Guaranty.
7. WAIVER OF MARSHALLING, STATUTE OF LIMITATIONS AND WAGE EXEMPTION.
Guarantor waives (i) any right or claim of right to cause a marshalling of any
of the Borrower's assets or the assets of any other party now or hereafter held
as security for the Obligations, (ii) the benefit of any statute of limitations
affecting the liability of Guarantor hereunder, and (iii) any exemption of
disposable earnings from attachment or garnishment under Florida Statutes
Section 222.1 1.
8. SUBORDINATION.
8.1 All rights and claims of Guarantor (collectively the "Guarantor
Claims") against Borrower or any of Borrower's property now or hereafter
existing shall be subordinate and subject in right of payment to the prior
payment in full of and the performance of all of the Obligations.
8.2 Until the Obligations have been paid and performed in full and
Guarantor shall have performed all of Guarantor's obligations hereunder,
Guarantor shall not receive or collect, directly or indirectly, from Borrower or
any other party any payment upon the Guarantor Claims, nor seek to realize upon
any collateral securing such Guarantor Claims. Notwithstanding the foregoing, if
Guarantor should receive any such payment, Guarantor agrees
4
<PAGE> 5
to hold same in trust for Lender and agrees that Guarantor shall have absolutely
no rights in or to or dominion over such payments except to pay them promptly to
Lender, and Guarantor hereby covenants to do so.
9. GRANT OF SECURITY INTEREST. To secure the prompt payment and
performance of the Obligations, the Guarantor grants to Lender a continuing
first lien security interest in the Guarantor Claims and in all property of the
Guarantor delivered concurrently herewith or now, or at any time hereafter in
the possession of the Lender, and all proceeds of all such property. The
Guarantor agrees that the Lender shall have the rights and remedies of a secured
party under the Uniform Commercial Code-Secured Transactions as adopted by the
State of Florida with respect to all of the aforesaid property, including,
without limitation, the right to sell or otherwise dispose of any or all of such
property. The Lender may, without further notice to anyone, apply or set off any
balances, credits, deposits, accounts, monies or other indebtedness at any time
created by or due from the Lender to the Guarantor against the amounts due
hereunder. Any notification of intended disposition of any property required by
law shall be deemed reasonably and properly given if given at least five (5)
calendar days before such disposition.
10. SUBROGATION RIGHTS. Guarantor will not assert any right to which
Guarantor may be or may become entitled, whether by subrogation, reimbursement,
exoneration, contribution, indemnification or otherwise, against the Borrower or
any other guarantor, or against any of their respective properties, by reason of
the payment and performance by the Guarantor of its obligations under this
Guaranty.
11. REPRESENTATIONS AND WARRANTIES.
11.1 Guarantor represents and warrants to Lender that:
(a) The execution, delivery and performance by
Guarantor of this Guaranty, (i) does not require the approval of any
governmental authority, whether federal, state, county, or municipal
(collectively the "Governmental Authority"), and (iv) will not violate
any law, order, regulation, authorization or similar matters
(collectively the "Governmental Requirements"), any indenture,
agreement or other instrument to which Guarantor is a party or by which
Guarantor or any of Guarantor's property is bound, or be in conflict
with, result in a breach of or constitute (with due notice or the lapse
of time, or both) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of Guarantor's
property or assets, except as contemplated by the provisions of this
Guaranty.
(b) This Guaranty when executed and delivered by
Guarantor will constitute the legal, valid and binding obligations of
Guarantor enforceable in accordance with the terms hereof.
5
<PAGE> 6
(c) There are no judgments outstanding against
Guarantor and there is no action, suit, proceeding, or investigation
now pending (or to the best of Guarantor's knowledge after diligent
inquiry threatened) against, involving or affecting Guarantor or any of
Guarantor's properties or any part thereof, at law, in equity or before
any Governmental Authority that if adversely determined as to
Guarantor, would result in a material adverse change in the business or
financial condition of Guarantor, or Guarantor's operation and
ownership of any of its properties, nor is there any basis for such
action, suit, proceeding, or investigation.
(d) All balance sheets, statements of profit and
loss and other financial data that have been given to Lender with
respect to Guarantor, (i) are be complete and correct in all material
respects; (ii) do accurately present the financial condition of
Guarantor as of the dates, and the results of Guarantor's operations,
for the periods for which the same have been and will be furnished; and
(iii) have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods
covered and to be covered thereby; all balance sheets disclose all
known liabilities, direct and contingent, as of their respective dates;
and there has been no change in the condition of the Guarantor,
financial or otherwise, since the date of the most recent financial
statements given to Lender with respect to Guarantor other than changes
in the ordinary course of business, none of which changes have been
materially adverse.
(e) Guarantor is not insolvent and will not be
rendered insolvent by the execution, delivery, payment and performance
of this Guaranty.
11.2 Guarantor acknowledges that the Lender has relied upon the
Guarantor's representations, has made no independent investigation of the truth
thereof and is not charged with any knowledge contrary thereto that may have
been received by any officer, director, employee, or shareholder of Lender.
Guarantor further acknowledges that it has not been induced to execute and
deliver this Guaranty as a result of, and is not relying upon, any
representations, warranties, agreements, or conditions, whether express or
implied, written or oral, by Lender or by any officer, director, employee, or
shareholder of Lender.
12. FINANCIAL STATEMENTS. Guarantor will furnish to Lender no later
than forty-five (45) days after the end of each calendar year, personal
financial statements of Guarantor prepared and certified in a manner
satisfactory to Lender, all in such detail as Lender may reasonably require.
Guarantor shall also furnish copies of his annual federal income tax returns
within 15 days of their timely filing with the Internal Revenue Service.
13. TRANSFER OF ASSETS. Until the Obligations have been paid and
performed in full and Guarantor shall have performed all of Guarantor's
obligations hereunder, Guarantor shall not, directly or indirectly, sell,
convey, or transfer or permit to be sold, conveyed, or transferred any of
Guarantor's assets to any party or entity to which Guarantor is related or in
which Guarantor has an interest.
6
<PAGE> 7
14. MODIFICATION. No agreement unless in writing and signed by an
authorized officer of Lender and no course of dealing between Guarantor and
Lender shall be effective to change or modify or to discharge in whole or in
part this Guaranty. No waiver of any rights or powers of Lender or consent by it
shall be valid unless in writing signed by an authorized officer of Lender and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
15. COST OF ENFORCEMENT. Guarantor agrees that, whenever an attorney is
used to obtain payment or performance under or otherwise enforce this Guaranty
or to enforce, declare, or adjudicate any rights or obligations under this
Guaranty, whether by suit or any other manner whatsoever, reasonable attorneys'
fees, paralegals' fees, legal assistants' fees and costs (whether incurred in
collection, litigation, bankruptcy proceedings, appeals, or otherwise) shall be
payable by Guarantor to Lender.
16. SUBMISSION TO JURISDICTION. Guarantor irrevocably and
unconditionally (a) agrees that any suit, action, or other legal proceeding
arising out of or relating to this Guaranty may be brought, at the option of the
Lender, in a court of record of the State of Florida in Broward County, in the
United States District Court for the Southern District of Florida, or in any
other court of competent jurisdiction; (b) consents to the jurisdiction of each
such court in any such suit, action, or proceeding; (c) waives any objection
which it may have to the laying of venue of any such suit, action, or proceeding
in any of such courts; and (d) agrees that service of any court paper may be
effected on Guarantor by mail, addressed and mailed as provided in Section 17
hereof or in such other manner as may be provided under applicable laws or court
rules in said State.
17. NOTICE. All notices, demands, requests and other communications, if
any, required under this Guaranty (except for the Notice of Termination) may be
given orally (either in person or by telephone if confirmed in writing within
three (3) days thereafter), by telex, telegram, or telecopy, or in writing
delivered by hand or mail and shall be conclusively deemed to have been received
if delivered or attempted to be delivered by United States first class mail,
return receipt requested, postage prepaid, addressed to the party for whom it is
intended at its address set forth below. Any party may designate a change of
address by written notice to the other party, received by such other party at
least ten (10) days before such change of address is to become effective.
Guarantor's address for the purpose of this Section is:
----------------------------------
----------------------------------
7
<PAGE> 8
Lender's address for the purpose of this Section is:
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: Mr. Steven J. Marsalona
Vice President
This Guaranty does not require that Lender give Guarantor any notice, demand, or
request and this Section shall not be construed to create such a requirement.
18. CONFLICT OF LAW. This Guaranty shall be construed, interpreted,
enforced and governed by and in accordance with the laws of the State of Florida
(excluding the principles thereof governing conflicts of law), and federal law,
in the event federal law permits a higher rate of interest than Florida law.
19. GENDER AND NUMBER. In this Guaranty, wherever the context so
requires, the use of any gender shall include all other genders, and words in
the singular shall include the plural and the plural shall include the singular.
20. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of
the Lender, its successors and assigns, and shall be binding upon the Guarantor
and its respective heirs, personal representatives, successors and assigns.
21. SAVINGS CLAUSE. If any provision or portion of this Guaranty is
declared or found by a court of competent jurisdiction to be unenforceable or
null and void, such provision or portion thereof shall be deemed stricken and
severed from this Guaranty, and the remaining provisions and portions thereof
shall continue in full force and effect.
22. HEADINGS. The captions of Sections of this Guaranty are for
convenient reference only, and shall not affect the construction or
interpretation of any of the terms and provisions set forth in this Guaranty.
23. JOINT AND SEVERAL LIABILITY. The liability of the Guarantor
hereunder shall be joint and several with the Borrower and all other guarantors
of the Obligations.
24. WAIVER OF TRIAL BY JURY. LENDER AND GUARANTOR HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS
GUARANTY, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS GUARANTY, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS
8
<PAGE> 9
A MATERIAL INDUCEMENT FOR LENDER ACCEPTING THIS GUARANTY FROM GUARANTOR AND FOR
GUARANTOR GIVING THIS GUARANTY TO LENDER.
IN WITNESS WHEREOF, the Guarantor intending to be legally bound hereby
has duly executed and delivered this Guaranty on the _____ day of September,
1995.
Signed, sealed and delivered in the presence of:
- ---------------------------------- -----------------------------------
Print Name: GABRIEL COHEN
-----------------------
- ----------------------------------
Print Name:
-----------------------
STATE OF FLORIDA )
) SS:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this _____ day of
_______________, 1995, by Gabriel Cohen.
Personally Known [ ] OR Produced Identification [ ]
Type of Identification Produced ____________________________
-------------------------------------------
Print or Stamp Name:
-----------------------
Notary Public, State of Florida at Large
Commission No.:
----------------------------
My Commission Expires:
---------------------
9
<PAGE> 10
AFFIDAVIT OF GUARANTOR
----------------------
GABRIEL COHEN (sometimes hereinafter referred to as "Affiant"), being
first duly sworn, deposes and says:
1. The undersigned is a shareholder of Lancetti Cosmetics Corporation,
a Florida corporation (the "Borrower").
2. To induce First Union National Bank of Florida, a national banking
association (the "Lender") to make a $1,700,000.00 Revolving Loan and a
$250,000.00 Term Loan (collectively, hereinafter referred to as the "Loan") to
the Borrower, and because the undersigned will benefit from the Loan and from
any credit extended to the Borrower, the undersigned has agreed to
unconditionally and irrevocably guarantee the payment of the Loan and the
payment of any and all other indebtedness, obligations and liabilities of every
kind and nature of Borrower to Lender.
3. Prior to accepting the guarantee of the undersigned, the Lender
required that the undersigned submit, and the undersigned has submitted, its
financial statements to the Lender in order for the Lender to determine if the
financial condition of the undersigned is satisfactory to Lender.
4. Affiant hereby represents and warrants to the Lender that, as of the
date hereof, there has been no material adverse change in the financial
condition of the undersigned as disclosed by the financial statements previously
submitted to the Lender prior to the date hereof.
5. That to the best of Affiant's knowledge there are no actions, suits
or proceedings now pending (or to the best of Affiant's knowledge after diligent
inquiry threatened) against, involving, or affecting the undersigned before any
court or any governmental agency which may result in any material adverse change
in the financial condition of the undersigned.
6. This Affidavit is being made to induce the Lender to close and
consummate the Loan, and Affiant hereby acknowledges that if any of the
representations and warranties contained herein are hereafter determined to be
incorrect or untrue, that Affiant shall be responsible for having made false
representations to the Lender.
-------------------------------------------
GABRIEL COHEN
<PAGE> 11
STATE OF FLORIDA )
) SS:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this _____ day of
_______________, 1995, by Gabriel Cohen.
Personally Known [ ] OR Produced Identification [ ]
Type of Identification Produced ____________________________
-------------------------------------------
Print or Stamp Name:
-----------------------
Notary Public, State of Florida at Large
Commission No.:
----------------------------
My Commission Expires:
---------------------
2
<PAGE> 1
EXHIBIT 10.6
GUARANTY
--------
Dated as of September 28, 1995
DEFINITIONS:
In this Guaranty the following terms shall have the following indicated
meanings:
1. Borrower: Lancetti Cosmetics Corporation, a Florida corporation
2. Lender: First Union National Bank of Florida, a national banking
association
3. Guarantor: Jacques Cohen.
4. Obligations: All indebtedness, liabilities, covenants, promises,
agreements, terms, conditions and other obligations of every nature whatsoever
(whether secured or unsecured) of the Borrower (including all indebtedness,
obligations and liabilities of partnerships and joint ventures, created or
arising while the Borrower may have been or may be a member thereof) to the
Lender or any of Lender's affiliates and all renewals, modifications and
extensions thereof howsoever, evidenced, whether now existing or hereafter
created or arising, direct or indirect, absolute or contingent, joint or
several, liquidated or unliquidated, matured or unmatured, and howsoever now or
hereafter owned, held or acquired by Lender or any of Lender's affiliates,
whether through discount, overdraft, purchase, direct loan or as collateral, or
otherwise, including without limitation: (i) any letter of credit issued by
Lender for the account of Borrower, (ii) all principal and interest, including,
without limitation all interest accruing after a petition is filed in bankruptcy
or similar proceedings, notwithstanding that Borrower's obligation to pay such
interest may have ceased to exist by operation of law), (iii) all costs of
collection, including reasonable attorneys' fees, paralegals' fees and legal
assistants' fees whether incurred with collection, trial, appeal, bankruptcy
proceedings or otherwise notwithstanding that Borrower's obligation to pay such
fees may have ceased to exist by operation of law), (iv) all documentary stamp
tax and intangible tax (including interest and penalties, if any) determined to
be due in connection with any evidence of said indebtedness, obligations and
liabilities, and (v) all other amounts which Borrower is obligated to pay Lender
under any instruments evidencing, relating to or securing said indebtedness,
obligations and liabilities or any part thereof.
CONSIDERATION:
--------------
As a material inducement to the Lender to extend credit to the Borrower
and because the Guarantor will benefit from any credit extended to Borrower, the
Guarantor makes this Guaranty.
TERMS, COVENANTS AND CONDITIONS
-------------------------------
1. NATURE AND SCOPE OF GUARANTY.
1.1. The Guarantor irrevocably, absolutely and
unconditionally guarantees to the Lender, the due and punctual payment and
performance of the Obligations.
<PAGE> 2
1.2. This Guaranty is an absolute and unconditional guaranty
of payment and performance and not one of collection and all Obligations
guaranteed hereby shall be conclusively presumed to have been created in
reliance hereon.
1.3. Guarantor will make all payments hereunder in lawful
money of the United States of America in immediately available funds without
set-off or counterclaim.
1.4. Guarantor's liability hereunder shall remain unchanged
irrespective of any invalidity, illegality or unenforceability of or any defense
(whether arising by reason of disability, dissolution or liquidation of the
Borrower, or lack of corporate or partnership power or authority of the
Borrower, or otherwise) to the Obligations or any portion thereof, or of any
security for the Obligations, or any portion thereof, it being understood and
agreed that each Guarantor shall be and remain fully bound hereunder regardless
of whether Borrower shall be found not liable on the Obligations or any other
guarantor be relieved or released from liability for any reason whatsoever.
1.5. In case of the dissolution, liquidation or insolvency
(howsoever evidenced) of the Borrower, or in case any bankruptcy,
reorganization, debt arrangement, adjustment, composition, or other proceeding
under any bankruptcy or insolvency law, or any dissolution, liquidation or
receivership proceeding is instituted by or against the Borrower, or Borrower
admits in writing its inability to pay its debts as they mature, all Obligations
then existing shall at the option of the Lender, without notice to anyone,
immediately become due and payable by the Guarantor.
1.6. Guarantor acknowledges that Lender has no obligations or
duties to Guarantor under this Guaranty.
2. DISCHARGE OF GUARANTOR. Guarantor shall be discharged from
liability hereunder only upon the full payment and performance of the
Obligations; provided, however, that if any sums paid to and applied by Lender
toward the Obligations are thereafter required to be repaid to the Borrower or
to any affiliate of Borrower, or to any trustee, receiver or other person, by
reason of the application of the Bankruptcy Code, the Uniform Fraudulent
Transfer Act or any other law relating to creditors' rights generally, then this
Guaranty shall he reinstated, AB INITIO, as if such portion of the Obligations
had never been paid.
3. TERMINATION OF GUARANTY AS TO FUTURE OBLIGATIONS. This Guaranty
can only be terminated by an instrument in writing (the "Notice of Termination")
executed by Guarantor with the formalities of a deed, acceptable for recording
in the State of Florida, making specific reference to this Guaranty and
delivered to, received by and receipted for by Lender.
4. ASSENT TO AGREEMENTS MADE BY BORROWER. Guarantor assents, without
notice to Guarantor, to all terms and agreements heretofore or hereafter made by
Borrower with Lender insofar as same may affect the Obligations.
5. CONSENT TO LENDER'S ACTIONS OR INACTIONS REGARDING THE BORROWER,
THE GUARANTOR, AND THE COLLATERAL. Guarantor consents that Lender may at any
time and from time to time, (whether before or after termination of this
Guaranty in accordance with Section 3 hereof) before or after any default by the
Borrower, with or without further notice to or assent from Guarantor:
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<PAGE> 3
5.1. Either with or without consideration to the Borrower,
any guarantor, pledgor, or grantor of any collateral, exchange. release,
surrender (in whole or in part), or fail to protect or to preserve the value of
any collateral now or hereafter held as security for the Obligations, or waive,
release, or subordinate any lien or security interest (in whole or in part) in
or an any such collateral;
5.2. Waive or delay the exercise of any of its rights or
remedies against the Borrower or any other person or entity, including, without
limitation, any guarantor; notwithstanding any waiver or delay, the Lender shall
not be precluded from further exercise of any of its rights, powers or
privileges expressly provided for herein or otherwise available, it being
understood that all such rights and remedies are cumulative;
5.3. Waive or extend the time of Borrower's performance of any
and all terms, provisions and conditions set forth in any instrument or
agreement evidencing or relating to the Obligations;
5.4. Release the Borrower or any other person or entity,
including, without limitation, any guarantor, from all or any portion of the
Obligations;
5.5. Proceed against the Guarantor without first proceeding
against or joining the Borrower or any guarantor or any endorser of any note or
other agreement evidencing the Obligations, or any property securing the payment
or performance of the Obligations;
5.6. Renew, extend or modify the terms of the Obligations or
any instrument or agreement evidencing or relating to the Obligations;
5.7. Apply payments by the Borrower, the Guarantor, or any
other person or entity to the reduction of the Obligations in such manner and in
such amounts and at such time or times and in such order and priority as Lender
may see fit; and
5.8. Generally deal with the Borrower or any of the security
for the Obligations or other person or party as the Lender may see fit.
The Guarantor shall remain bound under this Guaranty notwithstanding any such
exchange, release, surrender, subordination, waiver (whether or not such waiver
is oral or written), delay, proceeding, renewal, extension, modification,
application, act or failure to act, or other dealing described in SUBSECTIONS
5.1 THROUGH 5.8, INCLUSIVE, above even though done without notice to or consent
from the Guarantor.
6. WAIVER OF NOTICE. Guarantor waives all notices whatsoever with
respect to this Guaranty and with respect to the Obligations, including, but not
limited to, notice of:
6.1. The Lender's acceptance of this Guaranty or its intention
to act, or its action, in reliance hereon:
6.2. The extension of credit by Lender to Borrower:
6.3. Presentment and demand for payment of the Obligations or
any portion thereof;
-3-
<PAGE> 4
6.4. Protest and notice of dishonor or non-payment with
respect to the Obligations or any portion thereof;
6.5. Any default by Borrower or any pledgor, grantor of
security, or any guarantor, including the Guarantor;
6.6. Any other notices to which the Guarantor may otherwise be
entitled; and
6.7. Any demand for payment under this Guaranty.
7. WAIVER OF MARSHALLING, STATUTE OF LIMITATIONS AND WAGE EXEMPTION.
Guarantor waives (i) any right or claim of right to cause a marshalling of any
of the Borrower's assets or the assets of any other party now or hereafter held
as security for the Obligations, (ii) the benefit of any statute of limitations
affecting the liability of Guarantor hereunder, and (iii) any exemption of
disposable earnings from attachment or garnishment under Florida Statutes ss.
222.11.
8. SUBORDINATION.
8.1. All rights and claims of Guarantor (collectively the
"Guarantor Claims') against Borrower or any of Borrower's property now or
hereafter existing shall be subordinate and subject in right of payment to the
prior payment in full of and the performance of all of the Obligations.
8.2. Until the Obligations have been paid and performed in
full and Guarantor shall have performed all of Guarantor's obligations
hereunder, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any payment upon the Guarantor Claims, nor seek to
realize upon any collateral securing such Guarantor Claims. Notwithstanding the
foregoing, if Guarantor should receive any such payment, Guarantor agrees to
hold same in trust for Lender and agrees that Guarantor shall have absolutely no
rights in or to or dominion over such payments except to pay them promptly to
Lender, and Guarantor hereby covenants to do so.
9. GRANT OF SECURITY INTEREST. To secure the prompt payment and
performance of the Obligations, the Guarantor grants to Lender a continuing
first lien security interest in the Guarantor Claims and in all property of the
Guarantor delivered concurrently herewith or now, or at any time hereafter in
the possession of the Lender, and all proceeds of all such property. The
Guarantor agrees that the Lender shall have the rights and remedies of a secured
party under the Uniform Commercial Code-Secured Transactions as adopted by the
State of Florida with respect to all of the aforesaid property, including,
without limitation, the right to sell or otherwise dispose of any or all of such
property. The Lender may, without further notice to anyone, apply or set off any
balances, credits, deposits, accounts, monies or other indebtedness at any time
created by or due from the Lender to the Guarantor against the amounts due
hereunder. Any notification of intended disposition of any property required by
law shall be deemed reasonably and properly given if given at least five (5)
calendar days before such disposition.
10. SUBROGATION RIGHTS. Guarantor will not assert any right to which
Guarantor may be or may become entitled, whether by subrogation, reimbursement,
exoneration, contribution, indemnification or otherwise, against the Borrower or
any other guarantor, or against any of their
-4-
<PAGE> 5
respective properties, by reason of the payment and performance by the Guarantor
of its obligations under this Guaranty.
11. REPRESENTATIONS AND WARRANTIES.
11.1. Guarantor represents and warrants to Lender that:
(a) The execution, delivery and performance by
Guarantor of this Guaranty, (i) does not require the approval of any
governmental authority, whether federal, state, county, or municipal
(collectively the "Governmental Authority"), and (iv) will not violate any law,
order, regulation, authorization or similar matters (collectively the
"Governmental Requirements"), any indenture, agreement or other instrument to
which Guarantor is a party or by which Guarantor or any of Guarantor's property
is bound, or be in conflict with, result in a breach of or constitute (with due
notice or the lapse of time, or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of Guarantor's
property or assets, except as contemplated by the provisions of this Guaranty.
(b) This Guaranty when executed and delivered by
Guarantor will constitute the legal, valid and binding obligations of Guarantor
enforceable in accordance with the terms hereof.
(c) There are no judgments outstanding against
Guarantor and there is no action, suit, proceeding, or investigation now pending
(or to the best of Guarantor's knowledge after diligent inquiry threatened)
against, involving or affecting Guarantor or any of Guarantor's properties or
any part thereof, at law, in equity or before any Governmental Authority that if
adversely determined as to Guarantor, would result in a material adverse change
in the business or financial condition of Guarantor, or Guarantor's operation
and ownership of any of its properties, nor is there any basis for such action,
suit, proceeding, or investigation.
(d) All balance sheets, statements of profit and loss
and other financial data that have been given to Lender with respect to
Guarantor, (i) are be complete and correct in all material respects; (ii) do
accurately present the financial condition of Guarantor as of the dates, and the
results of Guarantor's operations, for the periods for which the same have been
and will be furnished; and (iii) have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
covered and to be covered thereby; all balance sheets disclose all known
liabilities, direct and contingent, as of their respective dates; and there has
been no change in the condition of the Guarantor, financial or otherwise, since
the date of the most recent financial statements given to Lender with respect to
Guarantor other than changes in the ordinary course of business, none of which
changes have been materially adverse.
(e) Guarantor is not insolvent and will not be
rendered insolvent by the execution, delivery, payment and performance of this
Guaranty.
11.2. Guarantor acknowledges that the Lender has relied upon
the Guarantor's representations, has made no independent investigation of the
truth thereof and is not charged with any knowledge contrary thereto that may
have been received by any officer, director, employee, or shareholder of Lender.
Guarantor further acknowledges that it has not been induced to execute and
-5-
<PAGE> 6
deliver this Guaranty as a result of, and is not relying upon, any
representations, warranties, agreements, or conditions, whether express or
implied, written or oral, by Lender or by any officer, director, employee, or
shareholder of Lender.
12. FINANCIAL STATEMENTS. Guarantor will furnish to Lender no later
than forty-five (45) days after the end of each calendar year, personal
financial statements of Guarantor prepared and certified in a manner
satisfactory to Lender, all in such detail as Lender may reasonably require.
Guarantor shall also furnish copies of his annual federal income tax returns
within 1 5 days of their timely filing with the Internal Revenue Service.
13. TRANSFER OF ASSETS. Until the Obligations have been paid and
performed in full and Guarantor shall have performed all of Guarantor's
obligations hereunder, Guarantor shall not, directly or indirectly, sell,
convey, or transfer or permit to be sold, conveyed, or transferred any of
Guarantor's assets to any party or entity to which Guarantor is related or in
which Guarantor has an interest.
14. MODIFICATION. No agreement unless in writing and signed by an
authorized officer of Lender and no course of dealing between Guarantor and
Lender shall be effective to change or modify or to discharge in whole or in
part this Guaranty. No waiver of any rights or powers of Lender or consent by it
shall be valid unless in writing signed by an authorized officer of Lender and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
15. COST OF ENFORCEMENT. Guarantor agrees that, whenever an attorney
is used to obtain payment or performance under or otherwise enforce this
Guaranty or to enforce, declare, or adjudicate any rights or obligations under
this Guaranty, whether by suit or any other manner whatsoever, reasonable
attorneys' fees, paralegals' fees, legal assistants' fees and costs (whether
incurred in collection, litigation, bankruptcy proceedings, appeals, or
otherwise) shall be payable by Guarantor to Lender.
16. SUBMISSION TO JURISDICTION. Guarantor irrevocably and
unconditionally la) agrees that any suit, action, or other legal proceeding
arising out of or relating to this Guaranty may be brought, at the option of the
Lender, in a (;curt of record of the State of Florida in Broward County, in the
United States District Court for the Southern District of Florida, or in any
other court of competent jurisdiction; (b) consents to the jurisdiction of each
such court in any such suit, action, or proceeding; (c) waives any objection
which it may have to the laying of venue of any such suit, action, or proceeding
in any of such courts; and (d) agrees that service of any court paper may be
effected on Guarantor by mail, addressed and mailed as provided in Section 17
hereof or in such other manner as may be provided under applicable laws or court
rules in said State.
17. NOTICE. All notices, demands, requests and other communications,
if any, required under this Guaranty (except for the Notice of Termination) may
be given orally (either in person or by telephone if confirmed in writing within
three (3) days thereafter), by telex, telegram, or telecopy, or in writing
delivered by hand or mail and shall be conclusively deemed to have been received
if delivered or attempted to be delivered by United States first class mail,
return receipt requested, postage prepaid, addressed to the party for whom it is
intended at its address set forth below. Any party may designate a change of
address by written notice to the other party, received by such other
-6-
<PAGE> 7
party at least ten (10) days before such change of address is to become
effective. Guarantor's address for the purpose of this Section is:
-----------------------------------------
-----------------------------------------
Lender's address for the purpose of this Section is:
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: Mr. Steven J. Marsalona
Vice President
This Guaranty does not require that Lender give Guarantor any notice, demand, or
request and this Section shall not be construed to create such a requirement.
18. CONFLICT OF LAW. This Guaranty shall be construed, interpreted,
enforced and governed by and in accordance with the laws of the State of Florida
(excluding the principles thereof governing conflicts of law), and federal law,
in the event federal law permits a higher rate of interest than Florida law.
19. GENDER AND NUMBER. In this Guaranty, wherever the context so
requires, the use of any gender shall include all other genders, and words in
the singular shall include the plural and the plural shall include the singular.
20. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit
of the Lender, its successors and assigns, and shall be binding upon the
Guarantor and its respective heirs, personal representatives, successors and
assigns.
21. SAVINGS CLAUSE. If any provision or portion of this Guaranty is
declared or found by a court of competent jurisdiction to be unenforceable or
null and void, such provision or portion thereof shall be deemed stricken and
severed from this Guaranty, and the remaining provisions and portions thereof
shall continue in full force and effect.
22. HEADINGS. The captions of Sections of this Guaranty are for
convenient reference only, and shall not affect the construction or
interpretation of any of the terms and provisions set forth in this Guaranty.
23. JOINT AND SEVERAL LIABILITY. The liability of the Guarantor
hereunder shall be joint and several with the Borrower and all other guarantors
of the Obligations.
24. WAIVER OF TRIAL BY JURY. LENDER AND GUARANTOR HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS
GUARANTY, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY
AGREEMENT
-7-
<PAGE> 8
CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS GUARANTY, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER ACCEPTING
THIS GUARANTY FROM GUARANTOR AND FOR GUARANTOR GIVING THIS GUARANTY TO LENDER.
IN WITNESS WHEREOF, the Guarantor intending to be legally bound hereby
has duly executed and delivered this Guaranty on the ____ day of September,
1995.
Signed, sealed and delivered
in the presence of:
- -------------------------------------------
Print Name:
--------------------------------
- ------------------------------------------- -------------------------------
JACQUES COHEN
Print Name:
--------------------------------
(ACKNOWLEDGMENT APPEARS ON FOLLOWING PAGE)
-8-
<PAGE> 9
STATE OF FLORIDA )
)SS:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this ____ day of
September, 1995, by Jacques Cohen.
Personally Known _______ OR Produced Identification ___________________
Type of Identification Produced __________________________
------------------------------------------
Print or Stamp Name:
----------------------
Notary Public, State of Florida at Large
Commission No.:
---------------------------
My Commission Expires:
--------------------
-9-
<PAGE> 10
AFFIDAVIT OF GUARANTOR
----------------------
JACQUES COHEN (sometimes hereinafter referred to as "Affiant"), being
first duly sworn, deposes and says:
1. The undersigned is a shareholder of Lancetti Cosmetics Corporation,
a Florida corporation (the "Borrower").
2. To induce First Union National Bank of Florida, a national banking
association (the "Lender") to make a $1,700,000.00 Revolving Loan and a
$250,000.00 Term Loan (collectively, hereinafter referred to as the "Loan") to
the Borrower, and because the undersigned will benefit from the Loan and from
any credit extended to the Borrower, the undersigned has agreed to
unconditionally and irrevocably guarantee the payment of the Loan and the
payment of any and ail other indebtedness, obligations and liabilities of every
kind and nature of Borrower to Lender.
3. Prior to accepting the guarantee of the undersigned, the Lender
required that the undersigned submit, and the undersigned has submitted, its
financial statements to the Lender in order for the Lender to determine if the
financial condition of the undersigned Is satisfactory to Lender.
4. Affiant hereby represents and warrants to the Lender that, as of the
date hereof, there has been no material adverse change in the financial
condition of the undersigned as disclosed by the financial statements previously
submitted to the Lender prior to the date hereof.
5. That to the best of Affiant's knowledge there are no actions, suits
or proceedings now pending (or to the best of Affiant's knowledge after diligent
inquiry threatened) against, involving, or affecting the undersigned before any
court or any governmental agency which may result in any material adverse change
in the financial condition of the undersigned.
6. This Affidavit is being made to induce the Lender to close and
consummate the Loan, and Affiant hereby acknowledges that if any of the
representations and warranties contained herein are hereafter determined to be
incorrect or untrue, that Affiant shall be responsible for having made false
representations to the Lender.
------------------------------------------
JACQUES COHEN
-10-
<PAGE> 11
STATE OF FLORIDA )
)SS:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this _____ day of
September 1995, by Jacques Cohen.
Personally Known ________ OR Produced Identification _______
Type of Identification Produced _____________________
------------------------------------------
Notary Public, State of Florida at Large
Commission No.:
---------------------------
My Commission Expires:
--------------------
-11-
<PAGE> 1
Exhibit 10.7
AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT TO CREDIT AND SECURITY AGREEMENT ("Amendment") is dated
as of the day of ________ 1997, between LANCETTI COSMETICS CORPORATION, a
Florida corporation ("Borrower") and FIRST UNION NATIONAL BANK OF FLORIDA, a
national banking association ("Bank").
R E C I T A L S:
A. Borrower and Bank entered into that certain Credit and Security
Agreement ("Agreement") dated ________________.1995.
B. Bank has agreed to advance additional sums to Borrower and to renew
Borrower's existing Revolving Loan.
C. Borrower and Bank desire to modify and amend certain provisions of
the Agreement pursuant to this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and to induce the Bank to extend the additional credit to the Borrower,
the parties, each intending to be legally bound, do hereby agree as follows:
1. The foregoing recitals are true and are incorporated in this
Amendment by this reference.
2. Capitalized terms as used herein shall have the same meanings as set
forth in the Agreement unless the context indicates a different meaning.
3. Paragraph 1.1 of the Agreement is hereby amended by adding the
following definitions:
""CONSOLIDATED NOTE" shall mean that certain renewal and consolidated
note of even date herewith from Borrower to Bank in the original
principal amount of THREE MILLION DOLLARS ($3,000,000), which
Consolidated Note consolidates, amends, restates and renews the Notes
described therein.
"$800,000 NOTE" shall mean that certain Demand Revolving, Promissory
Note from Borrower to Bank of even date in the original principal
amount of EIGHT HUNDRED THOUSAND DOLLARS ($800,000)."
<PAGE> 2
4. Section 1.1 is further modified to amend the definitions as follows:
""MAXIMUM LOAN Amount" shall mean THREE MILLION DOLLARS ($3,000,000) as
to the Revolving Loan and TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000)
as to the Term Loan or such other amount as the Bank may consent to
from time to time.
"Note" shall mean collectively the Consolidated Note and the Term Note,
and any other promissory note now or hereafter evidencing the
indebtedness, and all modifications, extensions or renewals thereto."
5. Paragraph 3.1 of the Agreement is hereby amended to change the
definition of "Maximum Revolving Loan Amount" from ONE MILLION SEVEN HUNDRED
THOUSAND DOLLARS ($1,700,000) to THREE MILLION DOLLARS ($3,000,000).
6. Paragraph 3.2 of the Agreement is hereby modified by deleting
subparagraph 2 thereof and substituting the following:
"(2) The "Borrowing Base" which shall equal seventy-five percent (75%)
of Eligible Accounts Receivable plus fifty percent (50%) of eligible
inventory. At least monthly, Borrower shall provide a certificate as to
Eligible Accounts Receivable (including an aging analysis), eligible
inventory and such other management and/or collateral information as
Bank may require. Advances shall be limited to fifty percent (50%) of
eligible inventory and shall be capped at ONE MILLION DOLLARS
($1,000,000).
Concentration caps on eligible accounts receivable shall be waived for
"opening orders" defined as the initial order for a new customer
certified to Bank by Borrower. Concentration caps for other accounts
receivable shall be limited to ten percent (10%) except for the
following companies:
Wal-Mart 35%
Rite Aide 35%
Revco 35%
Walgreens 35%
CVS 35%
Target 35%
American Drug Stores 35%
Thirty/Payless 35%
Eckerd 35%
Rita Ann Distributors 25%
Fays 25%
Kmart 20%"
6. Exhibit 5.26 of the Agreement is deleted in its entirety and Exhibit
5.26 attached hereto and made a part hereof is hereby inserted in lieu thereof.
2
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT ("Amendment") is
dated as of the day of December, 1997, between LANCETTI COSMETICS CORPORATION, a
Florida corporation ("Borrower") and FIRST UNION NATIONAL BANK, a national
banking association, successor by merger to FIRST UNION NATIONAL BANK OF FLORIDA
("Bank").
R E C I T A L S:
A. Borrower and Bank entered into that certain Credit and Security
Agreement dated September 28, 1995, as amended by Amendment to Credit and
Security Agreement dated April 15, 1997.
B. Bank has agreed to advance additional sums to Borrower.
C. Borrower and Bank desire to modify and amend certain provisions of
the Agreement pursuant to this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and to induce the Bank to extend the additional credit to the Borrower,
the parties, each intending to be legally bound, do hereby agree as follows:
1. The foregoing recitals are true and are incorporated in this
Amendment by this reference.
2. Capitalized terms as used herein shall have the same meanings as set
forth in the Agreement unless the context indicates a different meaning.
3. Paragraph 1.1 of the Agreement is hereby amended by adding the
following definitions:
""ADDITIONAL TERM NOTE" shall mean that certain FIVE HUNDRED
THOUSAND DOLLARS ($500,000) Term Promissory Note made by Bank to
Borrower dated December 17,"1997, and all modifications and
renewals thereto.
"ADDITIONAL TERM LOAN" shall mean that certain FIVE HUNDRED
THOUSAND DOLLAR ($500,000) term loan made by Bank to Borrower as
evidenced by the Additional Term Note."
4. Section 1.1 is further modified to amend the definitions as follows:
<PAGE> 2
""MAXIMUM LOAN AMOUNT" shall mean THREE MILLION DOLLARS
($3,000,000) as to the Revolving Loan, TWO HUNDRED FIFTY THOUSAND
DOLLARS ($250,000) as to the Term Loan and FIVE HUNDRED THOUSAND
DOLLAR ($500,000) as to the Additional Term Loan or such other
amount as the Bank may consent to from time to time.
"NOTE" shall mean collectively the Consolidated Note, the Term
Note and the Additional Term Note, and any other promissory note
now or hereafter evidencing the indebtedness, and all
modifications, extensions or renewals thereto."
5. In case of any conflict or ambiguity between the terms and
provisions of this Second Amendment and the terms and provisions of the
Agreement, the terms and provisions of this Second Amendment shall control to
extent of such conflict or ambiguity.
6. Except as modified hereby, the terms and provisions of the Agreement
are hereby ratified and confirmed.
BORROWER:
LANCETTI COSMETICS CORPORATION,
a Florida corporation
By:
-------------------------------------
Jacques Cohen, President
LENDER:
FIRST UNION NATIONAL BANK, a national
banking association, successor by merger to
FIRST UNION NATIONAL BANK OF FLORIDA
By:
----------------------------------------
Printed Name:
-------------------------------
Title:
--------------------------------------
2
<PAGE> 1
Exhibit 10.11
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this ___ day of __________, 1998, effective as of July 1, 1998, by and between
Prestige Cosmetics Corporation, a Florida corporation (the "Company"), and
JACQUES COHEN (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as the Chairman, Chief Executive
Officer and President of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Chairman, Chief Executive Officer and President
of the Company, shall diligently perform all services as may be assigned to him
by the Board (provided that such services shall not materially differ from the
services currently provided by the Executive), and shall exercise such power and
authority as may from time to time be delegated to him by the Board. The
Executive shall devote his full time and attention to the business and affairs
of the Company, render such services to the best of his ability, and use his
best efforts to promote the interests of the Company.
<PAGE> 2
2. Term.
2.1 Initial Term. The initial term of this Agreement, and
the employment of the Executive hereunder, shall commence on July 1, 1998 (the
"Commencement Date") and shall expire on June 30, 2001 unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial Term").
2.2 Renewal Terms. Unless written notice stating otherwise
is received by the Company or the Executive within three months prior to the
Expiration Date (as described in Section 2.3), this Agreement shall
automatically renew for successive one-year terms.
2.3 Expiration Date. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
2.4 Effectiveness Conditioned upon Initial Public Offering.
This Agreement is subject to and contingent upon the Company consummating an
initial public offering of the Company's Common Stock pursuant to a Registration
Statement filed under the Securities Act of 1933, as amended (the "IPO"), on or
before December 31, 1998. In the event that the IPO does not occur on or before
December 31, 1998, then this Agreement shall be null and void ab initio.
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary
at the annual rate of $225,000 (the "Base Salary") during the term of this
Agreement, with such Base Salary payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding and other
taxes. The Base Salary shall be reviewed, at least annually, for merit increases
and may, by action and in the discretion of the Compensation Committee or the
Board, be increased at any time or from time to time.
3.2 Bonuses. Bonuses may be awarded in the discretion of the
Board of Directors or the Compensation Committee of the Company.
4. Expense Reimbursement and Other Benefits.
4.1 Reimbursement of Expenses. During the term of the
Executive's employment hereunder, upon the submission of proper substantiation
by the Executive, and subject to such rules and guidelines as the Company may
from time to time adopt, the Company shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company. The Executive shall account to the
Company in writing for all expenses for which reimbursement is sought and shall
supply to the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 Compensation/Benefit Programs. During the term of this
Agreement, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are
2
<PAGE> 3
presently and hereinafter offered by the Company to its executives, including
savings, pension, profit-sharing and deferred compensation plans, subject to the
general eligibility and participation provisions set forth in such plans and to
the applicable statutes and regulations governing such plans.
4.3 Working Facilities. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 Automobile. The Company shall continue to provide the
Executive with an automobile comparable to the existing automobile provided by
the Company to Executive, together with reimbursement of the reasonable
operating expenses thereof.
4.5 Stock Options. During the term of this Agreement, the
Executive shall be eligible for Stock Options to purchase Common Stock of the
Company under (and therefore subject to all terms and conditions of) the
Company's 1998 Executive Incentive Compensation Plan (the "Executive Plan") and
any successor plan thereto, and all rules of regulation of the Securities and
Exchange Commission applicable to such plans then in effect. The number of Stock
Options and terms and conditions of the Stock Options shall be determined by the
Committee appointed pursuant to the Executive Plan, or by the Board, in its
discretion and pursuant to the Executive Plan.
4.6 Other Benefits. The Executive shall be entitled to up to
four (4) weeks of vacation each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Any vacation time not taken
by Executive during any calendar year may not be carried forward into any
succeeding calendar year. The Executive shall receive such additional benefits,
if any, as the Board of the Company shall from time to time determine.
5. Termination.
5.1 Termination for Cause. The Company shall at all times
have the right, upon written notice to the Executive, to terminate the
Executive's employment hereunder, for Cause. For purposes of this Agreement, the
term "Cause" shall mean (i) an action or omission of the Executive which
constitutes a willful and material breach of this Agreement which is not cured
within sixty (60) days after receipt by the Executive of written notice of same,
(ii) fraud, embezzlement, misappropriation of funds or breach of trust in
connection with his services hereunder, (iii) conviction of any crime which
involves dishonesty or a breach of trust, (iv) gross negligence in connection
with the performance of the Executive's duties hereunder, or (v) the material
and willful or knowing failure or refusal (other than as a result of a
disability) by the Executive to perform his duties hereunder. Any termination
for Cause shall be made in writing to the Executive, which notice shall set
forth in detail all acts or omissions upon which the Company is relying for such
termination. The Executive shall have the right to address the Board regarding
the acts set forth in the notice of termination. Upon any termination pursuant
to this Section 5.1, the Company shall (i) pay to the Executive his Base Salary
to the date of termination and (ii) pay
3
<PAGE> 4
to the Executive any bonuses awarded to the Executive pursuant to Section 3.2
that have not been paid on or before the date of the termination of the
Executive's employment with the Company.
5.2 Disability. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, if the Executive shall become entitled to benefits under
the disability insurance policy the Company maintains on behalf of such
executive pursuant to Subsection 4.6(c) hereof as then in effect, or, if the
Executive shall as the result of mental or physical incapacity, illness or
disability, become unable to perform his obligations hereunder for a period of
180 days in any 12-month period. The Company shall have sole discretion based
upon competent medical advice to determine whether the Executive continues to be
disabled. Upon any termination pursuant to this Section 5.2, the Company shall
(i) pay to the Executive any unpaid Base Salary through the effective date of
termination specified in such notice, (ii) pay to the Executive any bonuses
awarded to the Executive pursuant to Section 3.2 that have not been paid on or
before the date of the termination of the Executive's employment with the
Company, and (iii) continue to pay the Executive for a period of twelve (12)
months following an amount equal to the excess, if any, of (A) the Base Salary
he was receiving at the time of his Disability, over (B) any benefits the
Executive is entitled to receive during such period under any disability
insurance policies provided to the Executive by the Company, such amount to be
paid in the manner and at such times as the Base Salary otherwise would have
been payable to the Executive. The Company shall have no further liability
hereunder (other than for (x) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however to the provisions of
Section 4.1, and (y) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, and (ii) pay to the estate of the deceased Executive any bonuses awarded
to the Executive pursuant to Section 3.2 that have not been paid on or before
the date of the termination of the Executive's employment with the Company. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section 4.1, and (y)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
5.4 Termination Without Cause. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive any bonuses awarded to the Executive pursuant to Section 3.2 that have
not been paid on or before the date of the termination of the Executive's
employment with the Company, (iii) continue to pay the Executive's Base Salary
for a period of twelve (12) months following the effective date of the
Executive's termination of employment with the Company, (iv) pay to the
Executive a bonus equal to the bonus awarded to the Executive in the fiscal year
of the Company that ended
4
<PAGE> 5
immediately prior to the effective date of the termination of the Executive's
employment with the Company, payable within 45 days after the last day of the
Company's fiscal year in which such termination occurs, (v) continue to provide
the Executive, for a period of twelve (12) months following the effective date
of the Executive's termination of employment with the Company, with the benefits
he was receiving under Sections 4.2 and 4.4 hereof (the "Benefits") in the
manner and at such times as the compensation or Benefits otherwise would have
been payable or provided to the Executive, and (vi) pay to the Executive as a
single lump sum payment, within 30 days of the termination of his employment
hereunder, a lump sum benefit equal to the value of the portion of his benefits
under any savings, pension, profit sharing or deferred compensation plans that
are forfeited under such plans by reason of the termination of his employment
hereunder prior to the Expiration Date. In the event that the Company is unable
to provide the Executive with any Benefits required hereunder by reason of the
termination of the Executive's employment pursuant to this Section 5.4, then the
Company shall pay the Executive cash equal to the value of the Benefit that
otherwise would have accrued for the Executive's benefit under the plan, for the
period during which such Benefits could not be provided under the plans, said
cash payments to be made within 45 days after the end of the year for which such
contributions would have been made or would have accrued. The Company's good
faith determination of the amount that would have been contributed or the value
of any Benefits that would have accrued under any plan shall be binding and
conclusive on the Executive. For this purpose, the Company may use as the value
of any Benefit the cost to the Company of providing that Benefit to the
Executive. Further, the Executive shall continue to vest in the Executive's
Stock Options through the Expiration Date in the same manner and to the same
extent as if his employment hereunder terminated on the Expiration Date. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.5 Termination by Executive.
a. The Executive shall at all times have the right,
upon sixty (60) days written notice to the Company, to terminate the Executive's
employment hereunder.
b. Upon any termination pursuant to this Section 5.5
by the Executive without Good Reason, the Company shall (i) pay to the Executive
any unpaid Base Salary through the effective date of termination specified in
such notice and (ii) pay to the Executive any bonuses awarded to the Executive
pursuant to Section 3.2 that have not been paid on or before the date of the
termination of the Executive's employment with the Company. The Company shall
have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs.
c. Upon any termination pursuant to this Section 5.5
by the Executive for Good Reason, the Company shall pay to the Executive the
same amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Executive's employment had been terminated
by the Company without Cause. The Company
5
<PAGE> 6
shall have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs).
d. For purposes of this Agreement, "Good Reason"
shall mean (i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; (ii) any failure by the Company to
comply with any of the provisions of Section 3 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive; (iii) the Company's requiring the Executive to be based at any
office or location more than fifty (50) miles outside of City limits of
Deerfield Beach, except for travel reasonably required in the performance of the
Executive's responsibilities; (iv) any purported termination by the Company of
the Executive's employment otherwise than for Cause pursuant to Section 5.1, or
by reason of the Executive's death pursuant to Section 5.1, or Disability
pursuant to Section 5.2, of this Agreement prior to the Expiration Date.
5.6 Change in Control of the Company.
a. In the event that (i) a Change in Control (as
defined in paragraph (b) of this Section 5.6) in the Company shall occur prior
to the Expiration Date, and (ii) either (A) prior to the earlier of the
Expiration Date and one year after the date of the Change in Control, either (x)
the Executive's employment with the Company is terminated by the Company without
Cause, as defined in Section 5.1 (and other than pursuant to Section 5.2 by
reason of the Executive's disability or Section 5.3 by reason of the Executive's
death) or (y) the Executive terminates his employment with the Company for Good
Reason, as defined in Section 5.5(d) hereof, or (B) within the thirty (30) day
period beginning one year after the date of the Change in Control, the
Executives terminates his employment with the Company for any reason, then
subject to the limitations specified in paragraph c of this Section 5.6, the
Company shall pay to the Executive those amounts Executive would be entitled to
under Section 5.4 hereof as if his employment was terminated without Cause.
Further, upon the Change in Control, any stock options granted to the Executive
by the Company that were outstanding as of the date of the Change in Control
shall become immediately exercisable. The Company shall have no further
liability hereunder (other than for (1) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (2) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
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<PAGE> 7
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, other than a public offering of
the Company's securities, in each case, with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation or other transaction do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the assets of the Company
(unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or
(iii) the acquisition (other than from the
Company) by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 50% of either
the then outstanding shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors (hereinafter referred to as the ownership
of a "Controlling Interest") excluding, for this purpose, any acquisitions by
(1) the Company or its Subsidiaries, (2) any person, entity or "group" that as
of the date hereof owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest or (3)
any employee benefit plan of the Company or its Subsidiaries.
c. The payments otherwise required under paragraph a
of this Section 5.6 shall be subject to the following:
(i) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because
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of Section 280G of the Code. Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further that any Payment which is
not an Agreement Payment would nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of Payments which are not Agreement Payments shall also
be reduced (but not below zero) to an amount expressed in present value which
maximizes the aggregate present value of Payments without causing any Payment to
be nondeductible by the Company because of Section 280G of the Code. For
purposes of this Section 5.6(c) present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(ii) All determinations required to be made
under this Section 5.6(c) shall be made by Arthur Andersen LLP or, at the
Executive's option, any other nationally or regionally recognized firm of
independent public accountants selected by the Executive and approved by the
Company, which approval shall not be unreasonably withheld or delayed (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within twenty (20) business days of the Date of
Termination or such earlier time as is requested by the Company and an opinion
to the Executive that he has substantial authority not to report any excise tax
on his Federal income tax return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. The Executive shall determine which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this Section
5.6(c), provided that, if the Executive does not make such determination within
ten business days of the receipt of the calculations made by the Accounting
Firm, the Company shall elect which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of this Section 5.6(c)
and shall notify the Executive promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive under this
Agreement. All fees and expenses of the Accounting Firm incurred in connection
with the determinations contemplated by this Section 5.6(c) shall be borne by
the Company.
(iii) As a result of the uncertainty in the
application of Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the Accounting Firm believes has a high probability of success, determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of the Executive shall be treated for all
purposes as a loan ab initio to the Executive which the Executive shall repay to
the Company together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by the Employee to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the Executive is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the
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event that the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
5.7 Resignation. Upon any termination of employment pursuant
to this Section 5, the Executive shall be deemed to have resigned as an officer,
and if he or she was then serving as a director of the Company, as a director,
and if required by the Board, the Executive hereby agrees to immediately execute
a resignation letter to the Board.
5.8 Survival. The provisions of this Section 5 shall survive
the termination of this Agreement, as applicable.
6. Restrictive Covenants.
6.1 Non-competition. At all times while the Executive is
employed by the Company and for a one (1) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company; provided
that such provision shall not apply to the Executive's ownership of Common Stock
of the Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the National Association of Securities Dealers Automated Quotations System, or
any similar system or automated dissemination of quotations of securities prices
in common use, so long as the Executive does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent of any class of capital stock of such
corporation. Notwithstanding the foregoing, if either (i) the Company delivers a
written notice to the Executive pursuant to Section 2.2 hereof of its intention
not to renew the term of this Agreement for reasons other than Cause (as defined
in Section 5.1 hereof), or (ii) the Executive's employment is terminated by the
Company without Cause pursuant to Section 5.4 of this Agreement, and within 90
days of such termination the Executive agrees to waive his right to receive a
continuation of Base Salary, the bonus, Benefits, and the lump sum payment,
otherwise payable to him under clauses (iii), (iv), (v) and (vi) of Section 5.4,
by providing the Company a written waiver (the "Waiver") of such right, in such
form as the Company reasonably may require, then the Executive shall cease to be
subject to the provisions of this Section 6.1 immediately upon the Expiration
Date or upon delivery of the Waiver by the Executive to the Company, as
applicable.
6.2 Nondisclosure. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive with
respect to the business of the Company (which shall include, but not be limited
to, information
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concerning the Company's financial condition, prospects, technology, customers,
suppliers, sources of leads and methods of doing business) shall be deemed a
valuable, special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall remain a
fiduciary to the Company with respect to all of such information. For purposes
of this Agreement, "Confidential Information" means information disclosed to the
Executive or known by the Executive as a consequence of or through his
employment by the Company (including information conceived, originated,
discovered or developed by the Executive) prior to or after the date hereof, and
not generally known, about the Company or its business. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
6.3 Nonsolicitation of Employees and Clients. At all times
while the Executive is employed by the Company and for a two (2) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for himself or for any
other person, firm, corporation, partnership, association or other entity (a)
employ or attempt to employ or enter into any contractual arrangement with any
employee or former employee of the Company, unless such employee or former
employee has not been employed by the Company for a period in excess of six
months, (b) call on or solicit any of the actual or targeted prospective clients
of the Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, and (c) make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of Executive's duties under this Agreement.
6.4 Ownership of Developments. All copyrights, patents,
trade secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.6 Definition of Company. Solely for purposes of this
Section 6, the term "Company" also shall include any existing or future
subsidiaries of the Company that are operating during the time periods described
herein and any other entities that directly or indirectly,
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through one or more intermediaries, control, are controlled by or are under
common control with the Company during the periods described herein.
6.7 Acknowledgment by Executive. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any undue hardship, financial or otherwise,
and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms
fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Executive further acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Section 6. The Executive further acknowledges that the
restrictions contained in this Section 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company's successors and
assigns.
6.8 Reformation by Court. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 Extension of Time. If the Executive shall be in
violation of any provision of this Section 6, then each time limitation set
forth in this Section 6 shall be extended for a period of time equal to the
period of time during which such violation or violations occur. If the Company
seeks injunctive relief from such violation in any court, then the covenants set
forth in this Section 6 shall be extended for a period of time equal to the
pendency of such proceeding including all appeals by the Executive.
6.10 Survival. Except to the extent otherwise provided in
Section 6.1 hereof, the provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
7. Mediation. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to litigation or some
other dispute resolution procedure.
8. Section 162(m) Limits. Notwithstanding any other provision of this
Agreement to the contrary, if and to the extent that any remuneration payable by
the Company to the Executive for any year would exceed the maximum amount of
remuneration that the Company may deduct
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for that year under Section 162(m) ("Section 162(m)") of the Internal Revenue
Code of 1986, as amended (the "Code"), payment of the portion of the
remuneration for that year that would not be so deductible under Section 162(m)
shall, in the sole discretion of the Board, be deferred and become payable at
such time or times as the Board determines that it first would be deductible by
the Company under Section 162(m), with interest at the "short-term applicable
rate" as such term is defined in Section 1274(d) of the Code. The limitation set
forth under this Section 8 shall not apply with respect to any amounts payable
to the Executive pursuant to Section 5 hereof.
9. Assignment. Neither party shall have the right to assign or delegate
his rights or obligations hereunder, or any portion thereof, to any other
person.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
12. Notices: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to Prestige Cosmetics
Corporation, 1441 West Newport Center Drive, Deerfield Beach, Florida 33442,
Attention: President, with a copy to Gary Epstein, Esq., Greenberg Traurig,
P.A., 1221 Brickell Avenue, Suite 2200, Miami, Florida 33131, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time
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or size of area, or both, the otherwise invalid provision will be considered to
be reduced to a period or area which would cure such invalidity.
15. Waivers. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. Indemnification.
a. Subject to limitations imposed by law, the Company
shall indemnify and hold harmless the Executive to the fullest extent permitted
by law from and against any and all claims, damages, expenses (including
attorneys' fees), judgments, penalties, fines, settlements, and all other
liabilities incurred or paid by him in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which the Executive was or is a party or is threatened to be
made a party by reason of the fact that the Executive is or was an officer,
employee or agent of the Company, or by reason of anything done or not done by
the Executive in any such capacity or capacities, provided that the Executive
acted in good faith, in a manner that was not grossly negligent or constituted
willful misconduct and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors.
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 19 in advance
of the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event
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later than 10 days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 19, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 19 if and to the
extent that it shall ultimately be found that the Executive is not entitled to
be indemnified by the Company for such amounts.
d. The Company shall make the advances contemplated
by this Section 19 regardless of the Executive's financial ability to make
repayment, and regardless of whether indemnification of the Executive by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 19 shall be unsecured and interest-free.
e. The provisions of this Section 19 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
PRESTIGE COSMETICS CORPORATION
By
------------------------------
Name:
Title:
EXECUTIVE:
---------------------------------
JACQUES COHEN
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Exhibit 10.12
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this ___ day of ___________, 1998, effective as of July 1, 1998, by and between
Prestige Cosmetics Corporation, a Florida corporation (the "Company"), and
GABRIEL COHEN (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as the Executive Vice President
of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Executive Vice President of the Company, shall
diligently perform all services as may be assigned to him by the Board (provided
that such services shall not materially differ from the services currently
provided by the Executive), and shall exercise such power and authority as may
from time to time be delegated to him by the Board. The Executive shall devote
his full time and attention to the business and affairs of the Company, render
such services to the best of his ability, and use his best efforts to promote
the interests of the Company.
<PAGE> 2
2 2. Term.
2.1 Initial Term. The initial term of this Agreement, and
the employment of the Executive hereunder, shall commence on July 1, 1998 (the
"Commencement Date") and shall expire on June 30, 2001 unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial Term").
2.2 Renewal Terms. Unless written notice stating otherwise
is received by the Company or the Executive within three months prior to the
Expiration Date (as described in Section 2.3), this Agreement shall
automatically renew for successive one-year terms.
2.3 Expiration Date. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
2.4 Effectiveness Conditioned upon Initial Public Offering.
This Agreement is subject to and contingent upon the Company consummating an
initial public offering of the Company's Common Stock pursuant to a Registration
Statement filed under the Securities Act of 1933, as amended (the "IPO"), on or
before December 31, 1998. In the event that the IPO does not occur on or before
December 31, 1998, then this Agreement shall be null and void ab initio.
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary
at the annual rate of $195,000 (the "Base Salary") during the term of this
Agreement, with such Base Salary payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding and other
taxes. The Base Salary shall be reviewed, at least annually, for merit increases
and may, by action and in the discretion of the Compensation Committee or the
Board, be increased at any time or from time to time.
3.2 Bonuses. Bonuses may be awarded in the discretion of the
Board of Directors or the Compensation Committee of the Company.
4. Expense Reimbursement and Other Benefits.
4.1 Reimbursement of Expenses. During the term of the
Executive's employment hereunder, upon the submission of proper substantiation
by the Executive, and subject to such rules and guidelines as the Company may
from time to time adopt, the Company shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company. The Executive shall account to the
Company in writing for all expenses for which reimbursement is sought and shall
supply to the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 Compensation/Benefit Programs. During the term of this
Agreement, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are
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presently and hereinafter offered by the Company to its executives, including
savings, pension, profit-sharing and deferred compensation plans, subject to the
general eligibility and participation provisions set forth in such plans and to
the applicable statutes and regulations governing such plans.
4.3 Working Facilities. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 Automobile. The Company shall continue to provide the
Executive with an automobile comparable to the existing automobile provided by
the Company to Executive, together with reimbursement of the reasonable
operating expenses thereof.
4.5 Stock Options. During the term of this Agreement, the
Executive shall be eligible for Stock Options to purchase Common Stock of the
Company under (and therefore subject to all terms and conditions of) the
Company's 1998 Executive Incentive Compensation Plan (the "Executive Plan") and
any successor plan thereto, and all rules of regulation of the Securities and
Exchange Commission applicable to such plans then in effect. The number of Stock
Options and terms and conditions of the Stock Options shall be determined by the
Committee appointed pursuant to the Executive Plan, or by the Board, in its
discretion and pursuant to the Executive Plan.
4.6 Other Benefits. The Executive shall be entitled to up to
four (4) weeks of vacation each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Any vacation time not taken
by Executive during any calendar year may not be carried forward into any
succeeding calendar year. The Executive shall receive such additional benefits,
if any, as the Board of the Company shall from time to time determine.
5. Termination.
5.1 Termination for Cause. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for Cause. For purposes of this Agreement, the term
"Cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within sixty
(60) days after receipt by the Executive of written notice of same, (ii) fraud,
embezzlement, misappropriation of funds or breach of trust in connection with
his services hereunder, (iii) conviction of any crime which involves dishonesty
or a breach of trust, (iv) gross negligence in connection with the performance
of the Executive's duties hereunder, or (v) the material and willful or knowing
failure or refusal (other than as a result of a disability) by the Executive to
perform his duties hereunder. Any termination for Cause shall be made in writing
to the Executive, which notice shall set forth in detail all acts or omissions
upon which the Company is relying for such termination. The Executive shall have
the right to address the Board regarding the acts set forth in the notice of
termination. Upon any termination pursuant to this Section 5.1, the Company
shall (i) pay to the Executive his Base Salary to the date of termination and
(ii) pay
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to the Executive any bonuses awarded to the Executive pursuant to Section 3.2
that have not been paid on or before the date of the termination of the
Executive's employment with the Company.
5.2 Disability. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall become entitled to benefits under the
disability insurance policy the Company maintains on behalf of such executive
pursuant to Subsection 4.6(c) hereof as then in effect, or, if the Executive
shall as the result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of 180 days in
any 12-month period. The Company shall have sole discretion based upon competent
medical advice to determine whether the Executive continues to be disabled. Upon
any termination pursuant to this Section 5.2, the Company shall (i) pay to the
Executive any unpaid Base Salary through the effective date of termination
specified in such notice, (ii) pay to the Executive any bonuses awarded to the
Executive pursuant to Section 3.2 that have not been paid on or before the date
of the termination of the Executive's employment with the Company, and (iii)
continue to pay the Executive for a period of twelve (12) months following an
amount equal to the excess, if any, of (A) the Base Salary he was receiving at
the time of his Disability, over (B) any benefits the Executive is entitled to
receive during such period under any disability insurance policies provided to
the Executive by the Company, such amount to be paid in the manner and at such
times as the Base Salary otherwise would have been payable to the Executive. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, and (ii) pay to the estate of the deceased Executive any bonuses awarded
to the Executive pursuant to Section 3.2 that have not been paid on or before
the date of the termination of the Executive's employment with the Company. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section 4.1, and (y)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
5.4 Termination Without Cause. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive any bonuses awarded to the Executive pursuant to Section 3.2 that have
not been paid on or before the date of the termination of the Executive's
employment with the Company, (iii) continue to pay the Executive's Base Salary
for a period of twelve (12) months following the effective date of the
Executive's termination of employment with the Company, (iv) pay to the
Executive a bonus equal to the bonus awarded to the Executive in the fiscal year
of the Company that ended
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immediately prior to the effective date of the termination of the Executive's
employment with the Company, payable within 45 days after the last day of the
Company's fiscal year in which such termination occurs, (v) continue to provide
the Executive, for a period of twelve (12) months following the effective date
of the Executive's termination of employment with the Company, with the benefits
he was receiving under Sections 4.2 and 4.4 hereof (the "Benefits") in the
manner and at such times as the compensation or Benefits otherwise would have
been payable or provided to the Executive, and (vi) pay to the Executive as a
single lump sum payment, within 30 days of the termination of his employment
hereunder, a lump sum benefit equal to the value of the portion of his benefits
under any savings, pension, profit sharing or deferred compensation plans that
are forfeited under such plans by reason of the termination of his employment
hereunder prior to the Expiration Date. In the event that the Company is unable
to provide the Executive with any Benefits required hereunder by reason of the
termination of the Executive's employment pursuant to this Section 5.4, then the
Company shall pay the Executive cash equal to the value of the Benefit that
otherwise would have accrued for the Executive's benefit under the plan, for the
period during which such Benefits could not be provided under the plans, said
cash payments to be made within 45 days after the end of the year for which such
contributions would have been made or would have accrued. The Company's good
faith determination of the amount that would have been contributed or the value
of any Benefits that would have accrued under any plan shall be binding and
conclusive on the Executive. For this purpose, the Company may use as the value
of any Benefit the cost to the Company of providing that Benefit to the
Executive. Further, the Executive shall continue to vest in the Executive's
Stock Options through the Expiration Date in the same manner and to the same
extent as if his employment hereunder terminated on the Expiration Date. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.5 Termination by Executive.
a. The Executive shall at all times have the right,
upon sixty (60) days written notice to the Company, to terminate the Executive's
employment hereunder.
b. Upon any termination pursuant to this Section 5.5
by the Executive without Good Reason, the Company shall (i) pay to the Executive
any unpaid Base Salary through the effective date of termination specified in
such notice and (ii) pay to the Executive any bonuses awarded to the Executive
pursuant to Section 3.2 that have not been paid on or before the date of the
termination of the Executive's employment with the Company. The Company shall
have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs.
c. Upon any termination pursuant to this Section 5.5
by the Executive for Good Reason, the Company shall pay to the Executive the
same amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Executive's employment had been terminated
by the Company without Cause. The Company
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shall have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs).
d. For purposes of this Agreement, "Good Reason"
shall mean (i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; (ii) any failure by the Company to
comply with any of the provisions of Section 3 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive; (iii) the Company's requiring the Executive to be based at any
office or location more than fifty (50) miles outside of City limits of
Deerfield Beach, except for travel reasonably required in the performance of the
Executive's responsibilities; (iv) any purported termination by the Company of
the Executive's employment otherwise than for Cause pursuant to Section 5.1, or
by reason of the Executive's death pursuant to Section 5.1, or Disability
pursuant to Section 5.2, of this Agreement prior to the Expiration Date.
5.6 Change in Control of the Company.
a. In the event that (i) a Change in Control (as
defined in paragraph (b) of this Section 5.6) in the Company shall occur prior
to the Expiration Date, and (ii) either (A) prior to the earlier of the
Expiration Date and one year after the date of the Change in Control, either (x)
the Executive's employment with the Company is terminated by the Company without
Cause, as defined in Section 5.1 (and other than pursuant to Section 5.2 by
reason of the Executive's disability or Section 5.3 by reason of the Executive's
death) or (y) the Executive terminates his employment with the Company for Good
Reason, as defined in Section 5.5(d) hereof, or (B) within the thirty (30) day
period beginning one year after the date of the Change in Control, the
Executives terminates his employment with the Company for any reason, then
subject to the limitations specified in paragraph c of this Section 5.6, the
Company shall pay to the Executive those amounts Executive would be entitled to
under Section 5.4 hereof as if his employment was terminated without Cause.
Further, upon the Change in Control, any stock options granted to the Executive
by the Company that were outstanding as of the date of the Change in Control
shall become immediately exercisable. The Company shall have no further
liability hereunder (other than for (1) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (2) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
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(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, other than a public offering of
the Company's securities, in each case, with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation or other transaction do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the assets of the Company
(unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or
(iii) the acquisition (other than from the
Company) by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 50% of either
the then outstanding shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors (hereinafter referred to as the ownership
of a "Controlling Interest") excluding, for this purpose, any acquisitions by
(1) the Company or its Subsidiaries, (2) any person, entity or "group" that as
of the date hereof owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest or (3)
any employee benefit plan of the Company or its Subsidiaries.
c. The payments otherwise required under paragraph a
of this Section 5.6 shall be subject to the following:
(i) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 280G of the Code. Anything to
the contrary notwithstanding, if the Reduced Amount is zero and it is determined
further that any Payment which is not an Agreement Payment would nevertheless be
nondeductible by the Company for Federal income tax purposes because
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of Section 280G of the Code, then the aggregate present value of Payments which
are not Agreement Payments shall also be reduced (but not below zero) to an
amount expressed in present value which maximizes the aggregate present value of
Payments without causing any Payment to be nondeductible by the Company because
of Section 280G of the Code. For purposes of this Section 5.6(c) present value
shall be determined in accordance with Section 280G(d)(4) of the Code.
(ii) All determinations required to be made
under this Section 5.6(c) shall be made by Arthur Andersen LLP or, at the
Executive's option, any other nationally or regionally recognized firm of
independent public accountants selected by the Executive and approved by the
Company, which approval shall not be unreasonably withheld or delayed (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within twenty (20) business days of the Date of
Termination or such earlier time as is requested by the Company and an opinion
to the Executive that he has substantial authority not to report any excise tax
on his Federal income tax return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. The Executive shall determine which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this Section
5.6(c), provided that, if the Executive does not make such determination within
ten business days of the receipt of the calculations made by the Accounting
Firm, the Company shall elect which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of this Section 5.6(c)
and shall notify the Executive promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive under this
Agreement. All fees and expenses of the Accounting Firm incurred in connection
with the determinations contemplated by this Section 5.6(c) shall be borne by
the Company.
(iii) As a result of the uncertainty in the
application of Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the Accounting Firm believes has a high probability of success, determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of the Executive shall be treated for all
purposes as a loan ab initio to the Executive which the Executive shall repay to
the Company together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by the Employee to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the Executive is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the
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event that the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
5.7 Resignation. Upon any termination of employment pursuant
to this Section 5, the Executive shall be deemed to have resigned as an officer,
and if he or she was then serving as a director of the Company, as a director,
and if required by the Board, the Executive hereby agrees to immediately execute
a resignation letter to the Board.
5.8 Survival. The provisions of this Section 5 shall survive
the termination of this Agreement, as applicable.
6. Restrictive Covenants.
6.1 Non-competition. At all times while the Executive is
employed by the Company and for a one (1) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company; provided
that such provision shall not apply to the Executive's ownership of Common Stock
of the Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the National Association of Securities Dealers Automated Quotations System, or
any similar system or automated dissemination of quotations of securities prices
in common use, so long as the Executive does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent of any class of capital stock of such
corporation. Notwithstanding the foregoing, if either (i) the Company delivers a
written notice to the Executive pursuant to Section 2.2 hereof of its intention
not to renew the term of this Agreement for reasons other than Cause (as defined
in Section 5.1 hereof), or (ii) the Executive's employment is terminated by the
Company without Cause pursuant to Section 5.4 of this Agreement, and within 90
days of such termination the Executive agrees to waive his right to receive a
continuation of Base Salary, the bonus, Benefits, and the lump sum payment,
otherwise payable to him under clauses (iii), (iv), (v) and (vi) of Section 5.4,
by providing the Company a written waiver (the "Waiver") of such right, in such
form as the Company reasonably may require, then the Executive shall cease to be
subject to the provisions of this Section 6.1 immediately upon the Expiration
Date or upon delivery of the Waiver by the Executive to the Company, as
applicable.
6.2 Nondisclosure. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive with
respect to the business of the Company (which shall include, but not be limited
to, information
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concerning the Company's financial condition, prospects, technology, customers,
suppliers, sources of leads and methods of doing business) shall be deemed a
valuable, special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall remain a
fiduciary to the Company with respect to all of such information. For purposes
of this Agreement, "Confidential Information" means information disclosed to the
Executive or known by the Executive as a consequence of or through his
employment by the Company (including information conceived, originated,
discovered or developed by the Executive) prior to or after the date hereof, and
not generally known, about the Company or its business. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
6.3 Nonsolicitation of Employees and Clients. At all times
while the Executive is employed by the Company and for a two 2-year period after
the termination of the Executive's employment with the Company for any reason,
the Executive shall not, directly or indirectly, for himself or for any other
person, firm, corporation, partnership, association or other entity (a) employ
or attempt to employ or enter into any contractual arrangement with any employee
or former employee of the Company, unless such employee or former employee has
not been employed by the Company for a period in excess of six months, (b) call
on or solicit any of the actual or targeted prospective clients of the Company
on behalf of any person or entity in connection with any business competitive
with the business of the Company, and (c) make known the names and addresses of
such clients or any information relating in any manner to the Company's trade or
business relationships with such customers, other than in connection with the
performance of Executive's duties under this Agreement.
6.4 Ownership of Developments. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.6 Definition of Company. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly,
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through one or more intermediaries, control, are controlled by or are under
common control with the Company during the periods described herein.
6.7 Acknowledgment by Executive. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any undue hardship, financial or otherwise,
and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms
fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Executive further acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Section 6. The Executive further acknowledges that the
restrictions contained in this Section 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company's successors and
assigns.
6.8 Reformation by Court. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 Extension of Time. If the Executive shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 Survival. Except to the extent otherwise provided in
Section 6.1 hereof, the provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
7. Mediation. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to litigation or some
other dispute resolution procedure.
8. Section 162(m) Limits. Notwithstanding any other provision of this
Agreement to the contrary, if and to the extent that any remuneration payable by
the Company to the Executive for any year would exceed the maximum amount of
remuneration that the Company may deduct
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for that year under Section 162(m) ("Section 162(m)") of the Internal Revenue
Code of 1986, as amended (the "Code"), payment of the portion of the
remuneration for that year that would not be so deductible under Section 162(m)
shall, in the sole discretion of the Board, be deferred and become payable at
such time or times as the Board determines that it first would be deductible by
the Company under Section 162(m), with interest at the "short-term applicable
rate" as such term is defined in Section 1274(d) of the Code. The limitation set
forth under this Section 8 shall not apply with respect to any amounts payable
to the Executive pursuant to Section 5 hereof.
9. Assignment. Neither party shall have the right to assign or delegate
his rights or obligations hereunder, or any portion thereof, to any other
person.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
12. Notices: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to Prestige Cosmetics
Corporation, 1441 West Newport Center Drive, Deerfield Beach, Florida 33442,
Attention: President, with a copy to Gary Epstein, Esq., Greenberg Traurig,
P.A., 1221 Brickell Avenue, Suite 2200, Miami, Florida 33131, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time
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or size of area, or both, the otherwise invalid provision will be considered to
be reduced to a period or area which would cure such invalidity.
15. Waivers. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. Indemnification.
a. Subject to limitations imposed by law, the Company
shall indemnify and hold harmless the Executive to the fullest extent permitted
by law from and against any and all claims, damages, expenses (including
attorneys' fees), judgments, penalties, fines, settlements, and all other
liabilities incurred or paid by him in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which the Executive was or is a party or is threatened to be
made a party by reason of the fact that the Executive is or was an officer,
employee or agent of the Company, or by reason of anything done or not done by
the Executive in any such capacity or capacities, provided that the Executive
acted in good faith, in a manner that was not grossly negligent or constituted
willful misconduct and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors.
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 19 in advance
of the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event
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later than 10 days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 19, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 19 if and to the
extent that it shall ultimately be found that the Executive is not entitled to
be indemnified by the Company for such amounts.
d. The Company shall make the advances contemplated
by this Section 19 regardless of the Executive's financial ability to make
repayment, and regardless whether indemnification of the Executive by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 19 shall be unsecured and interest-free.
e. The provisions of this Section 19 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
PRESTIGE COSMETICS CORPORATION
By
-----------------------------------
Name:
Title:
EXECUTIVE:
--------------------------------------
GABRIEL COHEN
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Exhibit 10.13
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this ___ day of _______________, 1998, effective as of July 1, 1998, by and
between Prestige Cosmetics Corporation, a Florida corporation (the "Company"),
and THOMAS WINARICK (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as the Executive Vice President
of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Executive Vice President of the Company, shall
diligently perform all services as may be assigned to him by the Board (provided
that such services shall not materially differ from the services currently
provided by the Executive), and shall exercise such power and authority as may
from time to time be delegated to him by the Board. The Executive shall devote
his full time and attention to the business and affairs of the Company, render
such services to the best of his ability, and use his best efforts to promote
the interests of the Company.
<PAGE> 2
2. Term.
2.1 Initial Term. The initial term of this Agreement, and the
employment of the Executive hereunder, shall commence on July 1, 1998 (the
"Commencement Date") and shall expire on June 30, 2001 unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial Term").
2.2 Renewal Terms. Unless written notice stating otherwise is
received by the Company or the Executive within three months prior to the
Expiration Date (as described in Section 2.3), this Agreement shall
automatically renew for successive one-year terms.
2.3 Expiration Date. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
2.4 Effectiveness Conditioned upon Initial Public Offering.
This Agreement is subject to and contingent upon the Company consummating an
initial public offering of the Company's Common Stock pursuant to a Registration
Statement filed under the Securities Act of 1933, as amended (the "IPO"), on or
before December 31, 1998. In the event that the IPO does not occur on or before
December 31, 1998, then this Agreement shall be null and void ab initio.
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of $175,000 (the "Base Salary") during the term of this
Agreement, with such Base Salary payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding and other
taxes. The Base Salary shall be reviewed, at least annually, for merit increases
and may, by action and in the discretion of the Compensation Committee or the
Board, be increased at any time or from time to time.
3.2 Bonuses. Bonuses may be awarded in the discretion of the
Board of Directors or the Compensation Committee of the Company.
4. Expense Reimbursement and Other Benefits.
4.1 Reimbursement of Expenses. During the term of the
Executive's employment hereunder, upon the submission of proper substantiation
by the Executive, and subject to such rules and guidelines as the Company may
from time to time adopt, the Company shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company. The Executive shall account to the
Company in writing for all expenses for which reimbursement is sought and shall
supply to the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 Compensation/Benefit Programs. During the term of this
Agreement, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are
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presently and hereinafter offered by the Company to its executives, including
savings, pension, profit-sharing and deferred compensation plans, subject to the
general eligibility and participation provisions set forth in such plans and to
the applicable statutes and regulations governing such plans. The amount of life
insurance coverage provided by the Company to the Executive during the term of
this Agreement, shall not be less than $2,000,000. The Executive may designate
the beneficiary of such life insurance coverage, and if no beneficiary is
designated, the beneficiary shall be the Executive's estate.
4.3 Working Facilities. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 Automobile. The Company shall continue to provide the
Executive with an automobile comparable to the existing automobile provided by
the Company to Executive, together with reimbursement of the reasonable
operating expenses thereof.
4.5 Stock Options. Effective as of the date on which the IPO
occurs, the Executive shall be granted nonqualified options (the "Stock
Options") to purchase 125,000 shares of the Company's common stock ("Common
Stock") at an exercise price per share equal to the IPO price, pursuant to (and
therefore subject to all terms and conditions of) the Company's 1998 Executive
Incentive Compensation Plan (the "Executive Plan"). In addition, during the term
of this Agreement, the Executive shall be eligible for additional Stock Options
to purchase Common Stock of the Company under (and therefore subject to all
terms and conditions of) the Company's Executive Plan and any successor plan
thereto, and all rules of regulation of the Securities and Exchange Commission
applicable to such plans then in effect. The number of additional Stock Options
and terms and conditions of the additional Stock Options shall be determined by
the Committee appointed pursuant to the Executive Plan, or by the Board, in its
discretion and pursuant to the Executive Plan.
4.6 Other Benefits. The Executive shall be entitled to up to
four (4) weeks of vacation each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Any vacation time not taken
by Executive during any calendar year may not be carried forward into any
succeeding calendar year. The Executive shall receive such additional benefits,
if any, as the Board of the Company shall from time to time determine.
5. Termination.
5.1 Termination for Cause. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for Cause. For purposes of this Agreement, the term
"Cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within sixty
(60) days after receipt by the Executive of written notice of same, (ii) fraud,
embezzlement, misappropriation of funds or breach of trust in connection with
his services hereunder, (iii) conviction of any crime which involves dishonesty
or a breach of trust, (iv) gross
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negligence in connection with the performance of the Executive's duties
hereunder, or (v) the material and willful or knowing failure or refusal (other
than as a result of a disability) by the Executive to perform his duties
hereunder. Any termination for Cause shall be made in writing to the Executive,
which notice shall set forth in detail all acts or omissions upon which the
Company is relying for such termination. The Executive shall have the right to
address the Board regarding the acts set forth in the notice of termination.
Upon any termination pursuant to this Section 5.1, the Company shall (i) pay to
the Executive his Base Salary to the date of termination and (ii) pay to the
Executive any bonuses awarded to the Executive pursuant to Section 3.2 that have
not been paid on or before the date of the termination of the Executive's
employment with the Company.
5.2 Disability. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall become entitled to benefits under the
disability insurance policy the Company maintains on behalf of such executive
pursuant to Subsection 4.6(c) hereof as then in effect, or, if the Executive
shall as the result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of 180 days in
any 12-month period. The Company shall have sole discretion based upon competent
medical advice to determine whether the Executive continues to be disabled. Upon
any termination pursuant to this Section 5.2, the Company shall (i) pay to the
Executive any unpaid Base Salary through the effective date of termination
specified in such notice, (ii) pay to the Executive any bonuses awarded to the
Executive pursuant to Section 3.2 that have not been paid on or before the date
of the termination of the Executive's employment with the Company, and (iii)
continue to pay the Executive for a period of twelve (12) months following an
amount equal to the excess, if any, of (A) the Base Salary he was receiving at
the time of his Disability, over (B) any benefits the Executive is entitled to
receive during such period under any disability insurance policies provided to
the Executive by the Company, such amount to be paid in the manner and at such
times as the Base Salary otherwise would have been payable to the Executive. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, and (ii) pay to the estate of the deceased Executive any bonuses awarded
to the Executive pursuant to Section 3.2 that have not been paid on or before
the date of the termination of the Executive's employment with the Company. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section 4.1, and (y)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
5.4 Termination Without Cause. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2,
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5.3, 5.5 or 5.6), the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive any bonuses awarded to the Executive pursuant to Section
3.2 that have not been paid on or before the date of the termination of the
Executive's employment with the Company, (iii) continue to pay the Executive's
Base Salary for a period of twelve (12) months following the effective date of
the Executive's termination of employment with the Company, (iv) pay to the
Executive a bonus equal to the bonus awarded to the Executive in the fiscal year
of the Company that ended immediately prior to the effective date of the
termination of the Executive's employment with the Company, payable within 45
days after the last day of the Company's fiscal year in which such termination
occurs, (v) continue to provide the Executive, for a period of twelve (12)
months following the effective date of the Executive's termination of employment
with the Company, with the benefits he was receiving under Sections 4.2 and 4.4
hereof (the "Benefits") in the manner and at such times as the compensation or
Benefits otherwise would have been payable or provided to the Executive, and
(vi) pay to the Executive as a single lump sum payment, within 30 days of the
termination of his employment hereunder, a lump sum benefit equal to the value
of the portion of his benefits under any savings, pension, profit sharing or
deferred compensation plans that are forfeited under such plans by reason of the
termination of his employment hereunder prior to the Expiration Date. In the
event that the Company is unable to provide the Executive with any Benefits
required hereunder by reason of the termination of the Executive's employment
pursuant to this Section 5.4, then the Company shall pay the Executive cash
equal to the value of the Benefit that otherwise would have accrued for the
Executive's benefit under the plan, for the period during which such Benefits
could not be provided under the plans, said cash payments to be made within 45
days after the end of the year for which such contributions would have been made
or would have accrued. The Company's good faith determination of the amount that
would have been contributed or the value of any Benefits that would have accrued
under any plan shall be binding and conclusive on the Executive. For this
purpose, the Company may use as the value of any Benefit the cost to the Company
of providing that Benefit to the Executive. Further, the Executive shall
continue to vest in the Executive's Stock Options through the Expiration Date in
the same manner and to the same extent as if his employment hereunder terminated
on the Expiration Date. The Company shall have no further liability hereunder
(other than for (x) reimbursement for reasonable business expenses incurred
prior to the date of termination, subject, however, to the provisions of Section
4.1, and (y) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
5.5 Termination by Executive.
a. The Executive shall at all times have the right,
upon sixty (60) days written notice to the Company, to terminate the Executive's
employment hereunder.
b. Upon any termination pursuant to this Section 5.5
by the Executive without Good Reason, the Company shall (i) pay to the Executive
any unpaid Base Salary through the effective date of termination specified in
such notice and (ii) pay to the Executive any bonuses awarded to the Executive
pursuant to Section 3.2 that have not been paid on or before the date of the
termination of the Executive's employment with the Company. The Company shall
have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section
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4.1, and (y) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs.
c. Upon any termination pursuant to this Section 5.5
by the Executive for Good Reason, the Company shall pay to the Executive the
same amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Executive's employment had been terminated
by the Company without Cause. The Company shall have no further liability
hereunder (other than for (x) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1, and (y) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination occurs).
d. For purposes of this Agreement, "Good Reason"
shall mean (i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; (ii) any failure by the Company to
comply with any of the provisions of Section 3 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive; (iii) the Company's requiring the Executive to be based at any
office or location more than fifty (50) miles outside of City limits of
Deerfield Beach, except for travel reasonably required in the performance of the
Executive's responsibilities; (iv) any purported termination by the Company of
the Executive's employment otherwise than for Cause pursuant to Section 5.1, or
by reason of the Executive's death pursuant to Section 5.1, or Disability
pursuant to Section 5.2, of this Agreement prior to the Expiration Date.
5.6 Change in Control of the Company.
a. In the event that (i) a Change in Control (as
defined in paragraph (b) of this Section 5.6) in the Company shall occur prior
to the Expiration Date, and (ii) either (A) prior to the earlier of the
Expiration Date and one year after the date of the Change in Control, either (x)
the Executive's employment with the Company is terminated by the Company without
Cause, as defined in Section 5.1 (and other than pursuant to Section 5.2 by
reason of the Executive's disability or Section 5.3 by reason of the Executive's
death) or (y) the Executive terminates his employment with the Company for Good
Reason, as defined in Section 5.5(d) hereof, or (B) within the thirty (30) day
period beginning one year after the date of the Change in Control, the
Executives terminates his employment with the Company for any reason, then
subject to the limitations specified in paragraph c of this Section 5.6, the
Company shall pay to the Executive those amounts Executive would be entitled to
under Section 5.4 hereof as if his employment was terminated without Cause.
Further, upon the Change in Control, any stock options granted to the Executive
by the Company that were outstanding as of the date of the Change in Control
shall become immediately exercisable. The Company shall have no further
liability hereunder (other than for (1) reimbursement for reasonable business
expenses incurred
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prior to the date of termination, subject, however, to the provisions of Section
4.1, and (2) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, other than a public offering of
the Company's securities, in each case, with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation or other transaction do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the assets of the Company
(unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or
(iii) the acquisition (other than from the
Company) by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 50% of either
the then outstanding shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors (hereinafter referred to as the ownership
of a "Controlling Interest") excluding, for this purpose, any acquisitions by
(1) the Company or its Subsidiaries, (2) any person, entity or "group" that as
of the date hereof owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest or (3)
any employee benefit plan of the Company or its Subsidiaries.
c. The payments otherwise required under paragraph a
of this Section 5.6 shall be subject to the following:
(i) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the
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terms of this Agreement or otherwise (a "Payment"), would be nondeductible by
the Company for Federal income tax purposes because of Section 280G of the Code,
then the aggregate present value of amounts payable or distributable to or for
the benefit of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 280G of the Code. Anything to
the contrary notwithstanding, if the Reduced Amount is zero and it is determined
further that any Payment which is not an Agreement Payment would nevertheless be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code, then the aggregate present value of Payments which are not
Agreement Payments shall also be reduced (but not below zero) to an amount
expressed in present value which maximizes the aggregate present value of
Payments without causing any Payment to be nondeductible by the Company because
of Section 280G of the Code. For purposes of this Section 5.6(c) present value
shall be determined in accordance with Section 280G(d)(4) of the Code.
(ii) All determinations required to be made
under this Section 5.6(c) shall be made by Arthur Andersen LLP or, at the
Executive's option, any other nationally or regionally recognized firm of
independent public accountants selected by the Executive and approved by the
Company, which approval shall not be unreasonably withheld or delayed (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within twenty (20) business days of the Date of
Termination or such earlier time as is requested by the Company and an opinion
to the Executive that he has substantial authority not to report any excise tax
on his Federal income tax return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. The Executive shall determine which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this Section
5.6(c), provided that, if the Executive does not make such determination within
ten business days of the receipt of the calculations made by the Accounting
Firm, the Company shall elect which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of this Section 5.6(c)
and shall notify the Executive promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive under this
Agreement. All fees and expenses of the Accounting Firm incurred in connection
with the determinations contemplated by this Section 5.6(c) shall be borne by
the Company.
(iii) As a result of the uncertainty in the
application of Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the Accounting Firm believes has a high probability of success, determines
that an Overpayment has been made, any
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such Overpayment paid or distributed by the Company to or for the benefit of the
Executive shall be treated for all purposes as a loan ab initio to the Executive
which the Executive shall repay to the Company together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made and no
amount shall be payable by the Employee to the Company if and to the extent such
deemed loan and payment would not either reduce the amount on which the
Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code.
5.7 Resignation. Upon any termination of employment pursuant
to this Section 5, the Executive shall be deemed to have resigned as an officer,
and if he or she was then serving as a director of the Company, as a director,
and if required by the Board, the Executive hereby agrees to immediately execute
a resignation letter to the Board.
5.8 Survival. The provisions of this Section 5 shall survive
the termination of this Agreement, as applicable.
6. Restrictive Covenants.
6.1 Non-competition. At all times while the Executive is
employed by the Company and for a one (1) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company; provided
that such provision shall not apply to the Executive's ownership of Common Stock
of the Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the National Association of Securities Dealers Automated Quotations System, or
any similar system or automated dissemination of quotations of securities prices
in common use, so long as the Executive does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent of any class of capital stock of such
corporation. Notwithstanding the foregoing, if either (i) the Company delivers a
written notice to the Executive pursuant to Section 2.2 hereof of its intention
not to renew the term of this Agreement for reasons other than Cause (as defined
in Section 5.1 hereof), or (ii) the Executive's employment is terminated by the
Company without Cause pursuant to Section 5.4 of this Agreement, or is
terminated by the Executive for Good Reason pursuant to Section 5.5c hereof, and
within 90 days of such termination the Executive agrees to waive his right to
receive a continuation of Base Salary, the bonus, Benefits, and the lump sum
payment, otherwise payable to him under clauses (iii), (iv), (v) and (vi) of
Section 5.4, by providing the Company a written waiver (the "Waiver") of such
right, in such form as the Company reasonably may require, then the Executive
shall cease
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to be subject to the provisions of this Section 6.1 immediately upon the
Expiration Date or upon delivery of the Waiver by the Executive to the Company,
as applicable.
6.2 Nondisclosure. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive with
respect to the business of the Company (which shall include, but not be limited
to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through his employment by the Company (including information
conceived, originated, discovered or developed by the Executive) prior to or
after the date hereof, and not generally known, about the Company or its
business. Notwithstanding the foregoing, nothing herein shall be deemed to
restrict the Executive from disclosing Confidential Information to the extent
required by law.
6.3 Nonsolicitation of Employees and Clients. At all times
while the Executive is employed by the Company and for a two (2) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for himself or for any
other person, firm, corporation, partnership, association or other entity (a)
employ or attempt to employ or enter into any contractual arrangement with any
employee or former employee of the Company, unless such employee or former
employee has not been employed by the Company for a period in excess of six
months, (b) call on or solicit any of the actual or targeted prospective clients
of the Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, and (c) make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of Executive's duties under this Agreement.
6.4 Ownership of Developments. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
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6.5 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.6 Definition of Company. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 Acknowledgment by Executive. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any undue hardship, financial or otherwise,
and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms
fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Executive further acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Section 6. The Executive further acknowledges that the
restrictions contained in this Section 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company's successors and
assigns.
6.8 Reformation by Court. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 Extension of Time. If the Executive shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 Survival. Except to the extent otherwise provided in
Section 6.1 hereof, the provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
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7. Mediation. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to litigation or some
other dispute resolution procedure.
8. Section 162(m) Limits. Notwithstanding any other provision of this
Agreement to the contrary, if and to the extent that any remuneration payable by
the Company to the Executive for any year would exceed the maximum amount of
remuneration that the Company may deduct for that year under Section 162(m)
("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code"), payment of the portion of the remuneration for that year that would not
be so deductible under Section 162(m) shall, in the sole discretion of the
Board, be deferred and become payable at such time or times as the Board
determines that it first would be deductible by the Company under Section
162(m), with interest at the "short-term applicable rate" as such term is
defined in Section 1274(d) of the Code. The limitation set forth under this
Section 8 shall not apply with respect to any amounts payable to the Executive
pursuant to Section 5 hereof.
9. Assignment. Neither party shall have the right to assign or delegate
his rights or obligations hereunder, or any portion thereof, to any other
person.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
12. Notices: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to Prestige Cosmetics
Corporation, 1441 West Newport Center Drive, Deerfield Beach, Florida 33442,
Attention: President, with a copy to Gary Epstein, Esq., Greenberg Traurig,
P.A., 1221 Brickell Avenue, Suite 2200, Miami, Florida 33131, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives,
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successors and, where applicable, assigns, including, without limitation, any
successor to the Company, whether by merger, consolidation, sale of stock, sale
of assets or otherwise.
14. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
15. Waivers. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. Indemnification.
a. Subject to limitations imposed by law, the Company
shall indemnify and hold harmless the Executive to the fullest extent permitted
by law from and against any and all claims, damages, expenses (including
attorneys' fees), judgments, penalties, fines, settlements, and all other
liabilities incurred or paid by him in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which the Executive was or is a party or is threatened to be
made a party by reason of the fact that the Executive is or was an officer,
employee or agent of the Company, or by reason of anything done or not done by
the Executive in any such capacity or capacities, provided that the Executive
acted in good faith, in a manner that was not grossly negligent or constituted
willful misconduct and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with
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respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The Company also shall pay any and all reasonable
expenses (including attorney's fees) incurred by the Executive as a result of
the Executive being called as a witness in connection with any matter involving
the Company and/or any of its officers or directors.
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 19 in advance
of the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event later
than 10 days following the Executive's delivery to the Company of a written
request for an advance pursuant to this Section 19, together with a reasonable
accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 19 if and to the
extent that it shall ultimately be found that the Executive is not entitled to
be indemnified by the Company for such amounts.
d. The Company shall make the advances contemplated
by this Section 19 regardless of the Executive's financial ability to make
repayment, and regardless whether indemnification of the Executive by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 19 shall be unsecured and interest-free.
e. The provisions of this Section 19 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
PRESTIGE COSMETICS CORPORATION
By
----------------------------------
Name:
Title:
EXECUTIVE:
-------------------------------------
THOMAS WINARICK
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Exhibit 10.14
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this ___ day of ___________, 1998, effective as of July 1, 1998, by and between
Prestige Cosmetics Corporation, a Florida corporation (the "Company"), and MARC
FELLER (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as the Chief Financial Officer
of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Chief Financial Officer of the Company, shall
diligently perform all services as may be assigned to him by the Board (provided
that such services shall not materially differ from the services currently
provided by the Executive), and shall exercise such power and authority as may
from time to time be delegated to him by the Board. The Executive shall devote
his full time and attention to the business and affairs of the Company, render
such services to the best of his ability, and use his best efforts to promote
the interests of the Company.
<PAGE> 2
2. Term.
2.1 Initial Term. The initial term of this Agreement, and the
employment of the Executive hereunder, shall commence on July 1, 1998 (the
"Commencement Date") and shall expire on June 30, 2001 unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial Term").
2.2 Renewal Terms. Unless written notice stating otherwise is
received by the Company or the Executive within three months prior to the
Expiration Date (as described in Section 2.3), this Agreement shall
automatically renew for successive one-year terms.
2.3 Expiration Date. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
2.4 Effectiveness Conditioned upon Initial Public Offering.
This Agreement is subject to and contingent upon the Company consummating an
initial public offering of the Company's Common Stock pursuant to a Registration
Statement filed under the Securities Act of 1933, as amended (the "IPO"), on or
before December 31, 1998. In the event that the IPO does not occur on or before
December 31, 1998, then this Agreement shall be null and void ab initio.
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of $150,000 (the "Base Salary") during the term of this
Agreement, with such Base Salary payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding and other
taxes. The Base Salary shall be reviewed, at least annually, for merit increases
and may, by action and in the discretion of the Compensation Committee or the
Board, be increased at any time or from time to time.
3.2 Bonuses. Bonuses may be awarded in the discretion of the
Board of Directors or the Compensation Committee of the Company.
4. Expense Reimbursement and Other Benefits.
4.1 Reimbursement of Expenses. During the term of the
Executive's employment hereunder, upon the submission of proper substantiation
by the Executive, and subject to such rules and guidelines as the Company may
from time to time adopt, the Company shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company. The Executive shall account to the
Company in writing for all expenses for which reimbursement is sought and shall
supply to the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 Compensation/Benefit Programs. During the term of this
Agreement, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are
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presently and hereinafter offered by the Company to its executives, including
savings, pension, profit-sharing and deferred compensation plans, subject to the
general eligibility and participation provisions set forth in such plans and to
the applicable statutes and regulations governing such plans.
4.3 Working Facilities. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 Automobile. The Company shall continue to provide the
Executive with an automobile comparable to the existing automobile provided by
the Company to Executive, together with reimbursement of the reasonable
operating expenses thereof.
4.5 Stock Options. Effective as of the date on which the IPO
occurs, the Executive shall be granted nonqualified options (the "Stock
Options") to purchase 50,000 shares of the Company's common stock ("Common
Stock") at an exercise price per share equal to the IPO price, pursuant to (and
therefore subject to all terms and conditions of) the Company's 1998 Executive
Incentive Compensation Plan (the "Executive Plan"). In addition, during the term
of this Agreement, the Executive shall be eligible for additional Stock Options
to purchase Common Stock of the Company under (and therefore subject to all
terms and conditions of) the Company's Executive Plan and any successor plan
thereto, and all rules of regulation of the Securities and Exchange Commission
applicable to such plans then in effect. The number of additional Stock Options
and terms and conditions of the additional Stock Options shall be determined by
the Committee appointed pursuant to the Executive Plan, or by the Board, in its
discretion and pursuant to the Executive Plan.
4.6 Other Benefits. The Executive shall be entitled to up to
four (4) weeks of vacation each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Any vacation time not taken
by Executive during any calendar year may not be carried forward into any
succeeding calendar year. The Executive shall receive such additional benefits,
if any, as the Board of the Company shall from time to time determine.
5. Termination.
5.1 Termination for Cause. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for Cause. For purposes of this Agreement, the term
"Cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within sixty
(60) days after receipt by the Executive of written notice of same, (ii) fraud,
embezzlement, misappropriation of funds or breach of trust in connection with
his services hereunder, (iii) conviction of any crime which involves dishonesty
or a breach of trust, (iv) gross negligence in connection with the performance
of the Executive's duties hereunder, or (v) the material and willful or knowing
failure or refusal (other than as a result of a disability) by the Executive to
perform his duties hereunder. Any termination for Cause shall be made in writing
to
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the Executive, which notice shall set forth in detail all acts or omissions upon
which the Company is relying for such termination. The Executive shall have the
right to address the Board regarding the acts set forth in the notice of
termination. Upon any termination pursuant to this Section 5.1, the Company
shall (i) pay to the Executive his Base Salary to the date of termination and
(ii) pay to the Executive any bonuses awarded to the Executive pursuant to
Section 3.2 that have not been paid on or before the date of the termination of
the Executive's employment with the Company.
5.2 Disability. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall become entitled to benefits under the
disability insurance policy the Company maintains on behalf of such executive
pursuant to Subsection 4.6(c) hereof as then in effect, or, if the Executive
shall as the result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of 180 days in
any 12-month period. The Company shall have sole discretion based upon competent
medical advice to determine whether the Executive continues to be disabled. Upon
any termination pursuant to this Section 5.2, the Company shall (i) pay to the
Executive any unpaid Base Salary through the effective date of termination
specified in such notice, (ii) pay to the Executive any bonuses awarded to the
Executive pursuant to Section 3.2 that have not been paid on or before the date
of the termination of the Executive's employment with the Company, and (iii)
continue to pay the Executive for a period of twelve (12) months following an
amount equal to the excess, if any, of (A) the Base Salary he was receiving at
the time of his Disability, over (B) any benefits the Executive is entitled to
receive during such period under any disability insurance policies provided to
the Executive by the Company, such amount to be paid in the manner and at such
times as the Base Salary otherwise would have been payable to the Executive. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, and (ii) pay to the estate of the deceased Executive any bonuses awarded
to the Executive pursuant to Section 3.2 that have not been paid on or before
the date of the termination of the Executive's employment with the Company. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section 4.1, and (y)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
5.4 Termination Without Cause. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive any bonuses awarded to the Executive pursuant to Section 3.2 that have
not been paid on or before the date of
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the termination of the Executive's employment with the Company, (iii) continue
to pay the Executive's Base Salary for a period of twelve (12) months following
the effective date of the Executive's termination of employment with the
Company, (iv) pay to the Executive a bonus equal to the bonus awarded to the
Executive in the fiscal year of the Company that ended immediately prior to the
effective date of the termination of the Executive's employment with the
Company, payable within 45 days after the last day of the Company's fiscal year
in which such termination occurs, (v) continue to provide the Executive, for a
period of twelve (12) months following the effective date of the Executive's
termination of employment with the Company, with the benefits he was receiving
under Sections 4.2 and 4.4 hereof (the "Benefits") in the manner and at such
times as the compensation or Benefits otherwise would have been payable or
provided to the Executive, and (vi) pay to the Executive as a single lump sum
payment, within 30 days of the termination of his employment hereunder, a lump
sum benefit equal to the value of the portion of his benefits under any savings,
pension, profit sharing or deferred compensation plans that are forfeited under
such plans by reason of the termination of his employment hereunder prior to the
Expiration Date. In the event that the Company is unable to provide the
Executive with any Benefits required hereunder by reason of the termination of
the Executive's employment pursuant to this Section 5.4, then the Company shall
pay the Executive cash equal to the value of the Benefit that otherwise would
have accrued for the Executive's benefit under the plan, for the period during
which such Benefits could not be provided under the plans, said cash payments to
be made within 45 days after the end of the year for which such contributions
would have been made or would have accrued. The Company's good faith
determination of the amount that would have been contributed or the value of any
Benefits that would have accrued under any plan shall be binding and conclusive
on the Executive. For this purpose, the Company may use as the value of any
Benefit the cost to the Company of providing that Benefit to the Executive.
Further, the Executive shall continue to vest in the Executive's Stock Options
through the Expiration Date in the same manner and to the same extent as if his
employment hereunder terminated on the Expiration Date. The Company shall have
no further liability hereunder (other than for (x) reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1, and (y) payment of compensation for unused
vacation days that have accumulated during the calendar year in which such
termination occurs).
5.5 Termination by Executive.
a. The Executive shall at all times have the right,
upon sixty (60) days written notice to the Company, to terminate the Executive's
employment hereunder.
b. Upon any termination pursuant to this Section 5.5
by the Executive without Good Reason, the Company shall (i) pay to the Executive
any unpaid Base Salary through the effective date of termination specified in
such notice and (ii) pay to the Executive any bonuses awarded to the Executive
pursuant to Section 3.2 that have not been paid on or before the date of the
termination of the Executive's employment with the Company. The Company shall
have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs.
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c. Upon any termination pursuant to this Section 5.5
by the Executive for Good Reason, the Company shall pay to the Executive the
same amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Executive's employment had been terminated
by the Company without Cause. The Company shall have no further liability
hereunder (other than for (x) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1, and (y) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination occurs).
d. For purposes of this Agreement, "Good Reason"
shall mean (i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; (ii) any failure by the Company to
comply with any of the provisions of Section 3 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive; (iii) the Company's requiring the Executive to be based at any
office or location more than fifty (50) miles outside of City limits of
Deerfield Beach, except for travel reasonably required in the performance of the
Executive's responsibilities; (iv) any purported termination by the Company of
the Executive's employment otherwise than for Cause pursuant to Section 5.1, or
by reason of the Executive's death pursuant to Section 5.1, or Disability
pursuant to Section 5.2, of this Agreement prior to the Expiration Date.
5.6 Change in Control of the Company.
a. In the event that (i) a Change in Control (as
defined in paragraph (b) of this Section 5.6) in the Company shall occur prior
to the Expiration Date, and (ii) either (A) prior to the earlier of the
Expiration Date and one year after the date of the Change in Control, either (x)
the Executive's employment with the Company is terminated by the Company without
Cause, as defined in Section 5.1 (and other than pursuant to Section 5.2 by
reason of the Executive's disability or Section 5.3 by reason of the Executive's
death) or (y) the Executive terminates his employment with the Company for Good
Reason, as defined in Section 5.5(d) hereof, or (B) within the thirty (30) day
period beginning one year after the date of the Change in Control, the
Executives terminates his employment with the Company for any reason, then
subject to the limitations specified in paragraph c of this Section 5.6, the
Company shall pay to the Executive those amounts Executive would be entitled to
under Section 5.4 hereof as if his employment was terminated without Cause.
Further, upon the Change in Control, any stock options granted to the Executive
by the Company that were outstanding as of the date of the Change in Control
shall become immediately exercisable. The Company shall have no further
liability hereunder (other than for (1) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (2) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs).
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b. For purposes of this Agreement, the term "Change
in Control" shall mean:
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, other than a public offering of
the Company's securities, in each case, with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation or other transaction do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the assets of the Company
(unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or
(iii) the acquisition (other than from the
Company) by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 50% of either
the then outstanding shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors (hereinafter referred to as the ownership
of a "Controlling Interest") excluding, for this purpose, any acquisitions by
(1) the Company or its Subsidiaries, (2) any person, entity or "group" that as
of the date hereof owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest or (3)
any employee benefit plan of the Company or its Subsidiaries.
c. The payments otherwise required under paragraph a
of this Section 5.6 shall be subject to the following:
(i) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to
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as "Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 280G of the Code. Anything to
the contrary notwithstanding, if the Reduced Amount is zero and it is determined
further that any Payment which is not an Agreement Payment would nevertheless be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code, then the aggregate present value of Payments which are not
Agreement Payments shall also be reduced (but not below zero) to an amount
expressed in present value which maximizes the aggregate present value of
Payments without causing any Payment to be nondeductible by the Company because
of Section 280G of the Code. For purposes of this Section 5.6(c) present value
shall be determined in accordance with Section 280G(d)(4) of the Code.
(ii) All determinations required to be made
under this Section 5.6(c) shall be made by Arthur Andersen LLP or, at the
Executive's option, any other nationally or regionally recognized firm of
independent public accountants selected by the Executive and approved by the
Company, which approval shall not be unreasonably withheld or delayed (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within twenty (20) business days of the Date of
Termination or such earlier time as is requested by the Company and an opinion
to the Executive that he has substantial authority not to report any excise tax
on his Federal income tax return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. The Executive shall determine which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this Section
5.6(c), provided that, if the Executive does not make such determination within
ten business days of the receipt of the calculations made by the Accounting
Firm, the Company shall elect which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of this Section 5.6(c)
and shall notify the Executive promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive under this
Agreement. All fees and expenses of the Accounting Firm incurred in connection
with the determinations contemplated by this Section 5.6(c) shall be borne by
the Company.
(iii) As a result of the uncertainty in the
application of Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the Accounting Firm believes has a high probability of success, determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of the Executive shall be treated for all
purposes as a loan ab initio to the Executive which the Executive shall repay to
the Company together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made
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and no amount shall be payable by the Employee to the Company if and to the
extent such deemed loan and payment would not either reduce the amount on which
the Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code.
5.7 Resignation. Upon any termination of employment pursuant
to this Section 5, the Executive shall be deemed to have resigned as an officer,
and if he or she was then serving as a director of the Company, as a director,
and if required by the Board, the Executive hereby agrees to immediately execute
a resignation letter to the Board.
5.8 Survival. The provisions of this Section 5 shall survive
the termination of this Agreement, as applicable.
6. Restrictive Covenants.
6.1 Non-competition. At all times while the Executive is
employed by the Company and for a one (1) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company; provided
that such provision shall not apply to the Executive's ownership of Common Stock
of the Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the National Association of Securities Dealers Automated Quotations System, or
any similar system or automated dissemination of quotations of securities prices
in common use, so long as the Executive does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent of any class of capital stock of such
corporation. Notwithstanding the foregoing, if either (i) the Company delivers a
written notice to the Executive pursuant to Section 2.2 hereof of its intention
not to renew the term of this Agreement for reasons other than Cause (as defined
in Section 5.1 hereof), or (ii) the Executive's employment is terminated by the
Company without Cause pursuant to Section 5.4 of this Agreement, and within 90
days of such termination the Executive agrees to waive his right to receive a
continuation of Base Salary, the bonus, Benefits, and the lump sum payment,
otherwise payable to him under clauses (iii), (iv), (v) and (vi) of Section 5.4,
by providing the Company a written waiver (the "Waiver") of such right, in such
form as the Company reasonably may require, then the Executive shall cease to be
subject to the provisions of this Section 6.1 immediately upon the Expiration
Date or upon delivery of the Waiver by the Executive to the Company, as
applicable.
6.2 Nondisclosure. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse
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in any way, any Confidential Information (as hereinafter defined) pertaining to
the business of the Company. Any Confidential Information or data now or
hereafter acquired by the Executive with respect to the business of the Company
(which shall include, but not be limited to, information concerning the
Company's financial condition, prospects, technology, customers, suppliers,
sources of leads and methods of doing business) shall be deemed a valuable,
special and unique asset of the Company that is received by the Executive in
confidence and as a fiduciary, and Executive shall remain a fiduciary to the
Company with respect to all of such information. For purposes of this Agreement,
"Confidential Information" means information disclosed to the Executive or known
by the Executive as a consequence of or through his employment by the Company
(including information conceived, originated, discovered or developed by the
Executive) prior to or after the date hereof, and not generally known, about the
Company or its business. Notwithstanding the foregoing, nothing herein shall be
deemed to restrict the Executive from disclosing Confidential Information to the
extent required by law.
6.3 Nonsolicitation of Employees and Clients. At all times
while the Executive is employed by the Company and for a two (2) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for himself or for any
other person, firm, corporation, partnership, association or other entity (a)
employ or attempt to employ or enter into any contractual arrangement with any
employee or former employee of the Company, unless such employee or former
employee has not been employed by the Company for a period in excess of six
months, (b) call on or solicit any of the actual or targeted prospective clients
of the Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, and (c) make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of Executive's duties under this Agreement.
6.4 Ownership of Developments. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
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6.6 Definition of Company. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 Acknowledgment by Executive. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any undue hardship, financial or otherwise,
and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms
fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Executive further acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Section 6. The Executive further acknowledges that the
restrictions contained in this Section 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company's successors and
assigns.
6.8 Reformation by Court. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 Extension of Time. If the Executive shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 Survival. Except to the extent otherwise provided in
Section 6.1 hereof, the provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
7. Mediation. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to litigation or some
other dispute resolution procedure.
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8. Section 162(m) Limits. Notwithstanding any other provision of this
Agreement to the contrary, if and to the extent that any remuneration payable by
the Company to the Executive for any year would exceed the maximum amount of
remuneration that the Company may deduct for that year under Section 162(m)
("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code"), payment of the portion of the remuneration for that year that would not
be so deductible under Section 162(m) shall, in the sole discretion of the
Board, be deferred and become payable at such time or times as the Board
determines that it first would be deductible by the Company under Section
162(m), with interest at the "short-term applicable rate" as such term is
defined in Section 1274(d) of the Code. The limitation set forth under this
Section 8 shall not apply with respect to any amounts payable to the Executive
pursuant to Section 5 hereof.
9. Assignment. Neither party shall have the right to assign or delegate
his rights or obligations hereunder, or any portion thereof, to any other
person.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
12. Notices: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to Prestige Cosmetics
Corporation, 1441 West Newport Center Drive, Deerfield Beach, Florida 33442,
Attention: President, with a copy to Gary Epstein, Esq., Greenberg Traurig,
P.A., 1221 Brickell Avenue, Suite 2200, Miami, Florida 33131, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses
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or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
15. Waivers. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. Indemnification.
a. Subject to limitations imposed by law, the Company
shall indemnify and hold harmless the Executive to the fullest extent permitted
by law from and against any and all claims, damages, expenses (including
attorneys' fees), judgments, penalties, fines, settlements, and all other
liabilities incurred or paid by him in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which the Executive was or is a party or is threatened to be
made a party by reason of the fact that the Executive is or was an officer,
employee or agent of the Company, or by reason of anything done or not done by
the Executive in any such capacity or capacities, provided that the Executive
acted in good faith, in a manner that was not grossly negligent or constituted
willful misconduct and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors.
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the
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Executive in investigating, defending, settling or appealing any action, suit or
proceeding described in this Section 19 in advance of the final disposition of
such action, suit or proceeding. The Company shall promptly pay the amount of
such expenses to the Executive, but in no event later than 10 days following the
Executive's delivery to the Company of a written request for an advance pursuant
to this Section 19, together with a reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 19 if and to the
extent that it shall ultimately be found that the Executive is not entitled to
be indemnified by the Company for such amounts.
d. The Company shall make the advances contemplated
by this Section 19 regardless of the Executive's financial ability to make
repayment, and regardless whether indemnification of the Executive by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 19 shall be unsecured and interest-free.
e. The provisions of this Section 19 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
PRESTIGE COSMETICS CORPORATION
By
----------------------------------
Name:
Title:
EXECUTIVE:
--------------------------------------
MARC FELLER
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Exhibit 10.15
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this ___ day of ____________, 1998, effective as of July 1, 1998, by and between
Prestige Cosmetics, PTY, a ________ corporation (the "Company"), and CHRISTOPHER
DOW (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as the President of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the President of the Company, shall diligently
perform all services as may be assigned to him by the Board (provided that such
services shall not materially differ from the services currently provided by the
Executive), and shall exercise such power and authority as may from time to time
be delegated to him by the Board. The Executive shall devote his full time and
attention to the business and affairs of the Company, render such services to
the best of his ability, and use his best efforts to promote the interests of
the Company.
<PAGE> 2
2. Term.
2.1 Initial Term. The initial term of this Agreement, and the
employment of the Executive hereunder, shall commence on July 1, 1998 (the
"Commencement Date") and shall expire on June 30, 2001 unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial Term").
2.2 Renewal Terms. Unless written notice stating otherwise is
received by the Company or the Executive within three months prior to the
Expiration Date (as described in Section 2.3), this Agreement shall
automatically renew for successive one-year terms.
2.3 Expiration Date. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
2.4 Effectiveness Conditioned upon Initial Public Offering.
This Agreement is subject to and contingent upon Prestige Cosmetics Corporation
("PCC") consummating an initial public offering of the PCC's Common Stock
pursuant to a Registration Statement filed under the Securities Act of 1933, as
amended (the "IPO"), on or before December 31, 1998. In the event that the IPO
does not occur on or before December 31, 1998, then this Agreement shall be null
and void ab initio.
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of (Australian) $150,000 (the "Base Salary") during the term of
this Agreement, with such Base Salary payable in installments consistent with
the Company's normal payroll schedule, subject to applicable withholding and
other taxes. The Base Salary shall be reviewed, at least annually, for merit
increases and may, by action and in the discretion of the Compensation Committee
or the Board, be increased at any time or from time to time.
3.2 Bonuses. Bonuses may be awarded in the discretion of the
Board of Directors or the Compensation Committee of the Company.
4. Expense Reimbursement and Other Benefits.
4.1 Reimbursement of Expenses. During the term of the
Executive's employment hereunder, upon the submission of proper substantiation
by the Executive, and subject to such rules and guidelines as the Company may
from time to time adopt, the Company shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company. The Executive shall account to the
Company in writing for all expenses for which reimbursement is sought and shall
supply to the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 Compensation/Benefit Programs. During the term of this
Agreement, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death
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and dismemberment, disability, travel and life insurance plans, and any and all
other plans as are presently and hereinafter offered by the Company to its
executives, including savings, pension, profit-sharing and deferred compensation
plans, subject to the general eligibility and participation provisions set forth
in such plans and to the applicable statutes and regulations governing such
plans.
4.3 Working Facilities. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 Automobile. The Company shall continue to provide the
Executive with an automobile comparable to the existing automobile provided by
the Company to Executive, together with reimbursement of the reasonable
operating expenses thereof.
4.5 Stock Options. During the term of this Agreement, the
Executive shall be eligible for Stock Options to purchase Common Stock of PCC
under (and therefore subject to all terms and conditions of) PCC's 1998
Executive Incentive Compensation Plan (the "Executive Plan") and any successor
plan thereto, and all rules of regulation of the Securities and Exchange
Commission applicable to such plans then in effect. The number of Stock Options
and terms and conditions of the Stock Options shall be determined by the
Committee appointed pursuant to the Executive Plan, or by the Board, in its
discretion and pursuant to the Executive Plan.
4.6 Other Benefits. The Executive shall be entitled to up to
four (4) weeks of vacation each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Any vacation time not taken
by Executive during any calendar year may not be carried forward into any
succeeding calendar year. The Executive shall receive such additional benefits,
if any, as the Board of the Company shall from time to time determine.
5. Termination.
5.1 Termination for Cause. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for Cause. For purposes of this Agreement, the term
"Cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within sixty
(60) days after receipt by the Executive of written notice of same, (ii) fraud,
embezzlement, misappropriation of funds or breach of trust in connection with
his services hereunder, (iii) conviction of any crime which involves dishonesty
or a breach of trust, (iv) gross negligence in connection with the performance
of the Executive's duties hereunder, or (v) the material and willful or knowing
failure or refusal (other than as a result of a disability) by the Executive to
perform his duties hereunder. Any termination for Cause shall be made in writing
to the Executive, which notice shall set forth in detail all acts or omissions
upon which the Company is relying for such termination. The Executive shall have
the right to address the Board regarding the acts set forth in the notice of
termination. Upon any termination pursuant to this Section 5.1, the Company
shall (i) pay to the Executive his Base Salary to the date of termination and
(ii) pay
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to the Executive any bonuses awarded to the Executive pursuant to Section 3.2
that have not been paid on or before the date of the termination of the
Executive's employment with the Company.
5.2 Disability. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall become entitled to benefits under the
disability insurance policy the Company maintains on behalf of such executive
pursuant to Subsection 4.6(c) hereof as then in effect, or, if the Executive
shall as the result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of 180 days in
any 12-month period. The Company shall have sole discretion based upon competent
medical advice to determine whether the Executive continues to be disabled. Upon
any termination pursuant to this Section 5.2, the Company shall (i) pay to the
Executive any unpaid Base Salary through the effective date of termination
specified in such notice, (ii) pay to the Executive any bonuses awarded to the
Executive pursuant to Section 3.2 that have not been paid on or before the date
of the termination of the Executive's employment with the Company, and (iii)
continue to pay the Executive for a period of twelve (12) months following an
amount equal to the excess, if any, of (A) the Base Salary he was receiving at
the time of his Disability, over (B) any benefits the Executive is entitled to
receive during such period under any disability insurance policies provided to
the Executive by the Company, such amount to be paid in the manner and at such
times as the Base Salary otherwise would have been payable to the Executive. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, and (ii) pay to the estate of the deceased Executive any bonuses awarded
to the Executive pursuant to Section 3.2 that have not been paid on or before
the date of the termination of the Executive's employment with the Company. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section 4.1, and (y)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
5.4 Termination Without Cause. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive any bonuses awarded to the Executive pursuant to Section 3.2 that have
not been paid on or before the date of the termination of the Executive's
employment with the Company, (iii) continue to pay the Executive's Base Salary
for a period of twelve (12) months following the effective date of the
Executive's termination of employment with the Company, (iv) pay to the
Executive a bonus equal to the bonus awarded to the Executive in the fiscal year
of the Company that ended
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immediately prior to the effective date of the termination of the Executive's
employment with the Company, payable within 45 days after the last day of the
Company's fiscal year in which such termination occurs, (v) continue to provide
the Executive, for a period of twelve (12) months following the effective date
of the Executive's termination of employment with the Company, with the benefits
he was receiving under Sections 4.2 and 4.4 hereof (the "Benefits") in the
manner and at such times as the compensation or Benefits otherwise would have
been payable or provided to the Executive, and (vi) pay to the Executive as a
single lump sum payment, within 30 days of the termination of his employment
hereunder, a lump sum benefit equal to the value of the portion of his benefits
under any savings, pension, profit sharing or deferred compensation plans that
are forfeited under such plans by reason of the termination of his employment
hereunder prior to the Expiration Date. In the event that the Company is unable
to provide the Executive with any Benefits required hereunder by reason of the
termination of the Executive's employment pursuant to this Section 5.4, then the
Company shall pay the Executive cash equal to the value of the Benefit that
otherwise would have accrued for the Executive's benefit under the plan, for the
period during which such Benefits could not be provided under the plans, said
cash payments to be made within 45 days after the end of the year for which such
contributions would have been made or would have accrued. The Company's good
faith determination of the amount that would have been contributed or the value
of any Benefits that would have accrued under any plan shall be binding and
conclusive on the Executive. For this purpose, the Company may use as the value
of any Benefit the cost to the Company of providing that Benefit to the
Executive. Further, the Executive shall continue to vest in the Executive's
Stock Options through the Expiration Date in the same manner and to the same
extent as if his employment hereunder terminated on the Expiration Date. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.5 Termination by Executive.
a. The Executive shall at all times have the right,
upon sixty (60) days written notice to the Company, to terminate the Executive's
employment hereunder.
b. Upon any termination pursuant to this Section 5.5
by the Executive without Good Reason, the Company shall (i) pay to the Executive
any unpaid Base Salary through the effective date of termination specified in
such notice and (ii) pay to the Executive any bonuses awarded to the Executive
pursuant to Section 3.2 that have not been paid on or before the date of the
termination of the Executive's employment with the Company. The Company shall
have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs.
c. Upon any termination pursuant to this Section 5.5
by the Executive for Good Reason, the Company shall pay to the Executive the
same amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Executive's employment had been terminated
by the Company without Cause. The Company
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shall have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs).
d. For purposes of this Agreement, "Good Reason"
shall mean (i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; (ii) any failure by the Company to
comply with any of the provisions of Section 3 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive; (iii) the Company's requiring the Executive to be based at any
office or location more than fifty (50) miles outside of City limits of
Melbourne, Australia except for travel reasonably required in the performance of
the Executive's responsibilities; (iv) any purported termination by the Company
of the Executive's employment otherwise than for Cause pursuant to Section 5.1,
or by reason of the Executive's death pursuant to Section 5.1, or Disability
pursuant to Section 5.2 of this Agreement prior to the Expiration Date.
5.6 Change in Control of the Company.
a. In the event that (i) a Change in Control (as
defined in paragraph (b) of this Section 5.6) in the Company shall occur prior
to the Expiration Date, and (ii) either (A) prior to the earlier of the
Expiration Date and one year after the date of the Change in Control, either (x)
the Executive's employment with the Company is terminated by the Company without
Cause, as defined in Section 5.1 (and other than pursuant to Section 5.2 by
reason of the Executive's disability or Section 5.3 by reason of the Executive's
death) or (y) the Executive terminates his employment with the Company for Good
Reason, as defined in Section 5.5(d) hereof, or (B) within the thirty (30) day
period beginning one year after the date of the Change in Control, the
Executives terminates his employment with the Company for any reason, then
subject to the limitations specified in paragraph c of this Section 5.6, the
Company shall pay to the Executive those amounts Executive would be entitled to
under Section 5.4 hereof as if his employment was terminated without Cause.
Further, upon the Change in Control, any stock options granted to the Executive
by the Company that were outstanding as of the date of the Change in Control
shall become immediately exercisable. The Company shall have no further
liability hereunder (other than for (1) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (2) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
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(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, other than a public offering of
the Company's securities, in each case, with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation or other transaction do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the assets of the Company
(unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or
(iii) the acquisition (other than from the
Company) by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 50% of either
the then outstanding shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors (hereinafter referred to as the ownership
of a "Controlling Interest") excluding, for this purpose, any acquisitions by
(1) the Company or its Subsidiaries, (2) any person, entity or "group" that as
of the hereof owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest or (3)
any employee benefit plan of the Company or its Subsidiaries.
c. The payments otherwise required under paragraph a
of this Section 5.6 shall be subject to the following:
(i) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because
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of Section 280G of the Code. Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further that any Payment which is
not an Agreement Payment would nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of Payments which are not Agreement Payments shall also
be reduced (but not below zero) to an amount expressed in present value which
maximizes the aggregate present value of Payments without causing any Payment to
be nondeductible by the Company because of Section 280G of the Code. For
purposes of this Section 5.6(c) present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(ii) All determinations required to be made
under this Section 5.6(c) shall be made by Arthur Andersen LLP or, at the
Executive's option, any other nationally or regionally recognized firm of
independent public accountants selected by the Executive and approved by the
Company, which approval shall not be unreasonably withheld or delayed (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within twenty (20) business days of the Date of
Termination or such earlier time as is requested by the Company and an opinion
to the Executive that he has substantial authority not to report any excise tax
on his Federal income tax return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. The Executive shall determine which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this Section
5.6(c), provided that, if the Executive does not make such determination within
ten business days of the receipt of the calculations made by the Accounting
Firm, the Company shall elect which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of this Section 5.6(c)
and shall notify the Executive promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive under this
Agreement. All fees and expenses of the Accounting Firm incurred in connection
with the determinations contemplated by this Section 5.6(c) shall be borne by
the Company.
(iii) As a result of the uncertainty in the
application of Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the Accounting Firm believes has a high probability of success, determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of the Executive shall be treated for all
purposes as a loan ab initio to the Executive which the Executive shall repay to
the Company together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by the Employee to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the Executive is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the
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event that the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
5.7 Resignation. Upon any termination of employment pursuant
to this Section 5, the Executive shall be deemed to have resigned as an officer,
and if he or she was then serving as a director of the Company, as a director,
and if required by the Board, the Executive hereby agrees to immediately execute
a resignation letter to the Board.
5.8 Survival. The provisions of this Section 5 shall survive
the termination of this Agreement, as applicable.
6. Restrictive Covenants.
6.1 Non-competition. At all times while the Executive is
employed by the Company and for a one (1) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company; provided
that such provision shall not apply to the Executive's ownership of Common Stock
of the Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the National Association of Securities Dealers Automated Quotations System, or
any similar system or automated dissemination of quotations of securities prices
in common use, so long as the Executive does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent of any class of capital stock of such
corporation. Notwithstanding the foregoing, if either (i) the Company delivers a
written notice to the Executive pursuant to Section 2.2 hereof of its intention
not to renew the term of this Agreement for reasons other than Cause (as defined
in Section 5.1 hereof), or (ii) the Executive's employment is terminated by the
Company without Cause pursuant to Section 5.4 of this Agreement, and within 90
days of such termination the Executive agrees to waive his right to receive a
continuation of Base Salary, the bonus, Benefits, and the lump sum payment,
otherwise payable to him under clauses (iii), (iv), (v) and (vi) of Section 5.4,
by providing the Company a written waiver (the "Waiver") of such right, in such
form as the Company reasonably may require, then the Executive shall cease to be
subject to the provisions of this Section 6.1 immediately upon the Expiration
Date or upon delivery of the Waiver by the Executive to the Company, as
applicable.
6.2 Nondisclosure. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive with
respect to the business of the Company (which shall include, but not be limited
to, information
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concerning the Company's financial condition, prospects, technology, customers,
suppliers, sources of leads and methods of doing business) shall be deemed a
valuable, special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall remain a
fiduciary to the Company with respect to all of such information. For purposes
of this Agreement, "Confidential Information" means information disclosed to the
Executive or known by the Executive as a consequence of or through his
employment by the Company (including information conceived, originated,
discovered or developed by the Executive) prior to or after the date hereof, and
not generally known, about the Company or its business. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
6.3 Nonsolicitation of Employees and Clients. At all times
while the Executive is employed by the Company and for a two (2) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for himself or for any
other person, firm, corporation, partnership, association or other entity (a)
employ or attempt to employ or enter into any contractual arrangement with any
employee or former employee of the Company, unless such employee or former
employee has not been employed by the Company for a period in excess of six
months, (b) call on or solicit any of the actual or targeted prospective clients
of the Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, and (c) make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of Executive's duties under this Agreement.
6.4 Ownership of Developments. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.6 Definition of Company. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly,
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through one or more intermediaries, control, are controlled by or are under
common control with the Company during the periods described herein.
6.7 Acknowledgment by Executive. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any undue hardship, financial or otherwise,
and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms
fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Executive further acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Section 6. The Executive further acknowledges that the
restrictions contained in this Section 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company's successors and
assigns.
6.8 Reformation by Court. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 Extension of Time. If the Executive shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 Survival. Except to the extent otherwise provided in
Section 6.1 hereof, the provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
7. Mediation. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to litigation or some
other dispute resolution procedure.
8. Section 162(m) Limits. Notwithstanding any other provision of this
Agreement to the contrary, if and to the extent that any remuneration payable by
the Company to the Executive for any year would exceed the maximum amount of
remuneration that the Company may deduct
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for that year under Section 162(m) ("Section 162(m)") of the Internal Revenue
Code of 1986, as amended (the "Code"), payment of the portion of the
remuneration for that year that would not be so deductible under Section 162(m)
shall, in the sole discretion of the Board, be deferred and become payable at
such time or times as the Board determines that it first would be deductible by
the Company under Section 162(m), with interest at the "short-term applicable
rate" as such term is defined in Section 1274(d) of the Code. The limitation set
forth under this Section 8 shall not apply with respect to any amounts payable
to the Executive pursuant to Section 5 hereof.
9. Assignment. Neither party shall have the right to assign or delegate
his rights or obligations hereunder, or any portion thereof, to any other
person.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Australia.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
12. Notices: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to Prestige Cosmetics
Corporation, 1441 West Newport Center Drive, Deerfield Beach, Florida 33442,
Attention: President, with a copy to Gary Epstein, Esq., Greenberg Traurig,
P.A., 1221 Brickell Avenue, Suite 2200, Miami, Florida 33131, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time
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or size of area, or both, the otherwise invalid provision will be considered to
be reduced to a period or area which would cure such invalidity.
15. Waivers. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. Indemnification.
a. Subject to limitations imposed by law, the Company
shall indemnify and hold harmless the Executive to the fullest extent permitted
by law from and against any and all claims, damages, expenses (including
attorneys' fees), judgments, penalties, fines, settlements, and all other
liabilities incurred or paid by him in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which the Executive was or is a party or is threatened to be
made a party by reason of the fact that the Executive is or was an officer,
employee or agent of the Company, or by reason of anything done or not done by
the Executive in any such capacity or capacities, provided that the Executive
acted in good faith, in a manner that was not grossly negligent or constituted
willful misconduct and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors.
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 19 in advance
of the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event
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later than 10 days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 19, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 19 if and to the
extent that it shall ultimately be found that the Executive is not entitled to
be indemnified by the Company for such amounts.
d. The Company shall make the advances contemplated
by this Section 19 regardless of the Executive's financial ability to make
repayment, and regardless whether indemnification of the Executive by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 19 shall be unsecured and interest-free.
e. The provisions of this Section 19 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
PRESTIGE COSMETICS, PTY
By
--------------------------------
Name:
Title:
EXECUTIVE:
-----------------------------------
CHRISTOPHER DOW
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Exhibit 10.16
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this ___ day of _______________, 1998, effective as of July 1, 1998, by and
between Prestige Cosmetics SRL, a ________ corporation (the "Company"), and
GIORGIO VENTURA (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as the President of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the President of the Company, shall diligently
perform all services as may be assigned to him by the Board (provided that such
services shall not materially differ from the services currently provided by the
Executive), and shall exercise such power and authority as may from time to time
be delegated to him by the Board. The Executive shall devote his full time and
attention to the business and affairs of the Company, render such services to
the best of his ability, and use his best efforts to promote the interests of
the Company.
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2. Term.
2.1 Initial Term. The initial term of this Agreement, and the
employment of the Executive hereunder, shall commence on July 1, 1998 (the
"Commencement Date") and shall expire on June 30, 2001 unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial Term").
2.2 Renewal Terms. Unless written notice stating otherwise is
received by the Company or the Executive within three months prior to the
Expiration Date (as described in Section 2.3), this Agreement shall
automatically renew for successive one-year terms.
2.3 Expiration Date. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
2.4 Effectiveness Conditioned upon Initial Public Offering.
This Agreement is subject to and contingent upon Prestige Cosmetics Corporation
("PCC") consummating an initial public offering of the PCC's Common Stock
pursuant to a Registration Statement filed under the Securities Act of 1933, as
amended (the "IPO"), on or before December 31, 1998. In the event that the IPO
does not occur on or before December 31, 1998, then this Agreement shall be null
and void ab initio.
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of L.275,000,000 (the "Base Salary") during the term of this
Agreement, with such Base Salary payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding and other
taxes. The Base Salary shall be reviewed, at least annually, for merit increases
and may, by action and in the discretion of the Compensation Committee or the
Board, be increased at any time or from time to time
3.2 Bonuses. Bonuses may be awarded in the discretion of the
Board of Directors or the Compensation Committee of the Company.
4. Expense Reimbursement and Other Benefits.
4.1 Reimbursement of Expenses. During the term of the
Executive's employment hereunder, upon the submission of proper substantiation
by the Executive, and subject to such rules and guidelines as the Company may
from time to time adopt, the Company shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company. The Executive shall account to the
Company in writing for all expenses for which reimbursement is sought and shall
supply to the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 Compensation/Benefit Programs. During the term of this
Agreement, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death
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and dismemberment, disability, travel and life insurance plans, and any and all
other plans as are presently and hereinafter offered by the Company to its
executives, including savings, pension, profit-sharing and deferred compensation
plans, subject to the general eligibility and participation provisions set forth
in such plans and to the applicable statutes and regulations governing such
plans.
4.3 Working Facilities. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 Automobile. The Company shall continue to provide the
Executive with an automobile comparable to the existing automobile provided by
the Company to Executive, together with reimbursement of the reasonable
operating expenses thereof.
4.5 Stock Options. During the term of this Agreement, the
Executive shall be eligible for Stock Options to purchase Common Stock of the
PCC under (and therefore subject to all terms and conditions of) PCC's 1998
Executive Incentive Compensation Plan (the "Executive Plan") and any successor
plan thereto, and all rules of regulation of the Securities and Exchange
Commission applicable to such plans then in effect. The number of Stock Options
and terms and conditions of the Stock Options shall be determined by the
Committee appointed pursuant to the Executive Plan, or by the Board, in its
discretion and pursuant to the Executive Plan.
4.6 Other Benefits. The Executive shall be entitled to up to
four (4) weeks of vacation each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Any vacation time not taken
by Executive during any calendar year may not be carried forward into any
succeeding calendar year. The Executive shall receive such additional benefits,
if any, as the Board of the Company shall from time to time determine.
5. Termination.
5.1 Termination for Cause. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for Cause. For purposes of this Agreement, the term
"Cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within sixty
(60) days after receipt by the Executive of written notice of same, (ii) fraud,
embezzlement, misappropriation of funds or breach of trust in connection with
his services hereunder, (iii) conviction of any crime which involves dishonesty
or a breach of trust, (iv) gross negligence in connection with the performance
of the Executive's duties hereunder, or (v) the material and willful or knowing
failure or refusal (other than as a result of a disability) by the Executive to
perform his duties hereunder. Any termination for Cause shall be made in writing
to the Executive, which notice shall set forth in detail all acts or omissions
upon which the Company is relying for such termination. The Executive shall have
the right to address the Board regarding the acts set forth in the notice of
termination. Upon any termination pursuant to this Section 5.1, the Company
shall (i) pay to the Executive his Base Salary to the date of termination and
(ii) pay
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to the Executive any bonuses awarded to the Executive pursuant to Section 3.2
that have not been paid on or before the date of the termination of the
Executive's employment with the Company.
5.2 Disability. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall become entitled to benefits under the
disability insurance policy the Company maintains on behalf of such executive
pursuant to Subsection 4.6(c) hereof as then in effect, or, if the Executive
shall as the result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of 180 days in
any 12-month period. The Company shall have sole discretion based upon competent
medical advice to determine whether the Executive continues to be disabled. Upon
any termination pursuant to this Section 5.2, the Company shall (i) pay to the
Executive any unpaid Base Salary through the effective date of termination
specified in such notice, pay to the Executive any bonuses awarded to the
Executive pursuant to Section 3.2 that have not been paid on or before the date
of the termination of the Executive's employment with the Company, and (iii)
continue to pay the Executive for a period of twelve (12) months following an
amount equal to the excess, if any, of (A) the Base Salary he was receiving at
the time of his Disability, over (B) any benefits the Executive is entitled to
receive during such period under any disability insurance policies provided to
the Executive by the Company, such amount to be paid in the manner and at such
times as the Base Salary otherwise would have been payable to the Executive. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (i) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, and (ii) pay to the estate of the deceased Executive any bonuses awarded
to the Executive pursuant to Section 3.2 that have not been paid on or before
the date of the termination of the Executive's employment with the Company. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section 4.1, and (y)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
5.4 Termination Without Cause. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 (that
is not a termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive any bonuses awarded to the Executive pursuant to Section 3.2 that have
not been paid on or before the date of the termination of the Executive's
employment with the Company, (iii) continue to pay the Executive's Base Salary
for a period of twelve (12) months following the effective date of the
Executive's termination of employment with the Company, (iv) pay to the
Executive a bonus equal to the bonus awarded to the Executive in the fiscal year
of the Company that ended
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immediately prior to the effective date of the termination of the Executive's
employment with the Company, payable within 45 days after the last day of the
Company's fiscal year in which such termination occurs, (v) continue to provide
the Executive, for a period of twelve (12) months following the effective date
of the Executive's termination of employment with the Company, with the benefits
he was receiving under Sections 4.2 and 4.4 hereof (the "Benefits") in the
manner and at such times as the compensation or Benefits otherwise would have
been payable or provided to the Executive, and (vi) pay to the Executive as a
single lump sum payment, within 30 days of the termination of his employment
hereunder, a lump sum benefit equal to the value of the portion of his benefits
under any savings, pension, profit sharing or deferred compensation plans that
are forfeited under such plans by reason of the termination of his employment
hereunder prior to the Expiration Date. In the event that the Company is unable
to provide the Executive with any Benefits required hereunder by reason of the
termination of the Executive's employment pursuant to this Section 5.4, then the
Company shall pay the Executive cash equal to the value of the Benefit that
otherwise would have accrued for the Executive's benefit under the plan, for the
period during which such Benefits could not be provided under the plans, said
cash payments to be made within 45 days after the end of the year for which such
contributions would have been made or would have accrued. The Company's good
faith determination of the amount that would have been contributed or the value
of any Benefits that would have accrued under any plan shall be binding and
conclusive on the Executive. For this purpose, the Company may use as the value
of any Benefit the cost to the Company of providing that Benefit to the
Executive. Further, the Executive shall continue to vest in the Executive's
Stock Options through the Expiration Date in the same manner and to the same
extent as if his employment hereunder terminated on the Expiration Date. The
Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated during the
calendar year in which such termination occurs).
5.5 Termination by Executive.
a. The Executive shall at all times have the right,
upon sixty (60) days written notice to the Company, to terminate the Executive's
employment hereunder.
b. Upon any termination pursuant to this Section 5.5
by the Executive without Good Reason, the Company shall (i) pay to the Executive
any unpaid Base Salary through the effective date of termination specified in
such notice and (ii) pay to the Executive any bonuses awarded to the Executive
pursuant to Section 3.2 that have not been paid on or before the date of the
termination of the Executive's employment with the Company. The Company shall
have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs.
c. Upon any termination pursuant to this Section 5.5
by the Executive for Good Reason, the Company shall pay to the Executive the
same amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Executive's employment had been terminated
by the Company without Cause. The Company
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shall have no further liability hereunder (other than for (x) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (y) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs).
d. For purposes of this Agreement, "Good Reason"
shall mean (i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; (ii) any failure by the Company to
comply with any of the provisions of Section 3 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive; (iii) the Company's requiring the Executive to be based at any
office or location more than fifty (50) miles outside of City limits of Bologna,
Italy, except for travel reasonably required in the performance of the
Executive's responsibilities; (iv) any purported termination by the Company of
the Executive's employment otherwise than for Cause pursuant to Section 5.1, or
by reason of the Executive's death pursuant to Section 5.1, or Disability
pursuant to Section 5.2, of this Agreement prior to the Expiration Date.
5.6 Change in Control of the Company.
a. In the event that (i) a Change in Control (as
defined in paragraph (b) of this Section 5.6) in the Company shall occur prior
to the Expiration Date, and (ii) either (A) prior to the earlier of the
Expiration Date and one year after the date of the Change in Control, either (x)
the Executive's employment with the Company is terminated by the Company without
Cause, as defined in Section 5.1 (and other than pursuant to Section 5.2 by
reason of the Executive's disability or Section 5.3 by reason of the Executive's
death) or (y) the Executive terminates his employment with the Company for Good
Reason, as defined in Section 5.5(d) hereof, or (B) within the thirty (30) day
period beginning one year after the date of the Change in Control, the
Executives terminates his employment with the Company for any reason, then
subject to the limitations specified in paragraph c of this Section 5.6, the
Company shall pay to the Executive those amounts Executive would be entitled to
under Section 5.4 hereof as if his employment was terminated without Cause.
Further, upon the Change in Control, any stock options granted to the Executive
by the Company that were outstanding as of the date of the Change in Control
shall become immediately exercisable. The Company shall have no further
liability hereunder (other than for (1) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (2) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
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(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, other than a public offering of
the Company's securities, in each case, with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation or other transaction do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the assets of the Company
(unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or
(iii) the acquisition (other than from the
Company) by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 50% of either
the then outstanding shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors (hereinafter referred to as the ownership
of a "Controlling Interest") excluding, for this purpose, any acquisitions by
(1) the Company or its Subsidiaries, (2) any person, entity or "group" that as
of the date hereof owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest or (3)
any employee benefit plan of the Company or its Subsidiaries.
c. The payments otherwise required under paragraph a
of this Section 5.6 shall be subject to the following:
(i) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because
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of Section 280G of the Code. Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further that any Payment which is
not an Agreement Payment would nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of Payments which are not Agreement Payments shall also
be reduced (but not below zero) to an amount expressed in present value which
maximizes the aggregate present value of Payments without causing any Payment to
be nondeductible by the Company because of Section 280G of the Code. For
purposes of this Section 5.6(c) present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(ii) All determinations required to be made
under this Section 5.6(c) shall be made by Arthur Andersen LLP or, at the
Executive's option, any other nationally or regionally recognized firm of
independent public accountants selected by the Executive and approved by the
Company, which approval shall not be unreasonably withheld or delayed (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within twenty (20) business days of the Date of
Termination or such earlier time as is requested by the Company and an opinion
to the Executive that he has substantial authority not to report any excise tax
on his Federal income tax return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. The Executive shall determine which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this Section
5.6(c), provided that, if the Executive does not make such determination within
ten business days of the receipt of the calculations made by the Accounting
Firm, the Company shall elect which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of this Section 5.6(c)
and shall notify the Executive promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive under this
Agreement. All fees and expenses of the Accounting Firm incurred in connection
with the determinations contemplated by this Section 5.6(c) shall be borne by
the Company.
(iii) As a result of the uncertainty in the
application of Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the Accounting Firm believes has a high probability of success, determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of the Executive shall be treated for all
purposes as a loan ab initio to the Executive which the Executive shall repay to
the Company together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by the Employee to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the Executive is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the
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event that the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
5.7 Resignation. Upon any termination of employment pursuant
to this Section 5, the Executive shall be deemed to have resigned as an officer,
and if he or she was then serving as a director of the Company, as a director,
and if required by the Board, the Executive hereby agrees to immediately execute
a resignation letter to the Board.
5.8 Survival. The provisions of this Section 5 shall survive
the termination of this Agreement, as applicable.
6. Restrictive Covenants.
6.1 Non-competition. At all times while the Executive is
employed by the Company and for a one (1) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company; provided
that such provision shall not apply to the Executive's ownership of Common Stock
of the Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the National Association of Securities Dealers Automated Quotations System, or
any similar system or automated dissemination of quotations of securities prices
in common use, so long as the Executive does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent of any class of capital stock of such
corporation. Notwithstanding the foregoing, if either (i) the Company delivers a
written notice to the Executive pursuant to Section 2.2 hereof of its intention
not to renew the term of this Agreement for reasons other than Cause (as defined
in Section 5.1 hereof), or (ii) the Executive's employment is terminated by the
Company without Cause pursuant to Section 5.4 of this Agreement, and within 90
days of such termination the Executive agrees to waive his right to receive a
continuation of Base Salary, the bonus, Benefits, and the lump sum payment,
otherwise payable to him under clauses (iii), (iv), (v) and (vi) of Section 5.4,
by providing the Company a written waiver (the "Waiver") of such right, in such
form as the Company reasonably may require, then the Executive shall cease to be
subject to the provisions of this Section 6.1 immediately upon the Expiration
Date or upon delivery of the Waiver by the Executive to the Company, as
applicable.
6.2 Nondisclosure. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive with
respect to the business of the Company (which shall include, but not be limited
to, information
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concerning the Company's financial condition, prospects, technology, customers,
suppliers, sources of leads and methods of doing business) shall be deemed a
valuable, special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall remain a
fiduciary to the Company with respect to all of such information. For purposes
of this Agreement, "Confidential Information" means information disclosed to the
Executive or known by the Executive as a consequence of or through his
employment by the Company (including information conceived, originated,
discovered or developed by the Executive) prior to or after the date hereof, and
not generally known, about the Company or its business. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
6.3 Nonsolicitation of Employees and Clients. At all times
while the Executive is employed by the Company and for a two 2-year period after
the termination of the Executive's employment with the Company for any reason,
the Executive shall not, directly or indirectly, for himself or for any other
person, firm, corporation, partnership, association or other entity (a) employ
or attempt to employ or enter into any contractual arrangement with any employee
or former employee of the Company, unless such employee or former employee has
not been employed by the Company for a period in excess of six months, (b) call
on or solicit any of the actual or targeted prospective clients of the Company
on behalf of any person or entity in connection with any business competitive
with the business of the Company, and (c) make known the names and addresses of
such clients or any information relating in any manner to the Company's trade or
business relationships with such customers, other than in connection with the
performance of Executive's duties under this Agreement.
6.4 Ownership of Developments. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.6 Definition of Company. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly,
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through one or more intermediaries, control, are controlled by or are under
common control with the Company during the periods described herein.
6.7 Acknowledgment by Executive. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any undue hardship, financial or otherwise,
and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms
fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Executive further acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Section 6. The Executive further acknowledges that the
restrictions contained in this Section 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company's successors and
assigns.
6.8 Reformation by Court. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 Extension of Time. If the Executive shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 Survival. Except to the extent otherwise provided in
Section 6.1 hereof, the provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
7. Mediation. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to litigation or some
other dispute resolution procedure.
8. Section 162(m) Limits. Notwithstanding any other provision of this
Agreement to the contrary, if and to the extent that any remuneration payable by
the Company to the Executive for any year would exceed the maximum amount of
remuneration that the Company may deduct
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for that year under Section 162(m) ("Section 162(m)") of the Internal Revenue
Code of 1986, as amended (the "Code"), payment of the portion of the
remuneration for that year that would not be so deductible under Section 162(m)
shall, in the sole discretion of the Board, be deferred and become payable at
such time or times as the Board determines that it first would be deductible by
the Company under Section 162(m), with interest at the "short-term applicable
rate" as such term is defined in Section 1274(d) of the Code. The limitation set
forth under this Section 8 shall not apply with respect to any amounts payable
to the Executive pursuant to Section 5 hereof.
9. Assignment. Neither party shall have the right to assign or delegate
his rights or obligations hereunder, or any portion thereof, to any other
person.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Republic of Italy.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
12. Notices: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to Prestige Cosmetics
Corporation, 1441 West Newport Center Drive, Deerfield Beach, Florida 33442,
Attention: President, with a copy to Gary Epstein, Esq., Greenberg Traurig,
P.A., 1221 Brickell Avenue, Suite 2200, Miami, Florida 33131, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time
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<PAGE> 13
or size of area, or both, the otherwise invalid provision will be considered to
be reduced to a period or area which would cure such invalidity.
15. Waivers. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. Indemnification.
a. Subject to limitations imposed by law, the Company
shall indemnify and hold harmless the Executive to the fullest extent permitted
by law from and against any and all claims, damages, expenses (including
attorneys' fees), judgments, penalties, fines, settlements, and all other
liabilities incurred or paid by him in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which the Executive was or is a party or is threatened to be
made a party by reason of the fact that the Executive is or was an officer,
employee or agent of the Company, or by reason of anything done or not done by
the Executive in any such capacity or capacities, provided that the Executive
acted in good faith, in a manner that was not grossly negligent or constituted
willful misconduct and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors.
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 19 in advance
of the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event
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<PAGE> 14
later than 10 days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 19, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 19 if and to the
extent that it shall ultimately be found that the Executive is not entitled to
be indemnified by the Company for such amounts.
d. The Company shall make the advances contemplated
by this Section 19 regardless of the Executive's financial ability to make
repayment, and regardless whether indemnification of the Executive by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 19 shall be unsecured and interest-free.
e. The provisions of this Section 19 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
PRESTIGE COSMETICS SRL
By
----------------------------------
Name:
Title:
EXECUTIVE:
-------------------------------------
GIORGIO VENTURA
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<PAGE> 1
EXHIBIT 10.17
NET LEASE AGREEMENT
FOR
FREE-STANDING BUILDING
(BUILD TO SUIT)
THIS LEASE, made this 1 day of May 1994 by and between C & C General
Partnership, a Florida general partnership ("Lessor"), having its principal
office at _____________________, and LANCETTI COSMETICS CORPORATION, a Florida
corporation ("Lessee"), whose address is ______________________________________.
WITNESSETH:
The Demised Premises are leased subject to (1) the existing state of
the title thereof as of the commencement of the term of this Lease, (2) any
state of facts which an accurate survey or physical inspection thereof night
show, and (3) all zoning regulations and other laws and regulations now in
effect or hereafter adopted by any governmental authority having jurisdiction.
ARTICLE I
Demised Premises
1.1 In consideration of the payments of rents and other
charges provided for herein and the performance of the covenants hereinafter set
forth, Lessor hereby leases to Lessee and Lessee hereby rents from Lessor that
certain building (the "Building") to be constructed as provided herein,
containing approximately 47,000 gross square feet of Floor Area, and appurtenant
parking area, as shown on the preliminary site plan attached hereto as Exhibit
"All (the "Demised Premises"), in Newport Center, an existing industrial park
(the "Industrial Park") in Deerfield Beach, Broward County, Florida.
ARTICLE II
Term of Lease
2.1 The term of this Lease shall commence on the earlier of
the following dates: a) the completion of Lessor's Work as provided herein; or
b) upon the day when Lessee opens for business, whichever event shall first
occur, said date being defined herein as the "Commencement Date". The term of
this Lease shall end (unless sooner terminated as hereinafter provided) at
midnight on the date of the expiration of one hundred eighty (180) calendar
months from the first day of the calendar month next succeeding the Commencement
Date. Within thirty (30) days after the Commencement Date, the parties hereto
agree to execute a rider to this Lease in the form attached hereto as Exhibit
"B", stipulating as to the Commencement Date and expiration date of the term of
this Lease, and the "Lease Year" for purposes hereof.
2.2 Lessor shall have no liability whatsoever to Lessee in
the event of Lessor's failure to timely deliver possession of the Demised
Premises as set forth herein, except that the Commencement Date shall be
extended accordingly.
<PAGE> 2
2.3 In the event Lessee is not in default hereunder, Lessee
shall have the right to renew the term hereof for two (2) consecutive terms of
five (5) years each on the terns and conditions set forth herein. The Minimum
Rent for such renewal term(s) is set forth on Schedule "All hereto. This right
must be exercised, if at all, by notice received by Lessor at least one hundred
eighty (180) days prior to the termination of the then expiring tern, of this
Lease.
ARTICLE III
Minimum Rent, Rent Provisions, Security Deposit and Additional Rent
3.1 Lessee hereby covenants and agrees to pay to Lessor as
the Minimum Rent for the Demised Premises the sums shown on Schedule "All
hereto, payable in equal monthly installments as shown in said Schedule, all in
advance, on the lst day of every calendar month during the tern hereof, without
set-off, abatement, counterclaim or reduction of any nature whatsoever, except
as expressly set forth herein. If Lessee's possession shall commence on a day
other than the first day of the month, Lessee shall pay Minimum Rent for any
fractional month equal to one-thirtieth (1/30) of the monthly Minimum Rent
multiplied by the number of days of such fractional month. In the event any
installment of Minimum Rent or other additional charges and/or additional rent
accruing under the Lease shall become overdue, and in addition to all other
remedies of Lessor hereunder, a "Late Charge" of five cents ($.05) per dollar so
overdue per month nay be charged by the Lessor for the purpose of defraying the
expenses incident to handling such delinquent payment. Upon the occurrence of an
Event of Default hereunder, any unpaid rent hereunder shall bear interest at the
highest rate allowed by law until paid.
3.2 SECURITY DEPOSIT: Simultaneously with the execution
hereof, Lessee shall deposit with Lessor a promissory note in the amount of
TWENTY-FIVE THOUSAND DOLLARS ($25,000.00) delivered to Lessor as security for
the performance by Lessee of each and every term, covenant and condition of this
Lease on the part of Lessee to he observed and performed.
If any of the rents and additional rents herein reserved shall be
overdue and unpaid, then Lessor may, at its option and without prejudice to any
other remedy which Lessor may have on account thereof, make demand upon such
security deposit in the amount necessary to compensate Lessor for the payment of
the rents or other sums due from Lessee, or towards any loss, damage or expense
sustained by Lessor resulting from such default on the part of Lessee; and in
such event Lessor shall forthwith upon demand restore said security deposit to
the original amount required hereunder. In the event Lessee shall fully and
faithfully comply with all the terms, covenants and conditions of the Lease,
said security deposit shall be returned to Lessee following the termination
hereof in accordance with all provisions hereof. In the event any bankruptcy,
insolvency, reorganization or other creditor-debtor proceedings shall be
instituted by or against Lessee, or any guarantor hereunder, such security
deposit shall be drawn upon as proceeds applied first to the payment of any rent
and/or other charges due Lessor for all periods prior to the institution of such
proceedings, and the balance, if any, may be retained by Lessor in partial
liquidation of Lessor's damages. Lessor may deliver the security deposited by
Lessee hereunder to the purchaser of Lessor's interest in the Demised Premises
in the event that such interest is
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sold or transferred and thereupon Lessor shall be discharged and released from
all further liability with respect to such deposit or the return thereof to
Lessee.
3.3 ADDITIONAL CHARGES. In addition to the minimum Rent, all
other payments to be made by Lessee hereunder shall be deemed, solely for
purposes of securing the collection thereof, to be additional rent hereunder,
whether or not same be designated as such, and shall be due and payable on
demand or together with the next succeeding installment of Minimum Rent,
whichever shall first occur; and Lessor shall have the same rights and remedies
upon Lessee's failure to pay same as for the non-payment of the Minimum Rent.
Lessor, at its election, shall have the right (but not the obligation) to pay
for or perform any act which requires the expenditure of any sums of money by
reason of the failure or neglect of Lessee to perform any of the provisions of
this Lease within the grace period, if any, applicable thereto, and in the event
Lessor shall at its election pay such sums or perform such acts requiring the
expenditures of monies, Lessee agrees to reimburse and pay Lessor, upon demand,
all such sums together with interest thereon at the maximum legal rate until
paid, which shall be deemed to be additional rent hereunder and be payable to
Lessee as such.
3.4 SALES TAX. Lessee agrees to pay to Lessor on the first
day of each calendar month during the term hereof all sales, use, or excise
taxes imposed or levied against any rent or other charge or payment required
hereunder to be made by Lessee.
ARTICLE IV
INTENTIONALLY DELETED
ARTICLE V
Real Estate Taxes and Other Charges
5.1 Lessee agrees to pay all real estate taxes and
governmental assessments levied or imposed in connection with the Demised
Premises (or, in the event that such real estate taxes and/or governmental
assessments are levied or imposed in connection with the Industrial Park as a
whole, then Lessee shall pay its proportionate share of the same) during the
term of this Lease and any renewal or extension thereof. For the purposes of
this Article, the term "real estate taxes" shall include all real estate taxes,
assessments, water and sewer charges, sales and/or rent taxes, special
assessments, other governmental impositions and charges of every kind and nature
whatsoever, extraordinary as well as ordinary, foreseen and unforeseen, and each
and every installment thereof which shall or may, during the Lease term, be
levied, assessed, imposed, become due and payable, or lions upon, or arising in
connection with, the use, occupancy or possession of or grow due or payable out
of, or for the Demised Premises or any part thereof, and all costs incurred by
Lessor in contesting, litigating or negotiating the same with the governmental
authority. Lessee shall not protest real estate taxes to any public taxing
authority without (i) at least ten (10) days prior written notice to Lessor and
(ii) providing adequate security of payment to Lessor.
5.1.1 Lessor agrees to pay all such real estate taxes
as quickly as practicable after receipt of final tax bills in order to obtain
the maximum discount then available.
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5.1.2 In the event Lessee determines the real estate
tax bill for the Demised Premises to be too high, Lessee shall notify Lessor
(prior to Lessor having paid such bill) and shall deposit with Lessor an amount
equal to Lessee's reasonable estimate of the amount of such taxes, which shall
be deposited in accordance with Florida law. The tax appeal shall be filed by
Lessor, with all reasonable costs and expenses (including expert witness and
attorneys' fees) paid promptly by Lessee.
5.1.3 In the event Lessor determines a tax appeal is
appropriate, the appeal shall be filed by Lessor, Lessee shall make the
appropriate deposit as set forth above and Lessor shall pay all expenses in
connection therewith.
5.2 Lessee shall pay to Lessor as additional rent hereunder
all assessments imposed by the Industrial Park Association pursuant to the
"Declaration of Covenants" for the Industrial Park, a copy of which has been
delivered to Lessee.
5.3 Lessee agrees to pay to Lessor on the first day of each
calendar month for the initial Lease Year the amount equal to one-twelfth
(1/12th) of Lessor's estimate of Lessee's aggregate annual liability for real
estate taxes, Newport Center assessments and insurance obtained by Lessor
hereunder. For each year thereafter Lessee shall pay Lessor monthly one-twelfth
(1/12th) of the amount of the Lessee's estimated tax, assessments and insurance
liability based on the actual charges for the preceding calendar year. Lessor
shall notify Lessee in writing of the actual amount due by Lessee for the
preceding calendar year when determined. Any amount paid by Lessee which exceeds
the true amount due shall be credited on the next succeeding payment due
pursuant to this; Section. if Lessee has paid less than the true amount due,
Lessee shall pay the difference within ten (10) days of receipt of notice from
Lessor. If the term of this Lease shall begin or end other than on the first or
last day of a calendar year, these charges shall be billed and adjusted on the
basis of such fraction of' a calendar year.
5.4 Lessee shall pay all of the personal property taxes (or
any successor taxes in the event the current personal property taxing system is
modified) imposed on the Demised Premises.
5.5 As of the date hereof, the estimated charges under this
Article V total no more than $4.50 per square foot per year.
ARTICLE VI
Lessor's Work
6.1 As provided herein, Lessor shall complete "Lessor's Work"
described on Exhibit 'IC" hereto.
ARTICLE VII
Lessee's Alterations
7.1 Prior to the commencement of any alterations or
improvements to the Demised Premises, Lessee must furnish Plans and
specifications incorporating the Lessee's
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<PAGE> 5
construction specifications for Lessor's prior approval. The approval by Lessor
of Lessee's plans and specifications shall not constitute the assumption of any
liability on the part of Lessor for their compliance or conformity with
applicable building codes and the requirements of this Lease or for their
security, and Lessee shall be solely responsible for such plans and
specifications. In addition, the approval by Lessor of Lessee's plans and
specifications shall not constitute a waiver by Lessor of the right to
thereafter require Lessee to amend the same to provide for any corrections or
omissions by Lessee of items required by building codes or this Lease which are
later discovered by Lessor.
7.2 It is further understood and agreed that: 1) Lessee
shall furnish to Lessor all certificates and approvals with respect to work done
by Lessee or on Lessee's behalf that may be required by any authority for the
issuance of a certificate of occupancy; and 2) Lessor shall have no
responsibility or liability whatsoever for any loss or damage to any fixtures or
equipment installed or left in the Demised Premises.
7.3 Lessee may provide signs, awnings, advertising matter,
exterior decoration and lettering after such signage has been approved by Lessor
in accordance with the signage criteria for Newport Center.
7.4 Any contractor, architect, engineer or designer to be
used by Lessee to perform Lessee's Work must first be approved in writing by
Lessor. Such approval. shall be in Lessor's sole discretion based on the
candidate's financial condition and his ability to perform in a quality manner
and such other criteria as Lessor may in its sole discretion adopt from time to
time.
7.5 All of Lessee's Work shall be completed in a first-class
manner consistent with the standards prevalent in the industrial Park ,
including the Plans and Specifications approved by Lessor. Lessee shall allow no
liens or claims whatsoever to be filed in connection with such Work and shall
indemnify and hold Lessor harmless from any loss, cost, damage or expense
whatsoever (including court costs and attorneys, fees) arising out of or in
connection with the performance of Lessee's Work. All of Lessee's Work shall be
completed in compliance with all applicable laws, codes and ordinances.
7.6 Upon request of Lessor, Lessee shall provide evidence of
its ability to fund the entire cost of Lessee's Work prior to commencement of
same.
ARTICLE VIII
Use of Premises
8.1 The Demised Premises shall be occupied and used solely
for the operation of a cosmetics manufacturing and warehouse facility with
related uses, and for no other purposes without the Prior written consent of
Lessor, which may be withheld in Lessor's sole discretion.
8.2 Lessee shall operate its business in the Demised Premises
under the trade name of "Prestige Cosmetics".
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<PAGE> 6
8.3 Lessee covenants and agrees not to abandon or leave
vacant the Demised Premises and to keep the same open for business; to keep the
Demised Premises in a careful, safe, clean, odor free, noise free and proper
manner and not permit any rubbish or refuse of any nature emanating from the
Demised Premises to accumulate in the public areas; to prevent the Demised
Premises from being used in any way which will injure the reputation of the same
or of the Newport Center or from being used in any way which may be a nuisance,
annoyance, inconvenience or damage to the Lessor and/or the other tenants or
occupants of the Newport Center I including, without limiting the generality of
the foregoing, noise by the playing of any musical instrument or radio or
television or the use of a microphone, loud speaker, or electrical equipment
which may be heard outside of the Demised Premises, or the emission of odors
and/or vapors or vibrations from the Demised Premises; to comply with all
applicable laws and ordinances; and to abide with the Declaration of Covenants
and all rules and regulations from time to time established with respect to the
operation of the Newport Center.
8.4 Upon the substantial completion of Lessor's Work, Lessee
shall proceed with due dispatch and diligence to open its business in the
Demised Premises and shall thereafter continuously, actively and diligently
operate such business on the whole of the Demised Premises, in a high grade and
reputable manner.
8.5 Lessee covenants and agrees not to use or occupy or
suffer or permit the Demised Premises or any part thereof to be used or occupied
for any purpose contrary to law or the rules or regulations of any public
authority or the requirements of any insurance underwriters or the Declaration
of Covenants.
8.6 Lessee shall obtain, and keep in full force and effect,
all. occupational and similar licenses required with respect to its use of the
Demised Premises.
ARTICLE IX
INTENTIONALLY DELETED
ARTICLE X
Lessee's Improvements
10.1 Lessee covenants and agrees not to make or permit to be
made any alterations, improvements and/or additions of any kind or nature to the
Demised Premises or any part thereof except by and with the prior written
consent of Lessor, in accordance with Article VII hereof. When made or installed
all additions shall be deemed to have attached to the freehold and to have
become the property of Lessor and shall remain for the benefit of Lessor at the
end of the term or other expiration of this Lease in as good order and condition
as they were when installed, reasonable wear and tear excepted; provided,
however, if, within thirty (30) days prior to the termination of this Lease,
Lessor so directs, Lessee shall promptly remove the additions, improvements,
fixtures and installations which were placed in the Demised Premises and which
are designated in said notice and repair any damage occasioned by such removal
and in default thereof Lessor may effect said removals and repairs at Lessee's
expense. In the event of making such alterations, improvements and/or additions
as herein provided, Lessee further agrees to indemnify and save harmless the
Lessor from all expenses, liens, claims or damages to
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<PAGE> 7
either persons or property arising out of or resulting from the undertaking or
making of said alterations, additions and improvements.
ARTICLE XI
Maintenance of Demised Premises, Indemnity and Insurance
MAINTENANCE
11.1.1 After completion of Lessor's Work and the
issuance of the building certificate of occupancy, Lessor shall not be
responsible to make any other improvements or repairs of any kind, in or upon
the Demised Premises. This Lease shall be "triple net" and "care-free" to
Lessor.
11.1.2 Lessee covenants and agrees to keep and
maintain in good order, condition and repair and/or replace, if necessary, the
Demised Premises and every part thereof, foreseen and unforeseen,, including,
but not limited to, structure, foundation and roof and the exterior and interior
portions of all doors, door checks, security gates, windows, glass, utilities,
facilities, plumbing and sewage facilities within the Demised Premises or under
the floor slab, including free flow up to the main sewer line, fixtures,
heating, air-conditioning, including exterior in mechanical equipment, exterior
utility facility and exterior electrical- equipment serving the Demised
Premises, and interior walls, floors and ceilings, including compliance with
applicable building codes relative to fire extinguishers and the Americans with
Disabilities Act of 1990, as amended from time to time. if Lessee refuses or
neglects to commence or complete repairs promptly and adequately, Lessor may,
but shall not be required, to make or complete said repairs and Lessee shall pay
the cost thereof to Lessor upon demand, together with interest at the maximum
legal rate from date advanced until paid.
11.1.3 Lessee shall maintain, at its expense, a
contract with a licensed pest control company for the control of insects and
vermin. Lessee shall maintain, and annually renew, a bond for termite damage.
Any required tenting or subterranean treatment shall be promptly undertaken and
completed at the expense of Lessee.
11.1.4 Lessee shall maintain, at its expense, a
contract with a licensed and bonded landscaping company. Lessee shall maintain
the irrigation system and all landscaping shall be maintained in good appearance
in accordance with all requirements of the Industrial Park.
11.1.5 Lessee shall maintain the parking lot shown on
Exhibit "A", and all exterior lighting, in good and sightly condition and
repair.
11.1.6 Lessee shall be responsible for all painting,
interior and exterior, including all trim. Lessee shall maintain the exterior of
the building in a first-class manner consistent with the standards of the
Industrial Park.
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11.1.7 Lessee shall maintain and annually renew a
maintenance contract for the air conditioning system and shall keep same in good
order and repair. Any repairs thereto, or replacements thereof, shall be the
sole responsibility of Lessee.
INDEMNITY
11.2.1 Lessee hereby agrees to defend, pay, indemnify
and save free and harmless Lessor, from and against any and all claims, demands,
fines, suits, actions, proceedings, orders, decrees anti judgments of any kind
or nature by or in favor of anyone whomsoever and from and against any and all
costs and expenses, including attorneys' fees, resulting from or in connection
with loss of life, bodily or personal injury or property damage arising,
directly or indirectly, out of or from or on account of any occurrence in, upon,
at or from the Demised Premises or occasioned wholly or in part through the use
and occupancy of the Demised Premises or any improvements therein or
appurtenances thereto, or by any act or omission of Lessee or any subtenant,
concessionaire or invitee of Lessee, or their respective employees, tenants,
contractors or invitees in, upon, at or from the Demised Premises or its
appurtenances or any common areas of the Industrial Park.
11.2.2 Lessee and all those claiming by, through or
under Lessee shall store their property in and shall occupy and use the Demised
Premises and any improvements therein and appurtenances thereto at their own
risk and expense and all those claiming by, through or under Lessee hereby
release Lessor, to the full extent permitted by law, from all claims of every
kind, including loss of life, personal or bodily injury, damage to merchandise,
equipment, fixtures or other property, or damage to business or for business
interruption, arising, directly or indirectly, out of or from or on account of
such occupancy and use or resulting from any present or future condition or
state of repair thereof.
11.2.3 Lessor shall not be responsible or liable at
any time to Lessee, for any loss of life, bodily or personal injury, or damage
to property or business, or for business interruption, that may be occasioned by
or through the acts, omissions or negligence of any other persons, or any other
tenants or occupants of any portion of the Newport Center.
11.2.4 Lessor shall not be responsible or liable at
any time for any defects, latent or otherwise, in the Demised Premises and/or
any other improvements in the industrial Park or any of the equipment,
machinery, utilities, appliances or apparatus therein, nor shall they be
responsible or liable at any tine for loss of life, or injury or damage to any
person or to any property or business of Lessee, or those claiming by, through,
or under Lessee, caused by or resulting from the bursting, breaking, leaking,
running, seeping, overflowing or backing up of water, steam, gas or sewage, in
any part of the Demised Premises or caused by or resulting from acts of God or
the elements, or resulting from any defect or negligence in the occupancy,
construction, operation or use of any buildings or improvements in the Demised
Premises, or any of the equipment, fixtures, machinery, appliances or apparatus
therein.
11.2.5 Lessee shall give prompt notice to Lessor in
case of fire or other casualty or accidents in the Demised premises, of any
defects therein or in any of its fixtures, machinery or equipment.
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11.2.6 In case Lessor, without fault on its part,
shall be made a party to any litigation commenced by a third party or against
Lessee by a third party, then Lessee shall indemnify and hold Lessor harmless
therefrom and shall pay Lessor all costs and expenses including reasonable
attorneys, fees, which Lessor may sustain by reason thereof.
INSURANCE
11.3.1 Lessor, at Lessee's expense, will obtain and
maintain at all times until termination of this Lease and surrender of the
Demised Premises to Lessor, a primary policy of insurance covering the Demised
Premises and providing the insurance protection to Lessor described in this
Section. Lessor will retain in its possession the original policy and all
endorsements, renewal certificates and new policies, if any, issued during the
Term, but will provide Lessee upon request certificates evidencing the existence
of the policy. Lessee agrees to pay the premiums for such insurance as
additional rent within thirty (30) days after Lessor delivers personally or
mails an invoice therefor to Lessee. Lessee acknowledges that the payment of the
premiums is Lessee's responsibility, and Lessor will not be required to have
paid the premiums prior to invoicing the Lessee.
11.3.2 The liability coverage under the primary
policy will name Lessor and Lessor's mortgagee, only, as insured parties, and
will provide comprehensive general public liability insurance coverage against
claims for or arising out of bodily injury, death or property damage, occurring
in, an or about the Demised Premises or property in, on or about the streets,
sidewalks or properties adjacent to the Demised Premises. The limits of coverage
will be, if dual limits are provided, initially, not less than Two Million
Dollars ($2,000,000.00) with respect to injury or death of a single person, not
less than Two Million Dollars ($2,000,00.00) with respect to any one occurrence
and not less than One Million ($1,000,000.00) with respect to any one occurrence
of property damage, or, in the alternative, a single limit policy in the amount
of Two Million Dollars ($2,000,000.00), and thereafter in such reasonably
appropriate increased amounts as may be determined by Lessor or Lessor's
mortgagee; provided, however, that the amount of coverage will not be increased
more frequently than at one (1) year intervals.
11.3.3 The primary policy will insure the
Improvements, as defined above (but not any personal property, fixtures or
equipment of Lessee), for full replacement cost against loss by fire, with
standard extended risk coverage, vandalism, malicious mischief, sprinkler
leakage and all other risk perils. The named insured will be Lessor and Lessor's
mortgagee, only.
11.3.4 The primary policy also will provide loss of
rents coverage sufficient, as reasonably determined by Lessor, to cover the net
rental and all other charges which are the obligation of Lessee under this Lease
for a twelve-month period from the date of any loss or casualty.
11.3.5 In addition to the above, and not by way of
substitution therefor, Lessee shall obtain, at its own expense, a general
public, liability insurance policy, including blanket contractual coverage,
which shall name Lessor and Lessor's mortgagee as additional insureds. The
policy shall contain cross-liability endorsements, and shall have the sane
limits of coverage as set forth in Section 11.3.2 as changed or amended from
time to time Such policy
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shall be issued by an insurance company having an A.M. Best Company rating of
not less than "A". The policy procured by Lessee under this Subsection must
provide for at least thirty (30) days written notice to Lessor of any
cancellation. At Lessor's option, either a certificate of insurance or the
original policy will be delivered by Lessee to Lessor prior to the effective
date thereof, together with receipts evidencing payment of the premiums. Lessee
will deliver certificates of renewal for such policies to Lessor at least thirty
(30) days prior to the expiration dates thereof. The insurance provided by
Lessee under this Subsection may be in the form of a blanket insurance policy
covering other properties as well as the Demised Premises; provided, however,
that any such policy or policies of blanket insurance must specify therein, or
Lessee must furnish Lessor with a written statement from the insurers under such
policy or policies specifying, the amount of the total insurance allocated to
the Demised Premises, which amount will not he less than the amounts required by
Subsection 11.3.2 hereof; provided, however, that any such policy or policies of
blanket insurance must, as to the Demised Premises, otherwise comply as to
endorsements and coverage with the other provisions of this Subsection.
11.3.6 Except with respect to the insurance
required hereof, neither Lessor nor Lessee may take out separate insurance
concurrent in form or contributing in the event of loss with that required under
this Section unless Lessor and Lessee are included therein as the insured
payable as provided in this Lease. Each party will notify the other immediately
of the placing of any such separate insurance.
11.3.7 If Lessee fails to provide all or any of the
insurance required hereof or subsequently fails to maintain such insurance in
accordance with the requirements thereof, Lessor may (but will not be required
to) procure or renew such insurance, and any amounts paid by Lessor for such
insurance will be additional rent, due and payable, on or before the next Rent
Day, together with late charges and interest as provided in Section 3.1.
11.3.8 If Lessor's mortgagee under any first mortgage
on the Demised Premises at any time requires, pursuant to the terms of the
mortgage, that payment of insurance premiums be made from an escrowed fund,
Lessor will so notify Lessee. In such event, Lessee will not directly pay the
insurance premiums, hut instead will pay to Lessor, as additional rent, the
amounts which Lessor must pay into the escrowed fund on account of such
premiums, If the actual premiums, when due, exceed the total payments from time
to tire made by Lessee into the escrowed fund, Lessee, upon demand, will pay any
deficiency to Lessor. If the payments made by Lessee under this Subsection over
the Term exceed the amount of premiums paid from such fund, Lessor will refund
the excess to Lessee at the expiration of the Term or at the time such excess is
refunded by the mortgagee to Lessor, whichever occurs first.
11.3.9 Neither Lessor nor Lessee shall be liable (by
way of subrogation or otherwise) to any other party (or any insurance
accompanying insuring another party) for any loss or damage to any : ,property
covered by insurance, even though such loss or damage might have been caused by
the negligence of Lessor or Lessee, or their respective agents, employees,
invitees or guests. This provision shall be in effect only so long as the
applicable insurance policies provide that this waiver shall not effect the
right of the insured to recover under such policies, and each party shall use
its best efforts (including payment of additional premiums, if
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necessary) to have its insurance policies contain the standard waiver of
subrogation clause. In the event Lessor's or Lessee's insurance carrier declines
to accept a standard waiver of subrogation clause, Lessor or Lessee as the case
may be, shall promptly notify the other party, in which event the other party,
hall not be required to have its insurance policies contain such waiver of
subrogation clause and this clause shall be null and void.
11.3.10 Lessee shall not carry any stock of goods or
do anything in or about the Demised Premises (other than the purposes set forth
in Section 8.1 hereof) which in any way is likely to increase the insurance
rates on the Demised Premises and the building of which they are a part.
ARTICLE XII
Common Areas
12.1 The Common Areas of Newport Center are required to be
maintained by the Association in accordance with the Declaration of Covenants.
Lessee shall comply with all rules and regulations of the Association and all
provisions of the Declaration with respect to the use thereof.
ARTICLE XIII XIII
Mechanics Liens or Claims
13.1 Lessee shall do all things necessary to prevent the
filing of any mechanic's or other liens against the Demised Premises and/or
Newport Center by reason of any work, labor, services or materials performed or
supplied or claimed to have been performed or supplied to Lessee, or anyone
holding the Demised Premises, or any part thereof, through or under Lessee. If
any such lien shall at any time be filed, Lessee shall either cause the same to
be vacated and cancelled of record within thirty (30) days after the date Lessee
receives notice of the filing thereof, or, if Lessee in good faith determines
that such lien should be contested, Lessee shall furnish such security, as
surety bond or otherwise, as may be necessary or be prescribed by law to release
the same as a lien against the real property and to prevent any foreclosure of
such lien during the pendency of such contest. If Lessee shall fail to vacate or
release such lien in the manner and within the time period aforesaid, then, in
addition to any other right or remedy of Lessor resulting from such default by
Lessee, :Lessor may, but shall not be obligated to, vacate or release the same
either by paying the amount claimed to be due or by procuring the release of
such lien by giving security in such manner as may be permitted or prescribed by
law. Lessee shall repay to Lessor, as additional rent hereunder on demand, all
sums disbursed or deposited by Lessor pursuant to the foregoing provisions of
this Section, including Lessor's cost and expense of attorneys' fees incurred in
connection therewith. Nothing set forth herein shall be construed to authorize
Lessee's materialmen, contractors or suppliers to place a lien encumbering
Lessor's interest in the Demised Premises.
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ARTICLE XIV
Destruction
14.1 It is understood and agreed that if the Demised
Premises arc! damaged or destroyed, in whole or in part, by fire or other
casualty during the Term, the Lessor will repair and restore the Demised
Premises to good leasable condition as expeditiously as practicable. The
obligation of Lessor hereunder shall be limited to reconstructing the Demised
Premises in accordance with the initial plans and specifications for the
construction of the Demised Premises. In no event s hall Lessor be required to
repair or replace Lessee's merchandise, trade fixtures, furnishings or equipment
c)r any alterations or additions to the Demised Premises accomplished by or on
behalf of the Lessee . The rent and all other charges which are the obligation
of Lessee under this Lease will abate, if and to the extent covered by loss of
rents insurance proceeds, for the period the Demised Premises are unleasable.
14.2 Except for the abatement of the Minimum Rent
hereinabove set forth, Lessee shall not be entitled to and hereby waives all
claims against Lessor for any compensation or damage for loss of use of the
whole or any part of the Demised Premises and/or for any inconvenience or
annoyance occasioned by any such damage, destruction, repair or restoration.
ARTICLE XV
Access to Demised Premises
15.1 Lessee agrees to permit Lessor or Lessor's agents to
inspect or examine the Demised Premises at any reasonable tine during business
hours after reasonable notice (except in the event of an emergency). Lessor
shall have the right to enter the Devised Premises and to exhibit same to
prospective tenants and/or mortgagees, at reasonable times and with reasonable
frequency.
ARTICLE XVI
Surrender of Demised Premises
16.1 Lessee covenants and agrees to deliver up and surrender
to the Lessor possession of the Demised Premises upon expiration of this Lease,
or its earlier termination as herein provided, broom-clean and in as good
condition and repair as the same shall be at the commencement of the tern of
this Lease, ordinary wear and tear excepted.
16.2 On Lessor's written direction and at Lessor's option,
Lessee shall at Lessee's expense remove all property of Lessee and repair all
damage to the Demised Premises caused by such removal and restore the Demised
Premises to the condition in which they were prior to the installation of the
articles so removed. Ally property not so removed at the expiration of the term
hereof and as to which Lessor shall have not made said election, shall be deemed
to have been abandoned by Lessee and may be retained or disposed of by Lessor,
as Lessor shall desire. Lessee's obligation to observe or perform this covenant
shall survive the expiration or termination of this Lease.
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ARTICLE XVII
Utilities
17.1 Lessee covenants and agrees to pay for all utility
services rendered or furnished to the Demised Premises, including air
conditioning, heat, water, gas, electricity, sewage treatment facilities and the
like, together with all taxes levied or other charges for such utilities.
ARTICLE XVIII
Assignment and Subletting
18.1 For purposes hereof, a sale of stock or transfer of
partnership or beneficial interests shall be deemed an "assignment".
18.2 Lessee agrees not to assign or in any manner transfer
this Lease or any interest in this Lease without the previous written consent of
Lessor, and not to sublet the Devised Premises or any part of the Demised
Premises or allow anyone to use or to come in with, through or under it without
like consent, which consent will not be withheld unreasonably. In no event may
Lessee assign or otherwise transfer this Lease or any interest in this Lease at
any time while in default thereunder. One such consent will not be deemed a
consent to any subsequent assignment, subletting, occupation, or use by any
other person. Lessee may, however, assign this Lease to a corporation with which
it may merge or consolidate, to any parent or subsidiary of Lessee or a
corporation with which it may merge or consolidate, to any parent or subsidiary
of Lessee or subsidiary of Lessee's parent, or to a purchaser of substantially
all of Lessee's assets if the assignee has assets and creditworthiness
substantially equal to or greater than Lessee and if assignee has assets and
creditworthiness substantially equal to or greater than Lessee and if the
assignee executes an agreement required by Lessor assuming Lessee's obligations.
The acceptance of rent from an assignee, sub-lessee or occupant will not
constitute a release of Lessee from any further performance of the obligations
of Lessee contained in this Lease. In the event of any assignment or sublease of
all or any portion of the Demised Premises where the rental or other
consideration reserved in the sublease or by the assignment exceeds the rental
or prorata portion of the rental as the case may be, for such space reserved in
this Lease, Lessee agrees to pay Lessor monthly, as additional rent, on the Rent
Day, the excess of the rental or other consideration reserved in the sublease or
assignment over the rental reserved in this Lease applicable to the
subleased/assigned space. Lessee acknowledges that Lessor selected Lessee in
part on the basis of Lessee's proposed use and occupation of the Demised
Premises, and agrees that Lessor nay withhold consent to any proposed sublease
or assignment if the sub-lessee's or assignee's business or proposed use of the
Demised Premises would be physically injurious to the Building.
18.3 Lessor and Lessee agree that any one of the following
factors, or any other reasonable factors, or any other reasonable factor, will
be reasonable grounds for Lessor deciding upon the Lessee's request to assign or
sublet:
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(a) Financial strength of the supposed sublessee/assignee
must be at least equal to that of the existing Lessee.
(b) Business reputation of the proposed sublessee/assignee
must be in accordance with generally acceptable
commercial standards.
(c) Use of the Demised Premises by the proposed
sublessee/assignee must ha substantially similar to the
use permitted by this Lease.
(d) Use of the Demised Premises by the proposed
sublessee/assignee will not violate or create any
potential violation of any laws; and
(e) Use of the Demised Premises will not violate any other
agreements affecting the Demised Premises.
18.4 The approval by Lessor of a proposed sublease or
assignment as provided herein shall not release Lessee or Guarantors from the
obligations of "Lessee" under this Lease.
ARTICLE XIX
Condemnation
19.1 If seventy-five percent (75%) of more of the Building's
net rentable area is condemned or taken in any manner (including, without
limitation, any conveyance in lieu thereof) for any public or quasi-public use,
the Term shall cease and terminate as of the date title is vested in the
condemning authority. If twenty-five percent (25%) but less than seventy-five
percent (75%) of the Building's net rentable area is so condemned or taken, with
the result that Lessee's business is significantly and adversely affected
thereby, or if such a portion of the parking area is so condemned or taken that
the number of parking spaces remaining are less than the number required by
applicable :zoning or other code for the Building, then either Lessor or Lessee
may terminate this Lease as of the date title is vested in the condemning
authority by written notice to the other.
19.2 If this Lease is not terminated following such a
condemnation or taking, Lessor, as soon as reasonably practicable after such
condemnation or taking and the determination and payment of Lessor's award on
account thereof, shall expend as much as may be necessary of the net amount
which is awarded to Lessor and released by Lessor's mortgagee, if any, in
restoring, to the extent originally constructed by Lessor (consistent, however,
with zoning :Laws and building codes then in existence), so much of the Building
as was originally constructed by Lessor to an architectural[ unit as nearly like
its condition prior to taking as shall be practicable. Should the net amount so
awarded to Lessor be insufficient to cover the costs of restoring the Building,
in the reasonable estimate of Lessor, Lessor may, but shall have no obligation
to, supply the amount of such insufficiency and restore the Building to such an
architectural unit, with all reasonable diligence, or Lessor may terminate this
Lease by giving notice to Lessee not later than a reasonable time after Lessor
has determined the estimated net amount which may be awarded to Lessor and the
estimated cost of such restoration.
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19.3 If this Lease is not terminated pursuant to Section
19.2, the minimum Rent payable by Lessee shall be reduced in proportion to the
reduction in net rentable area of the Building by reason of the condemnation or
taking. If this Lease is terminated pursuant to Section 19.1, the Minimum Rent
and other charges which are the obligation of Lessee hereunder shall be
apportioned and prorated accordingly as of the date of termination.
19.4 The whole of any award or compensation for any portion
of the Demised Premises taken, condemned or conveyed in lieu of taking or
condemnation shall be solely the property of and payable to Lessor. Nothing
herein to the contrary contained shall be deemed to preclude Lessee from
seeking, at its own cost and expense, an award from the condemning authority for
loss of its business, the value of any trade fixtures or other personal property
of Lessee in the Demised Premises or moving expenses, provided that the award
for such claim or claims shall not be in diminution of the award made to Lessor.
ARTICLE XX
Default and Remedies
20.1 The following events shall be deemed to be events of
default by Lessee under this Lease: (a) Lessee shall fail to pay any Rental or
other sums payable by Lessee hereunder, as and when such Rental or other sums
become due and payable, or Lessee shall fail to comply with any other term,
provision, condition or covenant of this Lease; (b) Lessee shall desert or
vacate any substantial portion of the Demised Premises; (c) any petition shall
be filed by or against Lessee or any guarantor of Lessee's obligations under
this Lease under any section or chapter of the present or any future Federal
Bankruptcy Code or under any similar law or statute of the United States or any
state thereof, or Lessee or any guarantor of Lessee's obligations under this
Lease shall be adjudged bankrupt or insolvent in proceedings filed under any
section or chapter of the present or any future Federal Bankruptcy Code or under
any similar law or statute of the United States or any state thereof; (d) Lessee
or any guarantor of Lessee's obligations under this Lease shall become insolvent
or make a transfer in fraud of creditors; (e) Lessee or any guarantor of this
Lease shall make an assignment for the benefit of creditors, or (f) a receiver
or trustee shall be appointed for of Lessee (or any Lessee (or any guarantor) or
any of the assets guarantor).
20.2 Upon occurrence of any event of default, Lessor shall
have the option to do any one or more of the following upon providing Lessee
seven (7) days notice and opportunity to cure any monetary default, or seven (7)
days notice and opportunity to commence cure and diligently pursue said cure of
any nonmonetary default, in addition to and not in limitation of any other
remedy permitted by, law or by this Lease.
(a) Terminate this Lease, in which event Lessee shall
immediately surrender the Demised Premises to Lessor,
but if Lessee shall fail so to do, Lessor ray without
notice and without prejudice to any other remedy Lessor
may have, enter upon and take possession of the Demised
Premises and expel or remove Lessee and its effects
without being liable to prosecution or any claim for
damages therefor; and Lessee agrees to indemnify Lessor
for all
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loss and damage which Lessor may suffer by reason of
such termination, whether through inability
to relet the Demised Premises or otherwise, including
any loss of rental for the remainder of the Term.
(b) Declare the entire amount of the total Minimum Rental
which would have become due and payable during the
remainder of the Term of this Lease to be due and
payable immediately, in which event Lessee agrees to
pay the same to Lessor at once, it being agreed that
such payment shall constitute payment in advance of the
total Minimum Rental stipulated for the remainder of
the Tern. The acceptance by Lessor of the payment of
such rent shall not constitute a waiver of any default
then existing or thereafter occurring hereunder.
(c) Enter upon and take possession of the Demised Premises
as the agent of Lessee without being liable to
prosecution or any claim for damages therefor, and
Lessor may relet the Demised Premises as the agent of
Lessee and receive the rent therefor, in which event
Lessee shall pay to Lessor on demand the cost of
renovating, repairing and altering the Demised Premises
for a new lessee or lessees and any deficiency that nay
arise by reason of such reletting; provided, however,
that Lessor shall have no duty to relet the Demised
Premises and the failure of Lessor to relet the Demised
Premises shall not release or affect Lessee's liability
for rent or for damages.
(d) Lessor may do whatever Lessee is obligated to do by the
provisions of this Lease and may enter the Demised
Premises without being liable to prosecution or any
claim for damages therefor, in order to accomplish this
purpose. Lessee agrees to reimburse Lessor immediately
upon demand for any expenses which Lessor may incur in
thus effecting compliance with this Lease on behalf of
Lessee, and Lessee further agrees that Lessor shall not
be liable for any damages resulting to Lessee from such
action, whether caused by the negligence of Lessor or
otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other :remedies provided by
law, it being understood and agreed that Lessor shall have all rights and
remedies available under Florida law.
20.3 No act or thing done by Lessor or its agents during the
Term hereof shall be deemed an acceptance of an attempted surrender of the
Demised Premises, and no agreement to accept a surrender of the Demised Premises
shall be valid unless made in writing and signed by Lessor. No re-entry or
taking possession of the Demised Premises by Lessor shall be construed as an
election on its part to terminate this Lease, unless a written notice of such
intention be given to Lessee. Notwithstanding any such reletting or re-entry or
taking possession, Lessor may at any time thereafter elect to terminate this
Lease for a previous default. Lessor's acceptance of rent following an event of
default hereunder shall not be construed as
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<PAGE> 17
Lessor's waiver of such event of default. No waiver by Lessor of any violation
or breach of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other violation or breach
of any of the terms, provisions and covenants herein contained. Forbearance by
Lessor to enforce one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of any other
violation or default.
20.4 No provision of this Lease shall be deemed to have been
waived by Lessor unless such waiver be in writing signed by Lessor. The rights
granted to Lessor in this Lease shall be cumulative of every other right or
remedy which Lessor may otherwise have! at law or equity, and the exercise of
one or more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
ARTICLE XXI
Mortgagee Approval
21.1 If any lending institution with which Lessor has
negotiated or may negotiate interim or long-term financing for the Demised
Premises does not approve the financial or credit rating of Lessee for purposes
of such financing, or if any such lending institution shall require a change or
changes (but not any changes in the rent to be paid by Lessee or the term
hereof) in this Lease as a condition of its approval of this Lease for such
financing, and if within thirty (30) days after notice from Lessor (a) Lessee
fails or refuses to supply or execute assurances and/or guarantees which are
stated by Lessor as indicated to be necessary to procure the approval of
Lessee's financial and credit rating by such lending institutions, or (b) Lessee
fails or refuses to execute with Lessor the amendment or amendments to this
Lease accomplishing the change or changes which are stated by Lessor to be
needed in connection with approval of this Lease for purposes of such financing,
Lessor shall have the right to cancel this Lease at any time prior to the
commencement of Lessee's Work. In the event of cancellation by Lessor hereunder,
this Lease shall be and become null and void with no further liability or
obligation on the party of either party hereto.
ARTICLE XXII
Estoppel Certificate, Attornment and subordination
22.1 This Lease is subject and subordinate to each and every
ground or underlying lease heretofore or hereafter made by Lessor (all of the
foregoing collectively being the "Superior Leases") and. to each and every trust
indenture and mortgage (collectively the "Mortgages") which may now or hereafter
affect the Demised Premises, and to all renewals, extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made! thereunder. This clause shall be
self-operative and no further instrument of subordination shall be required to
make the interest of any lessor under a Superior Lease, or trustee or mortgagee
of a Mortgage. In confirmation of such subordination, however, Lessee shall
execute promptly any certificate with respect thereto that Lessor may request
and Lessee hereby irrevocably constitutes and appoints Lessor as Lessee's
attorney-in-fact to execute any such certificate or certificates for and on
behalf of
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<PAGE> 18
Lessee. However, should any lessor under such Superior Lease or any mortgagee
under any such Mortgage request that this Lease be made superior, rather than
subordinate, to any such Superior Lease and/or Mortgage, then Lessee, within ten
(10) days following Lessor's written request therefor, agrees to execute and
deliver, without charge, any and all documents (in form acceptable to Lessor and
such lessors or mortgagees) effectuating such priority. Lessee covenants and
agrees that, except as expressly provided herein, neither Lessor nor Lessee
shall do anything that would constitute a default under any Superior Lease or
Mortgage, or omit to do anything that Lessee is obligated to do under the terms
of this Lease so as to cause Lessor to be in default under any Of the foregoing.
22.2 Without limiting the generality of the foregoing, it is
understood and agreed that in the event of any conflict between the provisions
of this Lease and the provisions of any document (collectively, the "Bond
Documents") evidencing or securing the $1,736,000 Broward County, Florida
Industrial Development Revenue Bonds (Prestige Cosmetics Project), Series 1994
for the benefit of Broward County, Florida and/or First National Bank of Florida
as Trustee and/or First Union National Bank of Florida, the Bond Documents shall
govern and control.
22.3 From time to time, within seven (7) days next following
Lessor's request, Lessee shall deliver to Lessor a written statement executed
and acknowledged by Lessee, in form satisfactory to Lessor, (a) stating that
this Lease is then in full force and effect and has not been modified (or if
modified, setting forth all modifications), (b) setting forth the date to which
the Minimum Rent, additional rent and other charges hereunder have been paid,
(c) stating whether or not, to the best knowledge of Lessee, Lessor is in
default under this Lease, and, if Lessor is in default, setting forth the
specific nature of all such defaults, (d) certifying that construction of the
Demised Premises has been completed, (e) certifying that Lessee has accepted
possession of the Demised Premises, and (f) as to any other matter reasonably
requested by Lessor. Lessee acknowledges that any statement delivered pursuant
to this Section 22.2 may be relied upon by any purchaser or owner of the Demised
Premises, or by any mortgages of a Mortgage, or by any lessor under any superior
Lease.
22.4 Neither this Lease nor any notice thereof may recorded
in any public records without the prior written consent of Lessor. Upon the
request of Lessor, Lessee agrees to execute a short form of this Lease which nay
be recorded in Lessor's sole discretion.
ARTICLE XXIII
Holding Over
23.1 If Lessee shall remain in possession of all or any part
of the Demised Premises after the expiration of the term of this Lease or any
renewal thereof, with the consent of Lessor, then Lessee shall be deemed a
Lessee of the Demised Premises from month-to-month at the same rental and
subject to all of the terms and provisions hereof, except only as to the terms
of this Lease; provided, however, that the rent payable during such period as
Lessee shall continue to hold the Demised Premises or any part thereof shall be
at twice the highest annual
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rate of Minimum Rent and additional rent heretofore paid during the term or any
renewal of this Lease.
ARTICLE XXIV
Quiet Enjoyment
24.1 Lessor covenants and agrees that if Lessee pays the
Minimum Rent and all charges herein provided and performs all of the covenants
and agreements herein stipulated to be provided on the Lessee's part, Lessee
shall, at all times during said term, have the peaceable and quiet enjoyment and
possession of the Demised Premises without any manner of hindrance from Lessor
or any persons lawfully claiming through Lessor, except as to such portion of
the Demised Premises as shall be taken under the power of eminent domain.
ARTICLE XXV
LANDLORD'S LIEN
25.1 Lessor shall have the benefit of all "landlord's liens"
and similar rights afforded to landlords under the provisions of Florida
statutes and case law.
ARTICLE XXVI
Reimbursement
26.1 All terms, covenants and conditions herein contained,
to be performed by Lessee, shall be performed at its sole expense and if Lessor
shall pay any sum of money or do any act which requires the payment of money, by
reason of the failure, neglect or refusal of Lessee to perform such term,
covenant, or condition, the sum of money so paid by Lessor shall be payable by
Lessee to Lessor along with and on the due date of the next succeeding
installment of rent without any prior demand therefor and without any deduction
or setoff whatsoever. All such documents so advanced by Lessor shall bear
interest at the maximum legal rate from the date advanced until date paid.
ARTICLE XXVII
Titles of Articles
27.1 The titles of the Articles throughout this Lease are
for convenience and reference only, and the words contained therein shall in no
way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this instrument.
ARTICLE XXVIII
Notices
28.1 Any notice, request, demand, approval, consent or other
communication which Lessor or Lessee may be required to give to the other Party
shall be in writing and shall be either hand-delivered or mailed by certified
mail, return receipt requested, to the other Party at the address specified on
Page One hereof, or to the Demised Premises if such communication is to the
Lessee, or to such other address as either Party shall have designated to the
other pursuant
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to this provision, and the time of the rendition of such communication shall be
deemed conclusively to be the date of hand-delivery of the date of mailing, as
the case may be.
ARTICLE XXIX
Definition of Terms
29.1 "Lease Year", as used herein, means in the first
instance the twelve (12) month period commencing with the first day of the
fourth calendar month next succeeding the Commencement Date. Thereafter "Lease
Year" shall mean each succeeding twelve (12) month period beginning on the
anniversary date of the commencement of first Lease Year. "Partial Lease Year"
shall mean any period prior to the first Lease Year or any period subsequent to
the last complete Lease Year thereof.
29.2 As used in this Lease and when required by the context,
each number (singular or plural) shall include all numbers, and each gender
shall include all genders; and unless the context otherwise requires, the word
"person" shall include corporation, firm or association".
29.3 "Term" shall mean the period of time specified under
Article II of this Lease.
ARTICLE XXX
Invalidity of Particular Provisions
30.1 If any term or provision of this Lease or the
application thereof to any person or circumstances shall to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall no be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
ARTICLE XXXI
Provisions Binding
31.1 Except as herein otherwise expressly provided, the
terns and provisions hereof shall be binding upon and shall inure to the benefit
of the heirs, executors, administrators, successors and permitted assigns,
respectively, of the Lessor and Lessee. Each term and each provision of this
Lease to he performed by the Lessee shall be construed to be both an independent
covenant and a condition. The reference contained herein to successors and
assigns of Lessee is not intended to constitute a consent to assignment by
Lessee, but as reference only to those instances in which Lessor., may have
given written consent to a particular assignment pursuant to the terms of this
Lease.
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<PAGE> 21
ARTICLE XXXII
Relationship of Parties
32.1 Nothing contained in this Lease shall be deemed or
construed b@, the Parties hereto or by any third party to create the
relationship of principal and agent or of partnership or of joint venture or of
any association whatsoever between lessor and Lessee, it being expressly
understood and agreed that neither the computation of rent nor any other
provisions contained in this Lease nor any act or acts of the Parties hereto
shall be deemed to create any relationship between Lessor and Lessee other than
the relationship of landlord and tenant.
ARTICLE XXXIII
Brokerage
33.1 Lessee covenants, warrants and represents to Lessor
that no broker was instrumental in consummating this Lease and that no
conversation or prior negotiations were had by Lessee with any broker concerning
the renting of the Demised Premises. Lessee agrees to protect, indemnify, save
and keep harmless the Lessor against and from all claims, loss, cost, damage or
expense, including attorneys, fees, arising out of or from any claims for
brokerage commissions or finder's fees resulting from any conversation or
negotiations had by Lessee with any broker or other person other than the
Lessor's sale and leasing personnel.
ARTICLE XXXIV
Hazardous Materials
34.1 Lessee shall not cause or permit any "Hazardous
Material,, to be brought upon, kept, or used in or about the Demised Premises by
Lessee, its agents, employees, contractors or invitees. If Lessee breaches the
obligations stated in the preceding sentence, or if the presence of Hazardous
Material on the Demised Premises caused or permitted by Lessee results in
contamination of the Demised Premises, then Lessee shall indemnify, defend and
hold Lessor harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (including, without limitation, diminution
in value of usable space or of any amenity of the Demised Premises, damages
arising from any adverse impact on marketing of space, and sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the lease term as a result of such contamination. This
indemnification of Lessor by Lessee includes, without limitation, costs incurred
in connection with any investigation or site conditions or any cleanup,
remedial, removal, or restoration work required by any federal, state, or local
governmental agency or political subdivision because of Hazardous Material
present in the soil or ground water on or under the Demised Premises. Without
limiting the foregoing, if the presence of any Hazardous Material on the Demised
Premises caused or permitted by Lessee results in any contamination of the
Demised Premises, Lessee shall promptly take all actions at its sole expense as
are necessary to return the Demised Premises to the condition existing prior to
the introduction of any such Hazardous Material to the Demised Premises;
provided that Lessor's approval of such actions shall first be obtained, which
approval shall not be unreasonably
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<PAGE> 22
withheld so long as such actions would not potentially have any material adverse
long-term or short-tern effect on the Demised Premises.
34.2 As used herein, the term "Hazardous Material"
means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of
Florida or the United states Government. The term "Hazardous Material,
includes, without limitation, any material or substance that is (i)
defined as a "hazardous substance" under appropriate state law
provisions], (ii) petroleum, (iii) asbestos, (iv) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water
Pollution Control Act (33 U.S.C. 51321), (v) defined as a "hazardous
waste" pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C. S6901 et seq. (42 U.S.C. ss.6903), (vi)
defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ss.9601 et seq. (42 U.S.C. ss.9601) , or (vii) defined as a
"regulated substance" pursuant to Subchapter IX, Solid Waste Disposal
Act (Regulation of Underground Storage Tanks), 42 U.S.C. ss.6991 et
seq.
34.3 This indemnity shall survive the expiration or
termination of this Lease.
ARTICLE XXXV
Force majeure
35.1 Lessor shall be excused in the performance of any of
Lessor's obligations hereunder or in the delivery of the Demised Premises as
provided herein when delayed, hindered or prevented from so doing by any cause
or causes beyond Lessor's control, which shall include, without limitation, all
delays caused by Lessee, labor disputes, riots, civil commotion or insurrection,
war or war-like operations, invasion, rebellion, military or- usurped power,
sabotage, governmental restrictions, regulations or controls, inability to
obtain any materials, services or financing, fire or other casualties, or acts
of God. If as a result of any such events, Lessor shall be unable to exercise
any right or option within any time limit provided therefor in this Lease, such
time limit shall be deemed extended for a period equal to the duration of such
event.
ARTICLE XXXVI
No Waiver
36.1 The failure of Lessor to enforce any provision of this
Lease, or the failure of Lessor to exercise any right, option, or remedy hereby
reserved shall not be construed as a waiver for the future of any such
provision, right, option or remedy or a waiver of a subsequent breach thereof.
The consent or approval by Lessor of any act by Lessee requiring Lessor's
consent or approval shall not be construed to waive or render unnecessary the
requirement for Lessor's consent or approval of any subsequent similar act by
Lessee. The receipt by Lessor of rent with knowledge of a breach of any
provision of this Lease shall not be deemed a waiver of such breach. No
provision of this Lease shall be deemed to have been waived unless such waiver
shall be in writing signed by Lessor. No payment by Lessee or receipt by Lessor
of a lesser amount than the rents and/or charges then unpaid, nor shall any
endorsement or statement on any
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<PAGE> 23
check or any letter accompanying any check or payment by Lessee be deemed an
accord and satisfaction and Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance of such rents and/or other
charges due, or Lessor may pursue any other remedy provided herein, and no
waiver by Lessor in favor of any other lessee or occupant of the Industrial Park
shall constitute a waiver in favor of the Lessee herein.
ARTICLE XXXVII
Entire Agreement, Etc.
37.1 This Lease, including any exhibits, riders and/or
addenda attached thereto, sets forth the entire agreement between the Parties.
All prior conversations or writings between the Parties hereto or their
representatives are merged herein and extinguished. This Lease shall not be
modified except by a writing subscribed to by all Parties, nor may this Lease be
cancelled by Lessee or the Demised Premises surrendered except with the written
consent of Lessor, unless otherwise specifically provided herein. The submission
by Lessor to Lessee of this Lease in draft from shall be deemed submitted solely
for Lessee's consideration and not for acceptance and execution. Such submission
shall have no binding force or effect, shall not constitute an option for the
leasing of the premises herein described, or confer any rights or constitute an
option for the leasing of the premises herein described, or confer any rights or
impose any obligations upon either Party. The submission by Lessor of this Lease
for execution by Lessee and the actual execution and delivery thereof by Lessee
to Lessor shall similarly have no binding force and effect unless and until
Lessor shall have executed this Lease and a duplicate original thereof shall
have been delivered to Lessee. If any provision contained in any rider or
addenda hereto is inconsistent with any printed provisions of this Lease, the
provision contained in such rider or addenda shall supersede such printed
provision.
ARTICLE XXXVIII
Waiver of Liability
38.1 Anything contained in this Lease to the contrary
notwithstanding, Lessee agrees that Lessee (and all parties claiming through
Lessee) shall look solely to the estate and property of the Lessor in the
Demised Premises for the collection of any judgment (or other judicial process)
requiring the payment of money by Lessor in the event of any default or breach
by Lessor with respect to any of the terms and provisions of this Lease to be
observed and/or performed by Lessor, subject, however, to the prior rights of
any ground or underlying lessors or the holder of any mortgage covering the
Demised Premises, and no other assets of the Lessor shall be subject to levy,
execution or other judicial process for the satisfaction of Lessee's claim. In
the event Lessor conveys or transfers its interest in the Demised Premises or in
this Lease, except as collateral security for a loan, upon such conveyance or
transfer Lessor (and in the case of any subsequent conveyances or transfers, the
then grantor or transferor) shall be entirely released and relieved from all
liability with respect to the performance of any covenants and obligations on
the part of the Lessor to be performed hereunder from and after the date of such
conveyance or transfer, provided that any amounts then due and payable to lessee
by Lessor (or by the then grantor or transferor) for Lessee under any provision
of this Lease, shall either be paid or assured by the grantee or transferee, it
being intended hereby that the covenants and
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<PAGE> 24
obligations on the part of the Lessor to be performed hereunder shall, subject
as aforesaid, be binding on Lessor, its successors and assigns only during and
in respect of their respective periods of ownership of an interest in this
Lease. This provision shall not be deemed, construed or interpreted to be or
constitute an agreement, express or implied, between Lessor and Lessee that the
Lessor's interest hereunder and in the Demised Premises shall be subject to the
imposition of an equitable lien or otherwise.
ARTICLE XXXIX
Corporate Lessee
39.1 If Lessee is or will be a corporation, the persons exec
ting this Lease on behalf of Lessee shall supply Lessor with evidence acceptable
to Lessor that Lessee is duly incorporated and authorized to do business in the
State of Florida; and that the persons executing this Lease on behalf of Lessee
are officers of such Lessee, and that they as such officers are duly authorized
to sign and execute this Lease. If not already filed, Lessee shall also execute
and file a certificate of registered agent and office with the Secretary of
State of Florida within thirty (30) days after the execution and delivery of
this Lease; and a copy of such certificate shall be delivered to Lessor.
ARTICLE XL
[INTENTIONALLY DELETED]
ARTICLE XLI
Radon
RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT
HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES,. MAY PRESENT HEALTH RISK
TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL
AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL
INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY
PUBLIC HEALTH UNIT.
ARTICLE XLII
Miscellaneous Matters
42.1 Lessee shall promptly pay to Lessor all costs and
expenses of collection, including a reasonable attorneys' fee, with respect to
any part of the rent and other charges and sums of money herein reserved or
required by Lessee to be paid and met, which may be sustained or incurred by
Lessor, after the date the same, or any portion thereof, becomes due; and Lessee
further agrees to pay all reasonable costs and expenses, including a reasonable!
attorneys, fee, which may be sustained or incurred by Lessor in or about the
enforcement or declaration of any of the rights or- remedies of Lessor or
obligations of Lessee, whether arising under this Lease or granted, permitted or
imposed by law or otherwise. In any litigation between Lessor and Lessee, the
prevailing party shall be entitled to reasonable court costs and attorneys"
fees.
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<PAGE> 25
42.2 Lessor shall not be liable to Lessee for failure to
enforce or for violation of any of the rules and regulations or the breach of
any covenant or condition by any other occupant of the Industrial Park.
42.3 Anything in this Lease to the contrary notwithstanding,
the term "Lessor" shall be limited to mean and include only the then owner of
the Demised Premises. At the tine of execution hereof, Lessor is the fee simple
owner of the Demised Premises.
42.4 Anything in this Lease to the contrary notwithstanding,
any judgment obtained against Lessor in connection. with this Lease or the
subject matter hereof shall be limited solely to Lessor's interest in the
Demised Premises and shall be absolutely non-recourse with respect to Lessor
personally (including, if applicable any general partners of Lessor) and all
other assets of Lessor.
42.5 Any floor plan or other plan, drawing or sketch which
is attached to or made a part of this Lease, is used solely for the purpose of a
reasonably approximate identification and location of the Demised Premises, and
any markings, measurements, dimensions or notes of any kind contained therein
(other than the outline of the Demised Premises as an approximate identification
and location thereof) have no bearing with respect to the terms and conditions
of this Lease and are not to be considered a part of this Lease.
42.6 This Lease, or a memorandum thereof, may be recorded
only at the direction of Lessor. In the event Lessor desires any such
recordation, Lessee shall cooperate with Lessor and execute all documents with
respect thereto that Lessor deems appropriate.
IN WITNESS WHEREOF, the Lessor and Lessee have cause this Lease to be
signed on the date first above written.
WITNESSES: LESSOR:
C & C GENERAL PARTNERSHIP, a Florida
general partnership
- ------------------------------
Name: By:
-----------------------------------
Name:
Title
- ------------------------------
Name: LESSEE: [CORP SEAL]
LANCETTI COSMETICS CORPORATION, a
Florida corporation
- ------------------------------
Name: By:
-----------------------------------
Name:
Title
- ------------------------------
Name:
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<PAGE> 1
EXHIBIT 10.18
DATED , 1996
---------------
- --------------------------------------------------------------------------------
STEMARJON NOMINEES PTY. LTD
Lessor
-and-
COSMOPAK PT. LTD. Lessee
- --------------------------------------------------------------------------------
LEASE
- --------------------------------------------------------------------------------
Premises: Part of Ground Floor No. 9 A Hall Street, Richmond.
S. WOLSKI & CO.
Solicitors
22 Hodgson Street,
Kew, Victoria 3101.
Tel: (03) 9853 9955
DX 32412 SW:RG
Solicitors Code: 385
<PAGE> 2
S. WOLSKI & CO.
THIS INDENTURE OF LEASE BETWEEN the parties named and described in the Schedule
hereto being the Lessor of the one part and the Lessee of the other part
WITNESSETH that in consideration of the rent hereinafter reserved and of the
covenants and conditions hereinafter contained on the part of the Lessee to be
paid and performed and observed IT IS HEREBY AGREED AND DECLARED as follows:
A. IN this Lease where the context requires or permits:
(1) The expression "the Lessor" as herein used shall include the person or
company or corporation or body corporate for the time being entitled to
the reversion of the premises hereby demised and shall when there is
only one Lessor mean and include in the case of a natural person the
Lessor, his executors, administrators and assignees and shall when
there are two or more Lessors mean and include the Lessors and each and
every or any of them and the executors, administrators and assignees of
them and each and every or any one of them and shall when the Lessor is
a company or corporation or body corporate mean and include the Lessor
and its successors and transferees
(2) The expression "the Lessee" as herein used shall when there is only one
Lessee mean and include in the case of a natural person the Lessee, his
executors, administrators and/or permitted assignees and/or sub-lessees
and shall when there are two or more Lessees mean and include the
Lessees and each and every or any of them and the executors,
administrators and/or permitted assignees and/or sub-lessees of them
and each and every or any of them and shall when the Lessee is a
company corporation or body corporate include the Lessee and its
successors and transferees and sub-lessees.
(3) The expression "person" as herein used shall include a company or
corporation or body corporate or association and any other properly
constituted entity from time to time recognised by law.
(4) Words importing persons shall include companies and corporations and
bodies corporate and associations. and words importing the masculine
gender shall include the feminine and neuter genders as the case may
require and words importing the singular or plural number shall include
the plural and singular numbers respectively.
(5) Where two or more persons are parties hereto the covenants and
agreements on their part herein contained shall bind them and any two
or more of them jointly and each of them severally.
(6) Any reference either generally or specifically to any Act of Parliament
shall include any statutory modification amendment to or re-enactment
of such Act for the time being in force and any reference to any
provision thereof is to the provision so modified amended or re-enacted
and any such reference shall also include any rules, by-laws,
regulations and orders made pursuant to any such Act.
(7) The word "month" shall mean calendar month.
(8) The marginal or head notes (if any) shall not affect the construction
of this Lease.
B. THE LESSOR HEREBY DEMISES unto the Lessee ALL THOSE premises more
particularly described in the Schedule hereto and hereinafter referred to as
"the premises" TOGETHER WITH all rights easements and appurtenances belonging
thereto or usually held or enjoyed therewith PROVIDED THAT where the premises
form part of a building the expression "the premises" shall not include the
right to use the outside of the walls bounding such premises which rights are
reserved unto the Lessor but shall include the right subject as herein provided
for the Lessee and the persons authorised by the Lessee to use in common with
other tenants and persons authorised by the Lessor the stairs passages and lifts
(if any) of the building of which the premises form part and also the lavatories
and conveniences (if any) set apart by the Lessor for the use of tenants of the
premises and TOGETHER WITH the furniture fixtures and other chattels (if any)
belonging to the Lessor and more particularly set out in the Schedule
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<PAGE> 3
hereto (hereinafter called "the chattels") TO BE HELD by the Lessee for the term
and at the rental set forth in the said Schedule.
C. THE LESSEE HEREBY COVENANTS with the Lessor as follows:
(1) To pay the said rental on the days at the times and in the manner
appointed for payment thereof as set out in the Schedule hereto clear
of all deductions or abatements of any kind whatsoever. The Lessee
shall if required by the Lessor pay all rental by order on the Lessee's
bankers directing payment thereof to the credit of such account at such
bank and branch thereof as is from time to time nominated by the
Lessor.
(2) To forthwith pay and bear all municipal rates, Melbourne Water and/or
any other water rates, and all other rates and taxes including any
special rates and water supplied by measure and/or excess water rates,
State or Federal Land Tax (if any) (calculated on the basis that the
premises for the property of which the premises forms part if that be
the case) is the only land owned by the Lessor) telephone, electric
light, power and gas charges, Metropolitan Fire Brigade or similar
charges and all other charges, duties, burdens, obligations,
assessments, fines, penalties, impositions and outgoings of every kind
and description whatsoever wherewith the premises or any part thereof
or the Lessor or the Lessee in respect thereof are or shall be directly
or indirectly rated, taxed, charged or assessed and which shall be made
or payable during or for any portion of the said term and to keep the
Lessor indemnified from all claims in respect of all or any of the
foregoing liabilities. The proportion attributable to the premises of
any amount assessed charged or paid in respect of the building or the
land of which the premises form part shall be a fair proportion to be
determined by the Lessor having regard to the floor area and lettable
value of the premises in relation to the lettable area and lettable
value of the building and the land as a whole and to any special
factors. For the purposes of calculating the Lessee's obligations
pursuant to this sub-clause the amount of any rate, tax, charge,
assessment or other imposition shall be apportioned on a day to day
basis.
(3) From time to time and at all times during the said term well and
substantially to repair maintain pave cleanse and amend and to keep so
repaired maintained paved cleansed and amended in every respect the
premises with the yards (if any drains fixtures and appurtenances
thereof and all buildings improvements and additions now erected or
made thereupon or thereto during the said term and all fixtures and
other things which now are or at any time during the said term shall be
fixed to the freehold of the premises or belonging thereto damage by
fair wear and tear accidental fire flood lightning storm tempest riot
civil commotion explosion aircraft accident objects failing from
aircraft act of war and other inevitable accident only excepted all
necessary work in that behalf to be carried out in a proper and
workmanlike manner with good materials and to the reasonable
satisfaction of the Lessor or its Architects or Agents in all respects
PROVIDED HOWEVER that should any damage defect or dilapidation occur at
any time which has been occasioned by fair wear and tear accidental
fire flood lightning storm tempest riot civil commotion explosion
aircraft accident objects falling from aircraft act of war or other
inevitable accident the Lessee will forthwith give to the Lessor
particulars of such damage defect or dilapidation AND FURTHER that the
Lessee will take all reasonable measures and precautions to ensure that
any such defect damage or dilapidation will not give rise to or cause
or contribute to any substantial injury to the premises.
(4) To keep, the chattels clean and in good repair order and preservation
and to make good all damage thereto arising fair wear and tear, flood,
lighting, storm tempest, riot, civil commotion, explosion, aircraft,
accident, objects falling from aircraft, acts of war or other
inevitable accident otherwise than from accidental fire or reasonable
and proper use and to replace with similar articles of at least equal
value all such parts thereof as may at any time be destroyed (otherwise
than as aforesaid) or lost or so damaged (otherwise than as aforesaid)
as to be incapable of complete reinstatement to their former condition
and not without the previous written consent of the Lessor to remove or
permit to be removed from the premises (except only for the purpose of
necessary repairs) any of the chattels.
(5) To keep and maintain and comply with all the provisions of the
agreements (if any) for the service and/or maintenance of the Lessor's
equipment, fittings, fixtures and the chattels or any of them.
3
<PAGE> 4
(6) From time to time throughout the said term when and as often as
occasion shall require at the Lessee's own cost and expense to well and
sufficiently prepare and paint with two coats of good quality paint
(the top coat being of a tint first approved by the Lessor its
Architects or Agents) all the interior parts of the premises that have
been previously or are usually painted AND ALSO to clean and suitably
treat such of the interior parts of the premises as have not previously
been painted or are not usually painted.
(7) At all times during the said term and at the Lessee's own cost and
expense and in a proper and workmanlike manner to comply with and
observe all statutes statutory rules by-laws orders or regulations and
other provisions having the force of law present or future affecting or
relating to the use of the premises or the Lessee's occupancy or use
thereof or any service therein and with all requirements which may be
made or notices or orders which may be given by any governmental
semi-governmental city municipal health licensing civic or other
authority or utility having jurisdiction or authority over or in
respect of the premises or the user thereof or the Lessee's occupation
thereof or any service therein and with all the terms of any covenant
or covenants affecting the Certificate of Title to the premises and
whether or not the doing of any work is required in or upon or in
connection with the premises and the Lessee shall keep the Lessor
indemnified in respect of all such matters. If the Lessee shall make
default in observing or performing this covenant the Lessor shall have
power (but shall not be bound to do so) to enter upon the premises; and
to carry out the required work at the expense of the Lessee in all
things and all moneys so expended by the Lessor shall be deemed to be a
debt due and owing by the Lessee to the Lessor and shall forthwith be
recoverable by action PROVIDED THAT the Lessee shall not be liable to
do work of a structural nature except such as may be occasioned by the
act of neglect or default of the Lessee or. by the Lessee's use or
occupancy of the premises or the particular nature of the business
carried on in or at the premises.
(8) Not to bring upon the premises any heavy machinery or other plant or
equipment unless reasonably necessary or proper for the conduct of the
Lessee's use of the premises as herein provided and in no event shall
any such machinery plant or equipment be of a nature weight or size as
to cause or in the reasonable opinion of the Lessor be likely to cause
any damage to the floors or walls or any other part or parts of the
premises. Before bringing any such equipment upon the premises the
Lessee shall inform the Lessor of the Lessee's intention so to do and
the Lessor may direct the routing installations and location of all
such equipment and the Lessee shall observe and comply with all such
directions.
(9) If the carrying out of any of the Lessee's covenants herein shall
necessitate or the Lessor has otherwise consented to the employment or
engagement of any electrician plumber painter carpenter or other
tradesman or artisan the Lessee shall (except in the case of emergency)
before entering into any contract agreement or engagement obtain the
Lessor's approval (which shall not be unreasonably withheld) to the
person firm or corporation proposed to be so employed or engaged for
such work.
(10) To permit the Lessor with or without workmen architects agents
surveyors and others at all reasonable times during the said term to
enter upon the premises to examine and view the state and condition
thereof and all wants of repair which on any such view will be found
for which the Lessee is liable hereunder and for the amendment of which
notice in writing will be left with or for the Lessee and within one
month after every such notice to repair and make good accordingly.
(11) To permit the Lessor and the Lessor's Agent together where necessary
with workmen and appliances at all reasonable times to enter the
premises for the purpose of painting and doing such repairs to the
premises or any or the pipes sewerage connections fittings or fixtures
thereof as the Lessor may deem expedient and in respect of which the
Lessor is liable.
(12) To pay to the Lessor on an annual account the amount equal to all
premiums charged to the Lessor for insuring the premises and the
chattels (if any) for their full insurable value against fire storm or
tempest and unless precluded by the provisions of the Retail Tenancies
Act 1986) loss of rent and/or profits and any other risk reasonably
required by the Lessor AND to insure and keep insured all windows and
plate glass against breakages with a reputable insurer and upon the
request of the Lessor or the Lessor's Agent to
4
<PAGE> 5
produce the receipt for the premium for such insurance for the then
current year and as often as such windows and plate glass shall be
damaged to reinstate the same under the direction of the Lessor or its
Architects or Agents. The proportion attributable to the premises of
any premium assessed charged or paid in respect of the building or the
land of which the premises form part shall be 24% subject to any
special factors.
(13) To take out and at all times to keep current a public liability policy
in the joint names of the Lessee and the Lessor with a reputable
insurer for an amount of not less than $5,000,000.00 or such other sum
as the Lessor shall notify in writing to the Lessee in respect of
liability for loss, injury or damage to any person or property
whatsoever caused by or arising out of any act or omission of or by the
Lessor or the Lessee or the officers, servants, employees, agents,
contractors, customers, invitees or licensees of either of them or by
any trespasser in about to or from or in relation to the premises or
the condition or state of repair thereof or any business carried on
therein or thereupon and upon request by the Lessor or the Lessor's
Agent to produce the receipt for the premium for such insurance for The
then current year and in the case of any loss injury or damage arising
from any cause covered by such insurance to immediately expend all
moneys received in restoring reinstating making good or compensating
any damage loss or injury and in case such moneys shall be insufficient
to make good the deficiency from the Lessee's own assets.
(14) Not to do or knowingly suffer to be done or omit to be done any matter
or thing whereby any insurance effected or which may be effected by the
Lessor on the premises may be invalidated or become void or voidable or
the premium therefor increased. The Lessee will from time to time as
and when required by notice in writing from the Lessor in respect of
the insurances taken out by the Lessor pay all extra premiums of
insurance on account of extra risk caused by the use to which the
premises or any part or parts thereof are put by the Lessee or by any
plant equipment or materials brought onto the premises by or on behalf
of the Lessee.
(15) To comply with any insurance sprinkler and fire alarm regulations
applicable in respect to any partitions which may be erected by the
Lessee or the Lessor upon the premises and to pay to the Lessor the
cost of any alterations to any sprinklers and fire alarm installation
which may become necessary by reason of noncompliance by the Lessee
with the regulations of the Insurance Council of Australia or the
requirements of the Lessor's insurer.
(16) Not without the previous consent in writing of the Lessor (which
consent the Lessor may in its absolute discretion withhold) to erect or
set up or suffer to be erected or set upon the premises or any part
thereof nor make nor permit to be made any structural alteration
improvement or addition whatsoever in or to the premises or any part
thereof and in particular to cut alter weaken or injure the principal
timbers roofs walls or foundations of the premises or permit the same
to be cut altered weakened or injured and not (excepting as now united
or annexed if at all) to unite or annex the premises to or with any
other premises PROVIDED THAT the Lessee may with the Lessor's prior
written consent (which consent shall not be unreasonably withheld) and
at the Lessee's own expense set up any partitions fittings or fixtures
in the premises as are used by the Lessee in the ordinary course of the
Lessee's business and on the expiration or sooner determination of this
Lease the said partitions fittings or fixtures will unless the Lessor
otherwise directs be removed by the Lessee provided that the Lessee
shall make good any damage caused in so installing and removing the
said partitions fittings or fixtures and shall reinstate the premises
to their former condition and if the Lessee shall fail to remove the
same or any part thereof and/or make good such damage and/or reinstate
the premises the Lessor may cause the same to be done and may recover
the cost thereof as a liquidated debt payable on demand and shall be
deemed rental in arrears provided further that any partitions fixtures
or fittings not removed by the Lessee shall at the option of the Lessor
be deemed abandoned by the Lessee and shall be and become the property
of the Lessor.
(17) Within seven (7) days of the receipt of the same by the Lessee to give
full particulars to the Lessor or its Agents of any notice or proposal
for a notice or order or proposal for an order given issued or made to
or on the Lessee by any authority whether parliamentary municipal local
or otherwise and if so required by the Lessor or its Agents to produce
such notice order or proposal to it or them and without delay to take
all
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reasonable and necessary steps to comply with any such notice order
or proposal and at the request of the Lessor or its Agents to make or
join with the Lessor in making such objections or representations
against or in respect of any such notice order or proposal as they or
either of them shall deem expedient.
(18) Not to use the premises or any part thereof or suffer the same to be
used at any time for any illegal or immoral noisy offensive or
dangerous pursuit or purpose or in any manner which contravenes any
Town Planning Scheme or Ordinance or Interim Development Order or any
legislation imposed by any authority empowered by law to control the
use of land or to do anything whatsoever on the premises or any part
thereof which may be or become a nuisance annoyance or danger to the
Lessor or any of its tenants or to the owners or occupiers of any
adjoining properties.
(19) Not to use or permit or suffer the premises or any part thereof to be
used or occupied for any purpose whatever other than as set out in the
Schedule hereto or any other use of which the Lessor may from time to
time in writing approve.
(20) Not to obstruct the sidewalk entrances and passages of the premises or
any of them and not to use the same or any part of them for any other
purpose than for ingress and egress to and from the premises.
(21) To cause the premises to be kept clean and free from dirt and rubbish
(including external surfaces of windows walls and doors) and when
necessary by employing for that purpose persons approved by the Lessor
(such approval not to be unreasonably withheld).
(22) Not to keep any rubbish and waste products on the premises except in
suitable receptacles in the areas set aside for the purpose in or about
the premises.
(23) Not to inscribe paint write or affix either on the premises or any part
thereof or on the outside wails thereof any writing lettering sign
sign-board plate-name placard or notice without the same having been
previously approved of by the Lessor or the Lessor's Agents.
(24) Within two (2) days of the determination or expiration of the said term
to remove any writing lettering sign sign-board plate-name placard or
notice placed by the Lessee on the premises and to make good any damage
or injury caused by such removal.
(25) Not at any time or times to mortgage assign transfer sub-let part with
possession or give to any person a licence to use or occupy the
premises or any part thereof without the consent in writing of the
Lessor first had and obtained and Section 144 of the Property Law Act
1958 shall not apply to this Lease PROVIDED THAT any change in the
principal shareholding altering the effective control of the Lessee if
a company shall be deemed an assignment of this Lease and will require
the consent of the Lessor as aforesaid PROVIDED ALWAYS that in the
event of the Lessee desiring to assign or sub-let the Lessee's interest
in this Lease and at the time of requesting the Lessor's consent the
Lessee is not in default under any covenant or agreement on the
Lessee's part herein contained or implied the Lessor will not withhold
the Lessor's consent to such assignment or sub-lease where the proposed
assignee or sub-lessee.
(a) is a respectable responsible solvent fit and suitable person,
the onus of proof whereof to lie upon the Lessee and the
proposed assignee or sub-Lessee and if the whole of the Retail
Tenancies Act 1986 applies to this Lease the Lessee shall for
this purpose submit the name address and occupation of any
proposed Assignee or sub-Lessee with at least two acceptable
references as to the financial circumstances of such person
and at least two acceptable references as to the business
experience of such person;
(b) proposes to use the premises for the purpose set out in the
Schedule hereto or any other use of which the Lessor may in
writing approve; and
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(c) executes a Deed of Assignment or Sub-Lease in the form usually
adopted by the Lessor's Solicitors or otherwise approved by
the Lessor's Solicitors and pursuant to which the Lessee
covenants with the Lessor that the Lessee will at all times
during the term hereof continue to be bound by all the
covenants agreements and stipulations contained herein and
that nothing in the said Deed shall operate to release the
Lessee from the rent reserved herein or the covenants
agreements and stipulations contained herein or otherwise
prejudice or affect any right power or remedy of the Lessor
herein contained and in which the proposed assignee or
sub-lessee enters into a covenant with the Lessor that he will
observe and perform all the covenants agreements and
stipulations herein contained on the part of the Lessee to be
performed and observed the said Deed to be prepared at the
cost and expense in all respects of the person requiring such
consent and an executed copy of such Assignment or Sub-Lease
duly stamped to be delivered to the Lessor; and
(d) furnishes to the Lessor such duly stamped guarantee or
guarantees in the form usually adopted by the Lessor's
Solicitors of the performance of the Lessee's obligations as
the Lessor shall reasonably require, and in the case of an
Assignee or sub-Lessee which is a corporation from its
Directors and/or principal shareholders, at the cost and
expense in ail respects of the person seeking such consent.
(26) Where the premises form part of a building to comply with observe and
perform all reasonable rules and regulations not inconsistent with
these presents which are at the date hereof or may from time to time
hereafter be prescribed by the Lessor generally for tenants of the
building of which the premises forms part.
(27) To indemnify and keep indemnified the Lessor from and against all loss
and damage to the premises and (if applicable) the building of which
the premises form part and all property therein caused by any act
neglect emission default or misconduct of the Lessee or any clerk
servant licensee invitee workman employee client agent customer or
visitor of the Lessee and in particular but without limiting in any way
the generality of the foregoing by reason of the negligent or careless
misuse waste or abuse of water gas electricity or faulty fittings and
fixtures of the Lessee and to give to the Lessor or its agents prompt
written notice of any accident to or defect in the water pipes gas
pipes electric light wirings or other the fittings or fixtures
contained in the premises.
(28) To indemnify and to hold harmless the Lessor from and against all
damages sums of money costs charges expenses actions claims and demands
which may be sustained or suffered or recovered or made against the
Lessor by any person for any injury such person may sustain when using
or entering or near any portion of the premises or (if applicable) the
building of which the premises form part in the occupation of the
Lessee where such injury arises or has arisen as a result of the
creation of some dangerous thing or state of affairs by the Lessee or
by any clerk servant licensee invitee workman employee agent customer
or visitor of the Lessee and whether the existence of such dangerous
thing or dangerous state of affairs was or ought to have been known to
the Lessor or not.
(29) At all times and from time to time to permit the Lessor to affix and
retain upon the premises in a conspicuous position without interference
by the Lessee a notice for selling the premises including therein all
information which would normally or might reasonably appear in a notice
of that nature but not so as to cause confusion to the public or
customers regarding the Lessee's business or tenancy and at all
reasonable times to permit persons who are interested in purchasing the
premises (and who have written authority from the Lessor or the
Lessor's Agent) to view and inspect the premises AND if the Lessor
gives notice to the Lessee that the Lessor intends to offer the
premises for sale by public auction to permit persons who are
interested in bidding to view and inspect the premises on the day of
the auction AND during the three (3) months immediately preceding the
expiration of the said term and during any period which the Lessee
holds the premises over after the expiration of the said term to permit
the Lessor to affix and retain upon the premises in a conspicuous
position without interference by the Lessee a notice for letting the
premises including therein all information which would normally appear
in a notice of that nature but not so as to cause confusion to the
public or customers regarding the Lessee's business or tenancy and at
all reasonable
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<PAGE> 8
times to permit persons who are interested in leasing the premises (and
who have written authority from the Lessor or the Lessor's Agent) to
view and inspect the premises AND at all times and from time to time to
permit the Lessor or any other person with authority from the Lessor to
affix and retain upon the premises in a conspicuous position without
interference by the Lessee a notice or notices which the Lessor or any
other person might be required to display at or upon the premises by
any statutory authority and which relate to the present or proposed use
or development of the premises.
(30) Without prejudice to the rights powers and remedies of the Lessor
herein provided to pay to the Lessor interest at a rate being the
higher of EIGHTEEN PERCENTUM (18%) per annum or the rate per annum
equal to TWO PERCENTUM (2%) more than the rate for the time being fixed
under Section 2 of the Penalty Interest Rates Act 1983 on any moneys
due but unpaid by the Lessee to the Lessor on any account whatsoever
pursuant to this Lease such interest to be computed from the due date
for the payment of the moneys in respect of which the interest is
chargeable until payment of such moneys in full and to be recoverable
in like manner as rental in arrear.
(31) If the Lessee fails to pay when due any sum which the Lessee is obliged
to pay hereunder whether to the Lessor or to any other person or fails
to perform any other act which the Lessee is required to perform
hereunder the Lessor may at the Lessor's sole discretion pay such
amount or perform such act and borrow funds on such terms and giving
such security as the Lessor thinks fit for the purpose of paying any
sums which the Lessee is obliged to pay and the Lessee shall pay all
such sums to the Lessor on demand and shall also pay to the Lessor as a
debt due and payable on demand all costs and expenses including
interest and costs as between solicitor and client and all loss and
damage which the Lessor may suffer or incur as a result of the Lessee's
failure to pay any sum when due or perform any act required hereby or
because the Lessee is otherwise in default of any of the Lessee's
obligations hereunder. For the purposes of this sub-clause any sums so
paid or demanded by the Lessor shall be deemed to be rental in arrear
and it shall be lawful for the Lessor to recover the same in like
manner as rental in arrear.
(32) To pay the Lessor's costs fees charges expenses and legal charges costs
and fees of and incidental to the preparation of this Lease or any
statement required to be given pursuant to the Retail Tenancies Act
1986 or the Stamps Act 1959 or any other Act affecting tenancies or any
matter arising therefrom or in consequence or arising from any default
made by the Lessee hereunder and any stamp duty payable on this Lease
AND without limiting the generality of the foregoing to pay to the
Lessor as a debt due to it from the Lessee or from the assignee or
transferee of the Lease (where the assignment or transfer has been with
the express consent of the Lessor and the breach of covenant or
condition has occurred since the assignment or transfer) and in
addition to damages (if any) all reasonable costs and expenses properly
incurred by the Lessor in the employment of a solicitor surveyor agent
valuer or otherwise in reference to any breach giving rise to a right
of re-entry or forfeiture which at the request of the Lessee has been
waived by the Lessor or from which the Lessee is relieved under the
provisions of the Property Law Act 1958 or by the operation of
sub-section (1) of Section 146 of that Act.
(33) Within fourteen (14) days of any person who has or shall have
guaranteed to and indemnified the Lessor in respect of the observance
and performance of the Lessee's obligations herein contained being an
individual becoming bankrupt or being a company suffering a receiver to
be appointed or having an order made or passing a resolution to wind-up
or entering into liquidation to give to the Lessor written notice of
any such events or acts and if so required by the Lessor at any time
during the remainder of the term hereof within fourteen (14) days of
being so required and at the expense in all things of the Lessee to
procure some other person acceptable to the Lessor to execute and
deliver to the Lessor a guarantee and indemnity and in respect of the
observance and performance of the Lessee's obligations herein contained
in the form of the guarantee annexed hereto or otherwise in a form
acceptable to the Lessor.
(34) At the end or other sooner determination of the said term quietly to
surrender and yield up to the Lessor or as it may direct the promises
buildings improvements additions and the chattels in such good and
substantial repair and condition in all things as shall be in
accordance with the covenants and conditions on the part of the Lessee
herein contained.
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<PAGE> 9
D. THE LESSOR DOTH HEREBY COVENANT with the Lessee that the Lessee paying the
said rental on the days at the time and in the manner herein set out and
observing and performing the several covenants conditions and stipulations
herein contained on the part of the Lessee to be observed and performed shall
and may peaceably and quietly hold and enjoy the promises during the said term
without any disturbance eviction or interruption by the Lessor or any person
rightfully claiming through under or in trust for the Lessor PROVIDED ALWAYS
THAT IT IS HEREBY AGREED AND DECLARED as follows:
(1) (a) whenever (other than due to the error of a Bank or financial
institution not contributed to by the Lessee, if the Lessor
has required payment by order on the Lessee's bankers) the
said rental or any part thereof shall be in arrear or unpaid
for the space of seven (7) days next after any of the days
herein appointed for the payment thereof although no legal or
formal demand shall have been made for payment thereof, or
(b) whenever there shall be a breach of any of the covenants on
the part of the Lessee to be observed and performed, or
(c) whenever the Lessor shall have obtained a judgment in any
Court against the Lessee for non-payment of rent or any other
moneys payable by the Lessee pursuant to the terms of this
Lease, which judgment has not been satisfied in full; or
(d) whenever the premises are allowed to remain unoccupied or
closed for the space of thirty (30) consecutive days; or
(e) if any distress, execution or other process of any Court or
authority is issued against or levied or enforced upon any of
the assets or property of the Lessee unless such distress
execution or process is fully paid or satisfied within seven
(7) days from the date of such issue, levy or enforcement or
appropriate legal proceedings to invalidate such distress,
execution or process are taken within such seven (7) days and
are duly proceeded with and whether such legal proceedings are
by way of appeal or otherwise or a stay of such distress,
execution or process is granted; or
(f) if the Lessee being an individual shall become or be made
bankrupt or assign his estate for the benefit of or make any
composition or arrangement with creditors or otherwise take
advantage of any law for debtors or cause or permit the goods
of the Lessee to be levied upon under any execution or other
legal process; or
(g) the Lessee being a company:
(i) if notice is given of intention to propose a
resolution for the winding up of the Lessee or if an
order shall be made or a resolution passed for the
winding up or dissolution without winding up of the
Lessee (except for the purpose of reconstruction or
amalgamation with the prior written approval of the
Lessor) or if the Directors of the Lessee pass a
resolution that-in their opinion the Lessee cannot
any longer continue its business; or
(ii) if a Receiver of the Lessee's undertaking or any part
thereof shall be appointed by any person or
corporation including the Lessor; or
(iii) if any compromise or arrangement is proposed or made
between the Lessee and its creditors or any of them
or any class of them, or if an application is made to
any Court for an order summoning a meeting of
creditors of the Lessee; or
(iv) if any inspector or inspectors are appointed pursuant
to the Corporations Law to investigate the affairs of
the Lessee
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then and in any of such cases it shall be lawful for the Lessor in that behalf
(in the case of a breach to which Section 146 of the Property Law Act 1958
extends at the expiration of fourteen (14) days from the service of the notice
referred to in sub-section (1) of the said Section, and in any other case
immediately) to re-enter upon the premises or any part thereof in the name of
the whole and thereupon the term hereby granted shall absolutely cease and
determine without prejudice nevertheless to the rights and remedies of the
Lessor in respect of, any such breach or non-observance and in such case this
Lease may be produced as a notice to quit duly given and expired. The Lessor may
upon re-entry as aforesaid remove from the premises any stock-in-trade and other
fittings and fixtures of the Lessee and store the same in a public warehouse or
elsewhere at the cost of and for the account of the Lessee without being deemed
guilty of conversion or becoming liable for any loss or damage occasioned
thereby. For the purposes of any re-entry the Lessor or his servants or agents
may break open any outer or inner door window or fastening or other obstruction
and forcibly eject and put out the Lessee or any other persons on the premises
without being liable for any action or proceeding of any kind. Notwithstanding
that the Lessor may have exercised his rights of re-entry herein contained any
deficiency in re-letting (including the costs and expenses incidental thereto)
may be recovered as and by way of liquidated damages.
(2) If the premises or any part thereof shall at any time during the said
term be destroyed or damaged by fire, storm, tempest, explosion, rain,
civil riot or disturbance, act of way, water, flood, impact of vehicles
and aircraft and articles dropped therefrom or other cause so as to be
unfit for use and if the destruction or damage has not been caused by
some act or default or neglect of the Lessee and if the policy or
policies of insurance relating to the premises have not been vitiated
or payment therefor refused consequent upon some act default or neglect
of the Lessee then the rental hereby reserved or any amounts payable
pursuant to Clause C(2) hereof or a Fair and just proportion of both
(to be determined in case of dispute by an Arbitrator appointed
pursuant to the Commercial Arbitration Act 1984) according to the
damage sustained shall be suspended and cease to be payable while and
long as the premises or any part thereof shall be unfit for use
PROVIDED ALWAYS that if the premises are totally or substantially
destroyed the Lessor at any time after such destruction or the Lessee
within a period of one (1) month after the expiration of three (3)
months from such destruction may elect by notice in writing to
determine this Lease and thereupon all claims hereunder excepting those
which arose prior to the date of election as aforesaid shall be at an
end but the Lessee shall not be entitled to determine this Lease if
before the Lessee so elects the Lessor gives notice to the Lessee of
its intention to rebuild the premises and proceeds with such rebuilding
within a period of three (3) months from the date of such destruction
and completes the same with reasonable expedition. The Lessor shall not
be liable to the Lessee for any losses incur-red by the Lessee by
virtue of the suspension or termination of the Lease by the Lessor
pursuant to this Clause.
(3) The waiver by the Lessor of any breach of the Lessee's covenants or
obligations herein contained shall not prevent the subsequent
enforcement by the Lessor of such covenants or obligations and shall
not be deemed a waiver of any subsequent breach.
(4) The Lessor shall not incur any liability for damage caused by the
overflow of water supply or rain water which may leak flow or enter
into the premises from any part thereof or from the building of which
they form part or from any adjoining building or from the pipes or
plumbing works or for damage caused by defective electrical or sewerage
installations or structural defects or otherwise.
(5) If and wherever there shall occur any breach of any covenant condition
provision or agreement on the part of the Lessee herein contained it
shall be lawful for (but not obligatory upon) the Lessor (without
prejudice to any of the powers herein contained or to any other remedy)
with or without servants or agents or workmen to enter onto the
premises at a reasonable times and to do all such acts and things as
the Lessor may consider proper or desirable to remedy or attempt to
remedy such breach or part thereof and a moneys paid or expended by the
Lessor in remedying or attempting to remedy such breach or part thereof
shall be forthwith repaid by the Lessee to the Lessor and if not so
paid shall be recoverable by the Lessor as rent in arrear.
(6) If the Lessee continues in possession of the premises after the
expiration of the said term without objection by the Lessor the Lessee
shall thereafter be deemed to be a tenant from month to month upon the
terms of
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this Lease (so far as such terms are applicable to a monthly tenancy)
at a monthly rental proportionate to the rental payable by the Lessee
at the expiration of the said term until such tenancy is determined at
the end of the first or any subsequent month by either party giving to
the other one month's previous notice in writing.
E. IT is hereby acknowledged that the covenants provisions terms and
agreements contained herein or implied by any statute cover and comprise the
whole of the agreement between the parties hereto and the parties hereto
expressly agree and declare that no further or other covenants agreements
provisions or terms whether in respect of the premises or otherwise shall be
deemed to apply hereto or to arise between the parties by way of collateral or
other agreement or by way of condition precedent or by reason of any promise
representation warranty or undertaking given or made by either party to the
other on or prior to the execution hereof and if necessary to effectuate the
aforesaid any such implication condition precedent collateral and other
agreement is hereby negatived.
F. THE Lessee acknowledges that save as may be set out in the Disclosure
Statement (if any) required to be given if the whole of the Retail Tenancies Act
1986 applies hereto no promises representations warranties or undertakings have
been given by or on behalf of the Lessor in respect of the suitability of the
premises for any business to be carried on therein or to the fittings finish
facilities and amenities of the premises and the chattels and hereby further
acknowledges that at the date of execution of this Lease the premises fittings
Facilities amenities and chattels arc in good order and condition.
G. IF the Lessee shall be desirous of taking a new Lease of the premises for
such further term from the expiration of the term hereby granted as is set out
in the Schedule hereto and shall at least three months prior to the expiration
of the said term hereto signify such desire by notice in writing to the Lessor
and shall have duly and punctually paid the rental reserved by this Lease on the
days at the times and in the manner herein set out for payment thereof and duly
performed and observed the covenants conditions and agreements herein contained
on the part of the Lessee to be performed and observed up to the expiration of
the said term [the Lessee shall have been taken to have duly performed and
observed the covenants conditions and agreements unless notice in writing (where
written notice is required) has been given of the breach of one or more of the
covenants conditions and agreements and the Lessee has either failed to remedy
the said breach or the Lessor has given such notice for essential breaches of
that covenant condition or agreement whether remedied or not] then the Lessor
will at the expense of the Lessee (inclusive of stamp duty) grant and execute a
new Lease to the Lessee of the premises for such term as is set out in the
Schedule hereto at a renta1 to be agreed upon and in default of agreement to be
an amount equal to the highest rental payable during the term then concluding
plus an amount equal to four percentum (4%) thereof or at the Lessor's option at
a rental to be determined (having regard to all matters then relevant to the
determination of such rental including the current market value of the premises
at the due date for review of such rental and the then existing use of the
premises and the potential use of the premises) by a Registered Valuer who has
had at least five years experience in the valuation of similar properties and
who practices predominantly in the valuation of commercial properties to be
chosen by the Lessor and the Lessee and in default of agreement as to choice
such Registered Valuer as shall be chosen by the then President of the
Australian Institute of Valuers and Land Economists (Inc.) (provided that if the
said Institute shall at the relevant time no longer be in existence then the
appointment of such Valuer shall be nude by the Senior Executive of the
Association of Valuers which shall, at the relevant time, in the opinion of the
then President of the Law Institute of Victoria, correspond to the said
Institute) and in the event of such determination being made the same shall be
conclusive and binding upon the Lessor and the Lessee but so that in any event
such rental shall not (unless the whole of the Retail Tenancies Act 1986 applies
to this Lease) be less than the highest rental payable by the Lessee at any time
during the term hereof, such new Lease to be otherwise subject to the same
covenants agreements and provisions and guarantees and indemnities as are
contained in or given in conjunction with or pursuant to this Lease save and
except this covenant. The cost of any such determination shall be borne equally
by the Lessor and the Lessee.
H. THE Lessee hereby covenants and agrees that payment of rental on the days
herein stipulated for the payment thereof and the punctual and proper
performance and observance of all other of the Lessee's covenants obligations
and provisions contained herein are essential terms of this Lease. The Lessee
hereby covenants and agrees to indemnify and compensate the Lessor for all loss
damage costs and expenses whatsoever suffered or incur-
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red by the Lessor in respect of any breach by the Lessee of any covenants
obligations and provisions herein contained and on the Lessee's part to be
observed and performed in addition to any other right remedy or entitlement to
which the Lessor is entitled and in respect of any loss or damage sustained by
the Lessor by reason of the inability of the Lessor following the termination or
forfeiture of this Lease to re-let the premises at the same rental and, upon the
same terms and conditions to those contained herein and the Lessee hereby
further agrees that the Lessor's entitlement to recover damages as aforesaid
shall not be affected if the Lessee abandons or vacates the premises or if the
Lessor elects to re-enter the premises or forfeit or terminate this Lease or if
the Lessor accepts the Lessee's repudiation hereof or if the conduct of the
parties hereto shall constitute a surrender by operation of law and provided
always that in the event of the happening of any one of the aforesaid events the
Lessor shall be entitled to recover from the Lessee damages for loss of the
benefits of this Lease and in the event of the Lessor re-letting the premises at
the same rental or upon reduced rental and upon the same or similar terms and
conditions to those herein contained the liability of the Lessee to pay the
Lessor damages for the loss of the benefit of this Lease shall be adjusted
accordingly. Nothing contained in this sub-clause shall affect any obligation
which the Lessor may have to mitigate its loss and damage but the Lessor's
conduct in pursuance of any such obligation shall not by itself constitute
acceptance of the Lessee's breach or repudiation or a surrender by operation of
law.
I. IF the Lessee shall vacate the premises during the said term (whether or
not the Lessee ceases to pay the rental or other moneys payable hereunder):
(1) Neither acceptance of the keys nor entry into the premises by the
Lessor or by any person on the Lessor's behalf for the purposes of
inspection or for the purposes of showing the premises to prospective
tenants and/or the advertising of the premises for re-letting shall
constitute a re-entry or forfeiture or waiver of the Lessor's right to
recover in full all rental and other moneys from time to time payable
hereunder.
(2) In the absence of a written agreement by the Lessor to accept the
surrender of the Lessee's interest hereunder or a formal notice of
forfeiture or re-entry this Lease shall be deemed to continue in full
force and effect until the date as from which a new Lessee actually
commences to occupy the premises.
(3) Any entry by the Lessor into the premises in the meantime shall be
deemed an entry by the leave and licence of the Lessee.
J. THE Lessee expressly covenants and agrees with the Lessor that the Lessee
will not enter any caveat against the title comprising the premises claiming any
interest pursuant to this Lease and if in breach of the provisions of this
covenant the Lessee so enters any such caveat the Lessee hereby irrevocably
appoints the Lessor and (if the case so allows) each and every person for the
time being filling the offices of director secretary or manager of the Lessor
severally as the Lessee's attorney in the Lessee's name and at the Lessee's
expense in all things to do or concur in doing or procure to be done all things
which the Lessor shall deem necessary to remove or withdraw any such caveat.
K. IF the Lessee enters into and executes this Lease as trustee of a trust
whether actual implied or constructive the Lessee hereby represents and
covenants and declares that such entering into and execution of this Lease is
authorised by such trust and shall be to the intent that the Lease shall be
binding both on the Lessee in the Lessee's personal capacity and in the Lessee's
capacity as trustee and binds and will continue to be binding on the trust fund
of such trust and further that this Lease will be binding not only on the Lessee
but on any successor of the Lessee as trustee of such trust and that the Lessee
will take all requisite steps to ensure the effectiveness of this covenant,
including in particular procuring that any successor of the Lessee enters into a
deed of covenant in that behalf with and to the satisfaction of the Lessor.
Nothing herein contained or implied in this clause or in any notification given
to the Lessor by or on behalf of the Lessee (whether before or after the
execution hereof) shall oblige or require the Lessor to take notice of any
actual contingent or future interest of any person in or under such trust and
the Lessor shall be entitled to exercise all of its rights powers authorities
and discretions hereby conferred or implied in the same manner and to the same
extent as if the Lessee were the sole legal and beneficial owner of the trust
fund.
L. IF any provision of this Lease shall be held by a Court of competent
jurisdiction to be unenforceable illegal or void, then that provision shall be
of no force or effect while held to be unenforceable illegal or void and shall
12
<PAGE> 13
have no effect upon the binding force or effectiveness of any of the other
provisions of this Lease it being the intention of the parties hereto that had
they known that a provision of this Lease would be unenforceable illegal or void
they would have entered into a Lease with each other containing all of the other
provisions hereof.
M. WHERE any plant machinery or equipment or heating cooling or circulating
air (herein called "the air-conditioning plant") is installed either by the
Lessor or the Lessee in or about the premises the following provisions shall
apply:
(1) The Lessee will to the extent of the Lessee's control over the same at
all times use and regulate the same to ensure that the air-conditioning
plant is employed to the best advantage in the conditions from time to
time prevailing and will not install in the premises any electrical or
appliance which will generate excessive heat loads and shall forthwith
remove any equipment which in the opinion of the Lessor's consultant
engineer is interfering with the performance of the air-conditioning
system.
(2) The Lessor shall not be under any liability to the Lessee or any other
person arising from any inability or failure on the part of the Lessor
to operate or maintain any air-conditioning plant at any time or times
for any reason whatsoever.
(3) If the air-conditioning plant fails to function for any reason the
Lessee shall not by reason of such failure be entitled to determine the
Lease or claim any abatement of rent or any other moneys payable by the
Lessee hereunder nor shall the Lessee have any right of action or claim
for compensation or damages against the Lessor in respect thereof.
(4) The Lessee will at all times comply with and observe the reasonable
requirements of the Lessor in regard to the air-conditioning plant and
will not do or permit to be done anything in relation to the same or
otherwise might interfere with or impair the efficient operation of the
air-conditioning plant.
(5) The Lessee will at all times during the term hereof at its own cost and
expense keep in force a maintenance and/or service agreement in respect
of the air-conditioning plant and at its own cost and expense will
comply with all the terms hereof and upon a request from the Lessor
will furnish proof to the Lessor of the existence thereof
N. WHEREAS the Lessor and the Lessee are parties to a Lease made 11 December
1995 ("the First Lease") in respect of the premises therein more particularly
described being First Floor and Part of Ground Floor, No. 9A Hall Street
Hawthorn THE PARTIES HERETO HEREBY AGREE AND THE FIRST LEASE IS HENCEFORTH
VARIED to the effect that:
(1) Any default by the Lessee under the First Lease or under this Lease
shall be and be deemed to be a default under both Leases;
(2) The options for a further term contained in Clause G of both Leases
shall only be validly exercised if there is a contemporaneous exercise
of each of the options contained in both Leases.
(3) Neither this Lease nor the First Lease shall be capable of being
assigned or sub-let unless there is a contemporaneous assignment or
sub-lease of both Leases to the same assignee or sub-lessee (as the
case may be).
O. WITHOUT prejudice to any other mode of service provided either herein or by
Act of Parliament any notice required by this Lease to be given by one party to
any other shall be sufficiently given if sent by post in a prepaid envelope
addressed to such other party at the respective addresses given in the Schedule
hereto or if any party is a company then such notice may be sent to the
registered office of the company. A party may give the other party notice in
writing that it no longer occupies the address given in the Schedule and
specifying a new address and the new address shall be substituted for the
purposes of this Clause. Any notice required by this Lease to be given
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<PAGE> 14
to the Lessee shall be sufficiently given if left at or sent by post in a
prepaid envelope addressed to the Lessee at the premises. Any notice sent by
post shall be deemed to be given two (2) days following the posting thereof.
IN WITNESS WHEREOF the parties hereto have executed these presents this _____
day of _______ One thousand nine hundred and ninety-six.
THE COMMON SEAL of STEMARJON
NOMINEES PTY. LTD. ACN 005 243 747
was hereto affixed in accordance with it
Articles of Association the presence of:
- ---------------------------------------------------
DIRECTOR
- ---------------------------------------------------
DIRECTOR
THE COMMON SEAL of COSMOPAK
PTY. LTD. ACN 006 928 274
was hereto affixed in accordance with it
Articles of Association the presence of:
- ---------------------------------------------------
DIRECTOR
- ---------------------------------------------------
DIRECTOR
THE SCHEDULE REFERRED TO
1. LESSOR: STEMARJON NOMINEES PTY. LTD.
ACN 005 243 747
of 8 Hull Street, Richmond.
2. LESSEE: COSMOPAK PTY. LTD.
ACN 006 928 374
of 9A Hall Street, Hawthorn
3. PREMISES: Balance of Ground Floor, No
9A Hall Street Richmond (being that
portion not subject to the First
Lease as defined in Clause N hereto
together with the right to park four
(4) adjacent motor vehicles in the
areas designated solely for motor
vehicle parking purposes.
4. TERM: FROM THE COMMENCING DATE UNTIL 14 DECEMBER
1998.
5. COMMENCING DATE: 1 June 1996.
14
<PAGE> 15
6. RENTAL: (a) Until 14 December 1996:
At the rate of ONE THOUSAND
SIX HUNDRED AND FIVE DOLLARS
AND FORTY-TWO CENTS ($1,605.42)
per month;
(b) At the expiration of each twelve
(12) months from the Commencing Date
the rental then ensuing twelve (12)
months shall be increased to an
amount equal to the rental payable
immediately prior to the increase
plus an amount equal to five
percentum (5%) thereof.
7. PAYABLE: Monthly in advance.
8. PERMITTED USE: Showroom, warehouse and distribution but
in no event for any retail use.
9. FURTHER TERM: THREE (3) YEARS
10. CHATTELS: Partitioning, floor
coverings, light fittings, and all
other chattels, fixtures, fittings,
furnishings, plant, machinery and
equipment (if any) now or hereafter
to be installed by the Lessor.
15
<PAGE> 16
THIS GUARANTEE is made between the parties named and described in the Schedule
hereto being the Guarantor of the one part and the Lessor of the other part
WHEREAS at the request of the Guarantor the Lessor has agreed to enter into an
Indenture of Lease a copy of which is annexed hereto (hereinafter called "the
Lease") with the Lessee named and described in the Lease (hereinafter called
"the Lessee')
AND WHEREAS for the consideration aforesaid and for other valuable consideration
the Guarantor has agreed to execute this Guarantee
NOW THIS GUARANTEE WITNESSETH as follows:
1. THE Guarantor HEREBY GUARANTEES to the Lessor each and all sums of money
interest and damages whether present future or contingent which the Lessee may
be or hereafter becomes liable to pay to the Lessor under or pursuant to the
Lease or arising from the breach of the Lease or on any account which the Lease
secures or in respect of any transaction contemplated by the Lease PROVIDED
ALWAYS that to the extent (if any) that the Guarantee set forth in this Clause
may be void or unenforceable by reason of the fact that all or any of the
obligations of the Lessee to the Lessor to pay sums of money interest or damages
according to the purport of the Lease may not be or may cease to be enforceable
against the Lessee the Guarantor agrees to indemnify the Lessor in respect of
any failure of the Lessee to make any such payment as would otherwise have
formed part of the money the subject of this Guarantee.
2. ALL sums of money received or recovered by the Lessor on account of the
guaranteed money shall be treated as payments in gross and shall as regards the
Guarantor go or be taken to reduce the guaranteed money only by the amount
actually received by the Lessor in cash after first deducting therefrom the
costs and expenses of or incidental to obtaining payment thereof.
3. THIS Guarantee shall be a continuing guarantee and the Guarantor shall be
liable to pay to the Lessor the whole of the guaranteed money and the Guarantor
shall be entitled to have the Lessor apply against that part of the guaranteed
money for which the Guarantor is liable:
(i) any sums of money held by the Lessor to the credit of the
Lessee on any account other than that of the Guaranteed
money for which the Guarantor is liable;
(ii) any sums of money which are or might be recoverable by the
Lessor pursuant to the realisation of any security (including
the guarantee of any other Guarantor) now or at any future
time held by the Lessor;
(iii) any sums of money paid to the Lessor or which are or
might be payable to the Lessor pursuant to Clause 4 hereof or
other-wise in any insolvency administration of the Lessee or
any other Guarantor or any other person liable to the Lessor
in respect of any part of the guaranteed money;
AND for the purpose of calculating the Guarantor's liability hereunder
the sums of money mentioned in subparagraphs (i) (ii) and (iii) of this
Clause shall be deemed not to have been applied against that part of
the guaranteed money for which the Guarantor is liable provided only
that the Guarantor's liability shall cease when the Guarantor has paid
one hundred cents in the dollar in respect of the amount for which he
is liable or when the Lessor has received one hundred cents in the
dollar in respect of the guaranteed money and PROVIDED FURTHER that any
money received by the Lessor in excess of one hundred cents in the
dollar of the guaranteed money shall be adjusted between the Guarantor
and any other person claiming in respect thereof.
4. THE Guarantor COVENANTS AND AGREES with the Lessor that until the Lessor has
received one hundred cents in the dollar in respect of the guaranteed money:
16
<PAGE> 17
(a) in the event of any insolvency administration of the affairs
of the Lessee any other Guarantor or any other person liable
in respect of the whole or any part of the guaranteed money
not without the Lessor's prior consent in writing to institute
any proceedings against to make any demand or claim upon or to
lodge any proof of debt of similar claim in respell of any
debt or liability present or future on any account whatsoever
of the Lessee other Guarantor or other person nor to enforce
any security held or which may hereafter be held by that
Guarantor (alone or with others) in respect thereof but to
hold in trust for the Lessor any such debt or liability and
any rights of action or of proof or claim and all other rights
and benefits in respect thereof and each and every such
security as aforesaid;
(b) upon request by the Lessor to institute proceedings against to
make any demands upon and to lodge proof or proofs of debt or
similar claims in any insolvency administration and to enforce
any security and to execute all documents and do all things
which the Lessor may require to enable the Lessor to have and
receive the benefit of or arising from any debt or liability
and any rights of action or of proof or claim and all other
rights and benefits in respect thereof and every security.
5. THE Guarantor HEREBY IRREVOCABLY APPOINTS the Lessor and all of the Lessor's
attorneys and managers and (if applicable) the Lessor's Secretary for the time
being (each with power to appoint a substitute or substitutes) the Guarantor's
attorneys to execute (under seal or otherwise) and deliver all documents and do
all acts and things (including but not limited to the signing and lodging of
proofs of debt and similar claims the bringing and enforcing of legal
proceedings the compromise of disputes the enforcement of securities and the
valuation of securities) which the attorney may think requisite or desirable for
giving effect to the provisions of Clause 4 hereof.
6. THE Guarantor HEREBY WAIVES AND RELINQUISHES each and every of his rights
whether legal equitable statutory or otherwise which may at any time be
inconsistent with any of the provisions hereof or which may in any manner
prejudice or limit or restrict the Lessor's rights remedies or recourse.
7. THE Guarantor will not claim the benefit of or seek to require the transfer
of any Guarantee or other security which the Lessor may now or hereafter hold in
respect of all or any part of the guaranteed money.
8. THE Guarantee and indemnity herein contained shall extend to any extension or
renewal of the Lease and to any period in which the Lessee may be overholding
under the Lease and also to any renewed or further Lease granted pursuant to any
exercise by the Lessee of the option in that regard contained in the Lease.
9. THIS instrument and the Guarantee and the Indemnity contained herein shall be
without prejudice to and the Guarantor shall not be exonerated in whole or in
part nor shall the Lessor's rights remedies or recourse against the Guarantor be
in any way prejudiced or adversely affected by any of the matters following:
(i) any other guarantee or any security specialty or instrument
negotiable or otherwise which the Lessor may now or
hereafter hold in respect of all or any of the guaranteed
money or any judgement obtained by the Lessor;
(ii) any release variation exchange renewal assignment or
modification made or any other dealing by the Lessor with the
terms of the Lease or with any judgement or instrument
negotiable or otherwise or other security whatsoever recovered
held or enforceable by the Lessor in respect of all or any of
the guaranteed money whether the same shall be held from or
enforceable against the Lessee any Guarantor or any other
person whomsoever or any refusal or omission by the Lessor to
complete endorse or assign any such Agreement judgement or
instrument negotiable or otherwise or any other security;
(iii) the fact that the Lease may be entered into after this
instrument in terms the same as or different to the terms of
the document annexed hereto;
17
<PAGE> 18
(iv) the entering into of any transaction whatever with the Lessee
pursuant to or which is secured by or which is contemplated by
the Lease as it stands at the date hereof or as it may stand
after any variation or modification made after the date
hereof;
(v) the insolvency administration of the Lessee or the Guarantor
or any other person (whether or not the Lessor assents thereto
or receives any dividend therein) or the death of the Lessee
(if the Lessee from time to time be or include natural
persons) the Guarantor or other person or any time or other
indulgence given to or compromise composition or arrangement
made with the Lessee the Guarantor or any other person,
(vi) the fact that the guaranteed money or any part thereof may not
be or may cease to be recoverable or that the Lessee or any
other person purported to be primarily liable to pay any sum
of money may be discharged from all or any of their respective
obligations to make payment for any other reason than that
payment has been made;
(vii) the fact that any party named as a Guarantor herein has
failed or neglected to execute this Guarantee;
(viii) any security held or taken at any time by the Lessor being
void defective or informal,
(ix) the transfer or assignment of the benefit of these presents to
any person to whom the whole or any part of the benefit of the
guaranteed money is transferred or assigned (whether at the
same or at different times);
(x) the failure to give notice to or the lack of consent of
the Guarantor before or after the happening of any of the
acts or events mentioned herein;
(xi) any time or other indulgence given to or compromise
composition or arrangement made with the Lessee the
Guarantor or any other person;
(xii) any loss occasioned by the Lessor's loss of any security or
any collateral security;
(xiii) any loss occasioned by the Lessor failing or neglecting to
recover from the realisation of any collateral or other
security or otherwise any sums of money owing to or to become
owing to the Lessor by the Lessee or by any other laches or
mistakes on the part of the Lessor; or
(xiv) generally the making of any agreement or transaction
whatsoever between the Lessor and the Guarantor or any other
person
10. ANY notice, or demand hereunder may be signed by the Lessor or on behalf of
the Lessor by any of the Lessor's officers or by the Lessor's Solicitors and may
be served on the Guarantor by delivering the same to the Guarantor or by posting
the same to the Guarantor at the Guarantor's address herein or as last known to
the Lessor or by leaving the same there and if posted the notice or demand shall
be deemed served on the day following the date of posting whether actually
received or not PROVIDED HOWEVER that the making of a demand shall not be a
condition precedent to the liability of the Guarantor.
11. A Certificate signed by the Lessor or by any of the Lessor's officers or by
any person authorised by the Lessor for the purpose stating the amount owing by
the Guarantor hereunder at the date or dates stated therein or stating any other
act matter or thing relating hereto as at any date or dates stated therein shall
(except as is otherwise expressly provided herein) be prima facie evidence of
the facts stated therein.
12. NO sum or sums of money received by the Lessor for the credit of any account
of the Lessee or the Guarantor or any other person liable in respect of any part
of the guaranteed money and for which the Lessor may in any insolvency
administration of the affairs of the Lessee the Guarantor or the other person be
obliged to account to any liquidator official manager trustee in bankruptcy or
other persons (as a preference or otherwise) shall be considered as received by
the Lessor or discharge or diminish the liability of the Guarantor and the
Guarantor HEREBY COVENANTS AND AGREES to indemnify the Lessor in respect of any
payment of that nature.
18
<PAGE> 19
13. IF as a result of any insolvency administration the liability of the Lessee
to pay all or any part of the guaranteed money is released or deferred the
Guarantor COVENANTS AND AGREES to indemnify the Lessor against any failure by
the Lessee to pay all or any part of the guaranteed money at the time or times
the sums of money should have been paid apart from insolvency administration or
any release or deferral of the Lessee's liability thereunder.
14. FOR better securing the obligations of the Guarantor pursuant to the
Guarantee and indemnity herein appearing the Guarantor hereby charges in favour
of the Lessor a real estate now or hereafter owned or to be owned by the
Guarantor whether alone or together with any other person and hereby authorises
the Lessor from time to time to lodge with the Registrar of Titles a caveat or
caveats in respect of all or any such real estate.
15. IF the Guarantor enters into and executes this Guarantee and Indemnity as
trustee of a trust whether actual implied or constructive the Guarantor hereby
represents and covenants and declares that such entering into and execution of
this Guarantee and Indemnity is authorised by such trust and shall be to the
intent that the Guarantee and Indemnity shall be binding both on the Guarantor
in the Guarantor's personal capacity and in the Guarantor's capacity as trustee
and binds and will continue to be binding on the trust fund of such trust and
further that this Guarantee and Indemnity will be binding not only on the
Guarantor but on any successor of the Guarantor as trustee of such trust and
that the Guarantor will take all requisite steps to ensure the effectiveness of
this covenant, including in particular procuring that any successor of the
Guarantor enters into a deed of covenant in that behalf with and to the
satisfaction of the Lessor. Nothing herein contained or implied in this clause
or in any notification given to the Lessor by or on behalf of the Guarantor
(whether before or after the execution hereof) shall oblige or require the
Lessor to take notice of any actual contingent or future interest of any person
in or under such trust and the Lessor shall be entitled to exercise all of its
rights powers authorities and discretions hereby conferred or implied in the
same manner and to the same extent as if the Guarantor were the sole legal and
beneficial owner of the trust fund.
16. IF any provision of this Guarantee and Indemnity shall be held by any Court
of competent jurisdiction to be unenforceable illegal or void then that
provision shall be of no force or effect while held to be unenforceable illegal
or void and shall have no effect upon the binding force or effectiveness of any
of the other provisions of this Guarantee and Indemnity it being the intention
of the parties hereto that had they known that a provision of this Guarantee and
Indemnity would be unenforceable illegal or void they would have entered into an
agreement with each other containing all of the other provisions hereof.
17. THE Guarantor agrees to pay the Lessor's legal costs and disbursements of
and incidental to the preparation execution stamping and enforcement of this
instrument and also all expenses or amounts the Lessor may pay or may be liable
to pay under or in connection with any legislation relating to stamp duty and
arising out of this instrument or any payment made hereunder;
18. IN this Guarantee unless the context otherwise requires:
(a) the expression "person" shall include corporations and
other entities from time to time recognised by law;
(b) the expression "month" shall mean calendar month;
(c) references to any statutory enactment shall include the
Regulations made thereunder from time to time and shall mean
the particular enactment as amended or modified from time to
time.
19
<PAGE> 20
(d) words importing the singular number shall import the plural
number and vice-versa and words importing the masculine gender
shall import the feminine gender and/or corporations and other
entities from time to time recognised by law;
(e) the expression "insolvency administration" in relation to the
affairs of the Lessee or any Guarantor or any other person
includes any bankruptcy, assignment for the benefit of or
composition or arrangement with creditors liquidation official
management administration by a Receiver or a Receiver and
Manager appointed by any Court or under any instrument,
administration under any law relating to mental health or
insanity or any other administration of the assets or affairs
of the Lessee Guarantor or other person otherwise than by the
Lessee Guarantor or other person (if he be a person)
personally or if he be dead and die solvent by the personal
representative of his estate or (if the Guarantor be a
corporation) by its Directors or governing body in the normal
course of its business;
(f) the expression "the Lease" means the Lease as varied, modified
or replaced from time to time;
(g) the expression "the Lessee" shall when there is only one
Lessee mean in the case of a natural person the Lessee, his
executors, administrators and/or permitted assignees and/or
sublessees and shall when there are two or more Lessees mean
and include the Lessees and each and every or any of them and
the executors, administrators and/or permitted assignees
and/or sublessees of them and each and every or any of them
and shall when the Lessee is a company corporation or body
corporate include the Lessee and its successors and
transferees and sublessees-I
(h) the expression "the Lessor" shall mean the person or company
or corporation or body corporate for the time being entitled
to the reversion of the premises demised by the Lease and
shall when there is only one Lessor mean and include in the
case of a natural person the Lessor, his executors,
administrators and assignees and shall when there are two or
more Lessors mean and include the Lessors and each and every
or any of them and the executors, administrators and assignees
of them and each and every or any of them and shall when the
Lessor is a company or corporation or body corporate mean and
include the Lessor and its successors and transferees;
(i) the expression "the Guarantor" shall where there is only one
Guarantor mean in the case of a natural person the Guarantor,
his executors, administrators and/or successors and assigns
and shall where there are two or more Guarantors mean and
include the Guarantors and each and every or any of them and
the executors, administrators and/or successors and assigns of
them and each and every or any of them and shall where the
Guarantor is a company corporation or body corporate include
the Guarantor and its successors and transferees;
(j) the expression "guaranteed money" means the sums of money
interest and damages the subject of the Guarantee and
Indemnity contained herein;
(k) where two or persons are parties hereto the covenants and
agreements on their part herein contained shall bind them and
any two or more of them jointly and each of them severally.
19. THE proper law of this Guarantee and Indemnity shall be the law of the State
of Victoria and the parties agree to submit to the jurisdiction of the Courts of
the State of Victoria.
SCHEDULE
THE GUARANTOR: WILLIAM ANDREW HOPE DENTON
of 25 Scott Grove, Glen Iris, and
PHILLIPA ANNE DENTON
of 25 Scott Grove, Glen Iris.
THE LESSOR: STEMARJON NOMINEES PTY. LTD.
ACN 005 243 747
of 8 Hull Street, Richmond.
20
<PAGE> 21
IN WITNESS WHEREOF the parties hereto have affixed their respective hands and
seals this ________ day of ________________ One thousand nine hundred and
ninety-six.
SIGNED SEALED AND DELIVERED by
WILLIAM ANDREW HOPE DENTON
in the presence of
----------------------------------
WILLIAM ANDREW HOPE DENTON
- -----------------------------------
WITNESS
SIGNED SEALED AND DELIVERED by
PHIILLIPA ANNE DENTON in the presence of:
----------------------------------
PHIILLIPA ANNE DENTON
- -----------------------------------
WITNESS
THE COMMON SEAL OF STEMARJON
NOMINEES PTY. LTD ACN 005 243 747
was hereto affixed in accordance with its Articles of
Association in the presence of
- -----------------------------------
DIRECTOR
- -----------------------------------
DIRECTOR
21
<PAGE> 1
Exhibit 10.19
DEED OF LEASE dated this 3 day of January 1998
BETWEEN; 2757800 CANADA INC.
bodies politics and corporate duly incorporated, having their
head office and principal place of business at
9250L'ACADIE BLVD., MONTREAL, QUEBEC H4N 3C5
(herein after called the LESSOR)
AND: LES COSMETIQUE PC INC.
9250 BOUL L'ACADIE BLVD SUITE 340, MONTREAL P.O. H4N C35
(herein after called the LESSEE)
1. DESCRIPTION AND LEASE OF PREMISES
Lessor in consideration of the rent, covenants and agreements herein
after contained on the part of the lessee to be paid, kept and informed, hereby
leases to lessee and lessee does hereby hire and take from Lessor that
designated portion bearing suit number 340, bearing civic number 9250 and being
part of the building hereinafter referred to as the Leased Premises.
The area being APPROX. 3670 sq. ft. which represents 6.12% of the rentable area.
2. TERM OF LEASE
The term of this lease shall be for a period of 2 YEARS and shall
commence on the 1 day of MAY, 1998 and terminate on the 30 day of APRIL 2000.
Unless sooner terminated under the provisions hereof.
3. USE OF PROPERTY
The premises hereby leased shall be used solely and continuously for
the purpose of OFFICE, SHOWROOMS, and Warehousing.
4. GROSS RENT
Lessee covenants and agrees to pay to Lessor in advance on the first of
EVERY MONTH in lawful money of Canada without deduction abatement or set off,
except as provided herein,
year 1 $3,178.75.
year 2 $3,337.00
with an option to renew for an additional two years
option year 1 $3,600.00
option year 1 $3,860.00
<PAGE> 2
the lessee will advice the lessor by December 15 1999 if he wishes to exercise
the option available to him.
Included in the rent is 5 inside parking spaces for a standard size car.
The rent is payable to lessor and or its nominee at the head office of the
lessor, 9250 Boul L'acadie Montreal Quebec, or at such other place in Canada as
shall be designated by lessor in writing to lessee.
Included in the base rent are all the lessee's proportionate share of all
standard operating expenses actually incurred by the lessor. Said operating
expenses shall include real estate, school taxes, building maintenance. In
addition the lessee shall solely be responsible for business taxes, surtaxes,
water tax and all other charges in respect to the leased premises and its
business. The lessee shall be solely responsible for his portion of any rental
tax that may levied by any government or any applicable taxing authority whether
known as the on goods and services or by any other name.
Any increase in said operating expense shall be paid on a monthly basis by
lessee in proportion of the space occupied. Base year shall be 1997.
5. PAYMENT OF TAXES, ASSESSMENTS, ETC.
Lessee will pay during the term of this lease all lessees taxes, such
as water tax for the premises, business taxes, permits for occupation and other
like fees or changes. The lessee shall also pay his portion of the surtax
imposed on the building for his premises.
6. INSURANCE
Lessee covenants that nothing will be done or omitted whereby any
policy shall be cancelled or the premises rendered uninsurable. Lessee shall, at
its own expense, during the term thereof, take out and keep in force public
liability and property damage insurance for the mutual benefit of the Lessor and
Lessee against all claims for personal injury, death, or property damage no
matter now occurring in, upon or about the Leased premises and on, or about the
adjoining streets or passage ways to a limit of not less than one million
dollars ($1,000,000). Copies of policies of said insurance shall be delivered to
the Lessor as well as evidence of renewal or replacement if any at least fifteen
(15) days prior of the date fixed for cancellation or expiration of any
policies. The Lessee shall not alter this policy through any endorsement unless
he has prior consent from the Lessor in writing. FAILING SO THE _______ MAY if
it chooses without any demand, notice or advice whatsoever renew or replace
such policy or policies at the Lessee's expense without any prejudice to any
other rights and recourse of the Lessor herein or by law provide, through any
insurance broker or insurance company of its choice.
The Lessee hereby agrees and understands that the placing of such
insurance shall in no way relieve the Lessee from any obligation assumed under
this lease.
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Lessee shall obtain from the insurers under such policies undertakings
to notify Lessor in writing at least ten days prior to any cancellation or
expiration thereof.
7. UTILITIES
The lessor shall pay for water, garbage removal and all public
utilities and other services with respect to the building for the purpose of
this lease the base year for expense calculation is Dec. 1997 and any increase
on the expenses will be allocated to the lessee within the provision of
paragraph 4 above.
8. FAILURE OF LESSEE TO PERFORM
If Lessee fails to pay any taxes, insurance premium, charges or debts
which it owes or has herein covenanted to pay, Lessor may pay the same and shall
be entitled to charge the sums so paid to Lessee who shall pay them forthwith on
demand, as additional rent and Lessor, in addition to any other rights, shall
have the same remedies and may take the same steps for the recovery of all such
sums as it might have and take for the recovery of rent in arrears under the
terms of this lease, all arrears of rent and any moneys paid by Lessor here
under shall bear interest at the rate of prime plus five percent (+5%) per
annum, payable and compounded monthly until paid to Lessor, Lessor may demand
such sums from Lessee even before payment with interest at the rate charged by
the Taxing Authority or other creditor in question.
9. FURNISH STATEMENT
Lessee shall from time to time at the request of Lessor produce to
Lessor satisfactory evidence of the due payment by Lessee of all payments
required by to be made by Lessee under this Lease.
10. DEFAULT
Throughout the term of this Lease, it is the Lessee's sole
responsibility to insure that the monthly rentals be received by the Lessor not
later than the first of each and every month. Any such payment not received by
the Lessor by the first of each and every month will be considered a late
payment. Should the monthly rentals be received late a cumulative total of three
times, throughout the term of this Lease, than in addition to all other recourse
and charges available to the Lessor under this Lease, the Lessee will be subject
to a punitive charge of $150.00 per occurrence of late payments.
Without prejudice to all of the rights and recourse available to the
Lessor, the following shall be considered special defaults under the terms of
this lease;
(a) In the event that Lessee shall be in default under any
provision of this lease providing for the payments of rent or
additional rent.
(b) In the event that the Lessee shall be adjudicated a
bankrupt or make any general assignment for the benefit or creditors,
or take, or attempt to take, the benefit of
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any insolvency or Bankruptcy Act, or if a petition in bankruptcy shall
be granted against Lessee, or if a receiver of trustee be appointed for
the property of Lessee, or any part thereof, or any execution be issued
pursuant to a judgment, rendered against Lessee (unless same as been
satisfied ten (10) days prior to date fixed for sale or has been duly
contested) or pursuant to this lease, or if the estate of Lessee here
under be transferred or pass to or devolve upon any other person or
corporation by operation of law; or
(c) In the event that Lessee shall be in default in observing
any covenant herein contained and/or performing any of its obligation
contained in this Lease (other than a default in the payment of rent or
additional rent) and such default shall continue for thirty (30) days
after written notice specifying such default shall have been given to
Lessee by Lessor, unless such default is incapable of being remedied
with due diligence within such reasonable extension of time to enable
such default to be remedied, the length of which shall be at Lessor's
discretion or within the limits of feasibility. In the event of any
special default under the terms of this Lease, the Lessor without
prejudice to any rights or remedies it may have here under or by law
shall have the right to terminate this Lease forthwith upon written
notice given to Lessee by Lessor, Lessee upon such a termination of
this lease shall there upon quit and surrender the Leased Premises to
Lessor and Lessor, its agents and servants, may immediately or at any
time thereafter, re-enter the Leased Premises and dispossess Lessee and
remove any and all persons and any or all property there from whether
by summary dispossession proceedings or by any suitable action or
proceeding at law, or by force or otherwise without being liable to
prosecution or damages thereof, termination, or in case Lessee, in the
absence of such termination, shall be dispossessed by or at the
instance of Lessor in any lawful manner, whether by force or otherwise,
rent for the current month and for the entire balance of the term of
the present Lease shall immediately become due and payable and this
Lease shall immediately, at the option of the Lessor, become forfeited
and terminated, and the Lessor, may, without notice or any form of
legal process, forthwith re-enter upon and take possession of the
Leased Premises and remove the Lessee's effects there from, the whole
without prejudice to and under reserve of all of the rights and
recourse of the Lessor to claim any and all losses and damages
sustained by the Lessor by reason of and arising from any default of
the Lessee. Any amounts owing from the LESSOR to the LESSEE will be
offset against the Lessee's obligation under this lease.
11. SIGNS
Lessor shall have the right at all times during the term of the Lease
to place upon the Leased Premises a notice of reasonable dimension and
reasonably placed, so as not to interfere with the business of Lessee, stating
that the premises are for sale and for six (6) months prior to the termination
of this Lease, Lessor shall have the right to place upon the Leased Premises a
similar notice hat the Leased Premises are for rent and Lessee will not remove
such notice or knowingly permit same to be removed.
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Lessor shall have the right to exhibit the Leased Premises from time to
time to any prospective mortgages or purchaser or Lessee of Lessor's rights here
under at all reasonable hours.
Lessee shall have the right from time to time during the term hereby
granted to erect, paint, display, maintain, alter, change or remove advertising
signs or interior and exterior of the walls of the Leased Premises. Any signs
will be subject to the Lessor's approval in writing and installation if approved
and dismantling will be at the sole expense of the Lessee. If the signs need any
electrical power a surplus will be added to the monthly rental to cover the
usage.
All such signs shall comply with the lawful requirements of municipal
and government authorities and with Lessor's rules and regulations applicable to
all Lessees. Lessors responsibility to post a sign of Company and Suit # on
billboard in lobby.
12. MAINTENANCE AND REPAIRS
(a) Notwithstanding the provision of articles 1604, 1605 and
1627 of the Civil Code of the Province of Quebec the Lessee at its own
expense, shall operate, maintain and keep the Leased Premises including
all facilities, equipment and services, both inside and outside,
available to the Lessee exclusively, in such good order and condition,
both inside and outside, as they would be kept by a careful owner, and
shall promptly make all needed repairs and replacements to the Leased
Premises (save and except for latent or structural defects, provided
that they were not occasioned by Lessee's action or omission) which a
careful owner would make, including, without limitations, the water,
gas, drain and sewer connections, pipes and mains, electrical wiring,
water closets, sinks and accessories thereof, and all equipment
belonging to or connected with the Leased Premises or used in it
operation.
(b) The Lessee undertakes to obtain and pay for such
maintenance, repair and replacement service and/or insurance contracts
as may be available from firms approved by the Lessor (such approval
not to be unreasonably withheld), with respect to the maintenance,
repair and replacement of the heating equipment, if provided) in the
Leased Premises; the whole without prejudice to the other obligations
of the Lessee with respect to such equipment. The Lessee shall forward
to the Lessor copies of such contracts and evidence of renewals there
of during the continuance of this Lease.
(c) It shall be the Lessee's sole responsibility to maintain
its galleries, platforms, stairways free of snow and ice and of any
obstruction and other hazards.
13. SUBLETTING AND ASSIGNMENTS
Subject to the provisions here in after detailed, the Lessee shall have
the right to sublet the Leased Premises or assign its rights in the present
Lease with the consent of the Lessor which consent shall not be unreasonably
withheld and providing that the Leased Premises are utilized only for the
purposes stipulated in Clause 3 hereof. Notwithstanding such subletting and
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assignment, the Lessee shall remain jointly and severally liable with each sub
lessee or assignee for the performance of all the terms and conditions of the
present.
If the Lessee wishes to so sublet or assign, it must obtain to the
Lessor a copy of the offer to sublet or assign, together with a request for
consent of the Lessor, and the Lessor shall have thirty (30) days from receipt
thereof to take the premises of portion in question as sub lessee at the same
rental rate and other terms and conditions of this Lease or, at the Lessor's
option, to cancel this Lease as of the effective commencement date of such offer
to sublet of assign. Should the Lessor elect to take all or a portion of the
premises as sub lessee, the consent of the Lessee to a further sublet by the
Lessor shall not be required and the Lessee, in the event of such further
sublet, shall remain jointly and severally liable with such further sub lessee
for the performance of all the terms and conditions of the present Lease.
However, should the Lessor not exercise its right to take the premises
as sub lessee, or to cancel this Lease, the Lessor shall not thereby be
precluded from withholding its consent to the said sublet or assignment,
provided said consent shall not be unreasonably withheld.
14. INSPECTION AND REPAIR
Lessor and its agents shall have the right, at all reasonable times and
upon reasonable notice during the term of this Lease to enter the Leased
Premises to examine the condition there of and to ascertain whether Lessee is
performing its obligations here under, and Lessee shall make any repairs which
Lessor deems necessary as a result of such examinations. If Lessee fails to make
any such repairs within thirty (30) days after notice from Lessor requesting
Lessee so to do, provided that such repairs may reasonably be made within the
said period, Lessor may without prejudice to any other rights or remedies it may
have, make such repairs and charge the cost thereof to Lessee. Nothing in this
Clause shall be construed to obligate or require lessor to make any repairs but
Lessor shall have the right at any time to make any repairs deemed by Lessor in
its absolute discretion to be urgently required without notice to Lessee and
charge the cost thereof to Lessee. Any costs chargeable to Lessee here under
shall be payable forthwith on demand as additional rent and shall bear interest
at the rate of 12% annum, compounded monthly from the date on which the same
were incurred until payment.
15. DESTRUCTION OF PREMISES
Provided, and it is hereby expressly agreed that if whenever during the
term hereby Leased, or any renewal there of, the building or the portion of the
building hereby Leased shall be destroyed or damaged by fire, LIGHTNING, or
tempest, or any of the other perils required to be insured against under the
provisions of Clause 6 (b) then and in every such event:
(a) If the damage or destruction is such that the portion of
the building hereby leased, or the building, is rendered wholly or
partially unfit for occupancy or it is impossible or unsafe to use and
occupy it and if in either event the damage in the opinion of Lessor to
be given to Lessee within thirty (3) days of the happening of such
damage or destruction, cannot be repaired with reasonable diligence
within one hundred and eighty (180) days from the happening of such
damage or destruction, then either Lessor or
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Lessee may within five (5) days next succeeding the giving to the other
notice in writing of such termination, in which event this Lease and
the term hereby Leased shall cease and be at an end of the date of such
destruction or damage and the rent and all other payments for which
Lessee is liable under the terms of this Lease shall be appointed and
paid in full to the date of such destruction of damage, in the event
that neither Lessor or Lessee so terminate this Lease, the Lessor shall
repair the said building with all reasonable speed and the rent hereby
reserved shall abate from the all reasonable speed and the rent hereby
reserved shall abate from the date of the happening of the damage until
the damage shall be made good to the extent of enabling Lessee to use
and occupy the Leased Premises;
(b) If the damage be such that the portion of the building
hereby ceased and be at an end as of the date of such destruction of
damage and the rent and all other payments for which Lessee is liable
under the terms of this Lease shall be apportioned and paid in full to
the date of such destruction of damage, in the event that neither
Lessor and Lessee so terminate this Lease, the Lessor shall repair the
said building with all reasonable speed and the rent hereby reserved
shall abate from the date of the happening of the damage until the
damage shall be made good to the extent of enabling Lessee to use and
occupy the Leased Premises;
(c) If the damage be such that the portion of the building
hereby leased is wholly unfit for occupancy, or if it is impossible or
unsafe to use or occupy it, but, if in either event, the damage, in the
opinion of the Lessor, can be repaired with reasonable diligence within
one hundred and eighty (180) days of the happening of such damage, the
Lessor is to give notice of its decision to repair to the Lessee within
thirty (30) days from the happening of such damage and the rent hereby
reserved shall abate from the date of the happening if such damage
until the damage shall be made good to the extent of enabling Lease to
use and occupy the Leased Premises and Lessor shall repair the damage
with all reasonable speed.
(d) If, in the opinion of the Lessor, the damage can be made
good, as aforesaid, within one hundred and eighty (180) days of the
happening if such destruction or damage and the damage is such that the
portions of the building Leased is capable of being partially used for
the purposes for which it is leased, then until such damage has been
repaired the rent shall abate in the proportion that the part of the
portion of the building Leased is rendered unfit for occupancy bears to
the whole of the said portion of the building Leased and Lessor shall
repair the damage with all reasonable speed.
Should any mortgage creditor who may have an interest in any insurance
proceeds refuse to permit the use of such proceeds for the repair, replacement,
rebuilding and/or restoration as here in above provided and for the payment of
amounts expanded for such purposes, then the Lessor's obligation to repair or
rebuild as provided for here in above cease and shall be null and void and the
Lease shall be cancelled effective as of the date of the damage, unless, the
Lessor, at the Lessor's sole option, chooses to repair and rebuild in which
latter event, rent shall abate from the date of the happening of such damage,
until the damage shall be made good to the extent of enabling Lessee to use and
occupy the Leased Premises.
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16. IMPROVEMENTS AND ALTERATIONS
Lessee shall have the right to make its own expense, with the prior
consent of the lessor, which consent shall not be unreasonably withheld,
additions, alterations and changes in and to the Leased Premises provides
however, that no structural alterations and no construction of new or additional
buildings or structures shall be commenced except with the prior written consent
of Lessor and except or complies with the following conditions (such structural
alterations and construction of new or additional building or structures being
here in after referred to as the "work"):
(i) Lessee shall furnish to the Lessor plans and
specification showing in reasonably complete detail the work
proposed to be carried out and the estimated cost there of and
Lessor shall approve or reject such plans and specifications
within thirty (30) days after receipt of the same. If such
plans and specifications are approved, all work shall be
carried out in compliance with the same.
(ii) The value of the Leased Premises shall not,
as a result or any worked proposed to be carried out by
Lessee, be less than the value of the Leased Premises before
the commencement of such work and Lessor shall be the sole
judge of such value.
(iii) All work shall be carried out with
reasonable dispatch and in good workmanship manner and in
compliance with all applicable permits authorization and
building and zoning by-laws and within all regulations and
requirements of all competent authorities having jurisdiction
over the Leased Premises.
(iv) Lessor's building shall at all times be free
of all conditional bills of sale, pledges, registered
privileges, workmanship and suppliers' liens and other similar
liens and charges. Lessee shall obtain prior to commencement
of any work, from all workman, contractors, builders,
suppliers and architects, waivers and renunciations of
privilege.
(v) If the cost of any work shall be in excess of
Five Thousand Dollars ($5,000.00) as reasonably estimated by
Lessee, Lessor may require Lessee to furnish security
satisfactory to Lessor guaranteeing the completion of the work
and the payment of the cost thereof free and clear of all
conditional bills of sale, pledges, privileges, workman's and
suppliers' liens and other similar liens and charges.
(vi) Lessee shall maintain Workmen's Compensation
Insurance covering all persons employed in connection with the
work and shall produce evidence of such insurance to Lessor
and shall also maintain such general liability insurance for
the protection of Lessor and Lessee as Lessor may require.
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(vii) All work, when competed shall be comprised
in, and form part of the Leased Premises and shall be subject
to all the provisions of this Lease and Lessee shall not have
any right to claim compensation therefore and the same shall
not be removed by Lessee termination of this Lease.
(viii) In carrying out the Lessee undertakes not
to disturb other Lessees in the building and shall hold Lessor
harmless from any and all claims or auctions instituted by
other Leases in the building against Lessor related to or
arising out of the said work.
17. EXPIRATION OF LEASE
Lessee shall at the expiration or sooner termination of the term of
this Lease peaceably surrender and yield up into Lessor the Leased Premises with
all building, alterations or erections which at any time during the terms hereof
shall be made there in or there on in good repair and condition, subject to
reasonable wear and tear only.
Notwithstanding the foregoing, the Lessee shall at or prior to the
expiration of the term hereof remove its moveable fixtures other moveable
articles belonging to or brought upon the Leased Premises by Lessee and the
Lessee shall repair any damages caused by such removal; unless the Lessor
prefers the whole or any part of such alterations or installments should remain
without any compensation whatsoever being allowed to the Lessee for same.
18. COMPLIANCE WITH LAWS AND REGULATIONS
The Lessee shall, at its own expense, promptly comply with the
requirements of every applicable statute, law, by-law and ordinance and with
every applicable lawful regulation or order with respect to the removal of any
encroachment placed by the Lessee, or the condition, including the making of any
alterations, additions in or any structure upon, connected with or appurtenant
to the Leased Premises, whether or not such alterations be structural or be
required on account of any particular use to which the Leased Premises or part
thereof may be out and whether or not such requirements, regulations or order of
a kind now existing or within the contemplation of the parties hereto and shall
comply with any applicable regulation, recommendation or order of the Canadian
Fire Underwriters' Association, or any body having similar functions or of any
liability or fire insurance company by which the Lessor and/or the Lessee may be
insured.
19. nil
20. INDEMNIFICATION
Except if caused directly by the negligence of the Lessor, the Lessor
shall not be liable nor responsible in any way for any injury of any nature
whatsoever that may be suffered or sustained by the Lessee or any employee,
agent or customer of the Lessee or any other person who may be upon the Leased
Premises or for any loss of or damages to any property belonging to the Lessee
or to its employees or to any other person while such property is on the Leased
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Premises and in particular (but without limiting the generality of the
foregoing), the Lessor shall not be liable for any damage or damages of any
nature whatsoever to any such property caused by the failure by reason of a
breakdown or other cause to supply adequate drainage, snow or ice removal, or by
reason of the Interruption of any public utility or service or in the event of
steam, water, rain or snow which may leak into, issue, or flow from any part of
the building or from the water, steam, sprinkler, or drainage pipes or plumbing
works of the same, or from any other place or quarter of for any damage CAUSE by
anything done or omitted by any tenant, but the Lessor shall use all reasonable
diligence to remedy such condition, failure or interruption of service when not
directly or indirectly attributable to the Lessee, after notice of same, when it
is within its power and obligation so to do. Nor shall the Lessee be entitled to
any abatement of rental in respect of any such condition, failure or
interruption of service.
The Lessee will indemnify and save harmless the Lessor from and against
all fines, liability, damages, suits, claims, demands and actions of any kind or
nature which the Lessor shall or may become liable for or suffer by reason of
any breach, violation or non-performance by the Lessee of any covenant, term or
provision hereof or by reason of any injury (including death resulting at any
time there from) or damage to property occasioned to or suffer by any person or
persons including the Lessor by reason of any such breach, violation or
non-performance or of any wrongful act, neglect or default on the part of the
Lessee or any of its employees, officers, agents suppliers, or invitees.
21. ASSIGNMENT BY LESSOR
Lessor declares that it may assign its rights under this Lease to a
lending institution as collateral security for a loan to Lessor and in the event
that such an assignment is given and executed by the Lessor and notification
thereof is given to Lessee by or on behalf of Lessor, it is expressly agreed
between Lessor and Lessee that this Lease shall not be cancelled or modified for
any reason whatsoever without the consent in writing of such lending
institution.
This Lease and all rights of the Lessee here under shall be subject and
subordinate at all times to any and all underlying Leases, mortgages, hypothec
or trust deeds affecting the building and/or the land which have been executed
or which may at any time here after be executed and any and all extensions and
renewals thereof and substitutions therefor. Lessee agrees to execute any
instrument which Lessor may deem necessary or desirable to evidence the
subordination of this Lease to any or all such leases, mortgages, hypothec or
trust deeds.
Lessee covenants and agrees that, if by reason of a default upon the
part of Lessor as Lessee under any underlying Lease in the performance of any of
the terms of provisions of such underlying Lease or by reason of a default under
any mortgage, hypothec or trust deed to which this Lease subject or subordinate,
Lessor's estate is terminated, it will attorn to the Lessor under such
underlying Lease or the purchaser of the building pursuant to any action taken
under any such mortgage, hypothec or trust deed, and will recognize such Lessor
or such purchaser, as Lessor under this Lease.
Lessee waives the provisions of any statute or rule of law now or here
after in effect which may give or purport to give Lessee any right of election
to terminate this lease or to
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surrender possession of the premises in the event any such proceeding to
terminate the underlying Lease is brought by the Lessor under any such
underlying Lease or any such action is taken under such mortgage, hypothec or
trust deed and agrees this Lease shall not be affected in any way whatsoever by
any such proceedings.
Lessee agrees to execute and deliver, at any time and from time to
time, upon the request of Lessor or of the Lessor under any such underlying
lease or of the holder of any such mortgage, hypothec or trust deed, any
instrument which may be necessary or appropriate to evidence such attornment.
Lessee will upon request of Lessor furnish to the Lessor under any
underlying Lease and/or to each creditor under a mortgage, hypothec or trust
deed or to any prospective purchaser of the building a written statement that
this lease is in full force and effect and that Lessor has complied with all its
obligations under this Lease and any other reasonable written statement or
estoppel certificates requested by any such creditor and/or purchaser.
22. FLOOR LOADING
Lessee shall not bring upon the Leased Premises or any part thereof any
machinery, equipment, article or thing that by reason of its weight or size
might damage the Leased Premises and will not at any time overload the floors of
the Leased Premises and if any damage is caused to the Leased Premises by any
machinery, equipment, article or thing or by overloading or by any act, neglect
or misuse on the part of Lessee or any of its invitees, agent or employees or
any persons having business with Lessee, Lessee will forth with pay to Lessor
the cost of making good the same.
23. CONDITION OF LEASED PREMISES
The Lessee represents that it has examined and viewed the Leased
Premises and accepts same in their present condition.
24. WAIVER
The failure of the Lessor or the Lessee to insist upon a strict
performance of any the agreements, term, covenants, and conditions hereof shall
not be DEEMED A WAIVER of any subsequent breach or default in any such
agreements, terms, covenant and conditions.
25. NOTICES AND DEMANDS
Any notice or demand given by Lessor to Lessee shall be deemed to be
duly given when served upon Lessee personally, or when left upon the Leased
Premises, or when mailed to Lessee at the address of the Leased Premises.
Lessee elects domicile at the Leased Premises for the purpose of
service for all notices, writ of summons or other legal documents in any suit at
law, action or proceeding which Lessor may take under this Lease.
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Any notice or demand given by Lessee shall be deemed to be duly given
when served upon Lessor personally or when mailed to lessor at the address
designated by Lessor for purposes of payment of the rent here under.
26. DESCRIPTIVE HEADINGS
The description headings of this Lease are inserted for convenience in
reference only and do not constitute a part of this Lease.
27. INTERPRETATION
This Lease shall be construed and governed by the laws of the Province
of Quebec. Should any of the provisions of this Lease and/or its conditions be
illegal or not enforceable under the laws of the Province of Quebec, it or they
shall be considered severable and the Lease and its conditions shall remain in
force and be binding upon the parties as though the said provisions or
provisions had ever been included.
Words importing the singular number only shall include the plural and
vice-versa and words importing the masculine gender shall include the feminine
gender and words importing persons shall include firms and unless the contrary
intentions appears the words "Lessor" and "Lessee" and where ever they appear in
this Lease shall mean respectively "Lessor, it executors, administrators,
successors and/or assigns" and "Lessee, its executors, administrators,
successors and/or assigns" and if there is more than one Lessee or Lessor or the
Lessee or Lessor is a female person or a corporation this Lease shall be read
with all grammatical changes appropriate by reason thereof, and all covenants,
liability and several obligations shall be joint and several.
28. OCCUPANCY
If the Lessor is unable to give possession of the Leased Premises to
the Lessee on the date of commencement of the term by reason of the non
completion of construction, repairs, improvements, additions, or alterations to
the Leased Premises, or the building containing same, the Lease shall not be
void or voidable nor shall the Lessor be liable for any loss or damage resulting
there from. However, the rent payable here under shall abate until the Leased
Premises are substantially completed.
29. EXPROPRIATION
In the event that all or part of the Leased Premises are expropriated,
which would prevent the use or occupation of the inside floor space of the
building (which forms the major part of the Leased Premises), in whole or in
part, then the Lessee shall be entitled to a diminution of the rental payable
here under during the period and for the areas of eviction only. Such diminution
of rent shall be reckoned from the date the Lessee is forced to vacate the said
inside floor space and shall be calculated on pro-rata basis, the whole without
any other claims by the Lessee against the Lessor for any loss or damages
occasioned by said eviction and/or loss of use.
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30. EXTENSIONS
The Lessor shall have the right at its option and from time to time
during the Lease term to make extensions and/or additions and/or to add one or
more additions floors or storeys onto all or part of the building comprising the
Leased Premises.
In the event the Lessor exercises said option, the Lessee agrees to
permit the Lessor to install and/or extend and/or add all the required
improvements including support, beams, wiring, piping, stairways, elevators,
ramps, vents, ducts, shafts and openings for view or light and the like and to
close all borrowed lights and the windows and openings for view or light and the
like and to close all borrowed lights and the windows and openings which may be
required to be closed as a consequence of such construction, the whole without
any claims for disturbance and/or inconveniences and the like which may be
caused to the Lessee, provided always that the required work is carried out
within a reasonable delay and that this Clause shall not absolve or release from
liability in respect for damages or any loss caused to the Lessee as a
consequence of said additions and/or extensions and provided that the Lessee
shall be granted a proportionate reduction it he rent as compensations for loss
of use of its inside floor space (during the period and for the area loss of use
only). All of the foregoing without any other claims by the Lessee against the
Lessor for damages and loss of use.
31. PERMITS ETC.
The Lessee shall obtain all necessary permits and licences required for
the occupancy and carrying on of its business, the Lessor making no warranties
what so ever regarding zoning permits and licences which may be required by the
Lessee. Should the Lessee fail to obtain any required permit and/or licence, it
shall remain bound to perform its obligations under the present Lease.
32. SECURITY DEPOSIT
No security deposit be tendered with the signature of this lease.
Any prepaid rent or security deposit or other security given to the Lessor shall
be security for the performance of all of the obligations of the Lessee under
this Lease or any renewal or extension thereof. The lessor will have 30 days,
following the expiry of this lease, to examine the Leased Premises for damages
and to make a final accounting of all charges due. Should any balance be due to
the Lessor, greater than the security deposit, the Lessee will pay said balance,
representing the difference between the amount due and the security deposit,
within 30 days of Lessor's notice.
33. RULES AND REGULATIONS
The Lessor shall have the right to make reasonable rules and
regulations as in its discretion may from time to time be needful for the
safety, care, cleanliness and proper administration of the building including
the Leased Premises, and for the preservation of good order therein, and the
same shall be observed and performed by the Lessee and by the clerks,
13
<PAGE> 14
servants, employees, agents invitees and customers, of the Lessee, and all such
rules and regulations applicable to all Lessees now or hereafter to be
established by the Lessor as herein provided shall form part of this Lease as if
now set forth at Length herein.
34. ACCESS
The Lessor shall have the right to the Leased Premises to perform such
work as its chooses to do upon the Leased Premises, the Lessee renouncing any
claim to any indemnity or diminution of rent, provided the same be carried out
with reasonable diligence.
35. CONSTITUTE OF TENURE SYSTEM ACT
The Lessee hereby renounces any right which it may have or acquire
under the Constitute of Tenure System Act, 1964 R.S.Q., Chapter 322, to purchase
or acquire the land hereby leased of the land on which the premises hereby
leased are situated.
36. OUTSIDE AREAS
The Lessor and Lessee shall not use any part of exterior parking and
loading areas or any other areas outside the Lease Premises for any purpose
other than parking, shipping, or receiving in the areas designated by the Lessor
for same only, with no outside storing permitted.
37. DISTURBANCE
The Lessee will not hold the Lessor in any way responsible for any
damages or annoyance which the Lessee may sustain through the fault of any
Lessee or Lessees who occupy any part of the building in which the Leased
Premises from part. Not with standing anything to the contrary stated herein,
Lessee shall not cause, noise, disturbance, or noxious odour, to the discomfort
of the other Lessees and neighbours. Lessee renounces to any claims it may have
or acquire against the Lessor under Article 1636 of the Civil Code of the
Province of Quebec.
38. LANGUAGE
The parties hereto have expressly requires that the present Lease as
well as all notices, Legal proceedings or other documents made pursuant hereto
be drafted in the English Language. Les parties expressmeant demande que le
present bail, ainsi que tout avis, procedure judiciaire ou autre document fait a
la suite des presente regie en anglais.
39. LESSOR'S LIABILITY
There shall be no abatement from or reduction of the rent due here
under nor shall Lessee be entitled to damages, costs, losses or disbursements
from Lessor regardless of the cause or reason therefor (except where such cause
or reason is proven by the Lessee to result from Lessor's gross negligence) on
account of fire, lightning, tempest or any similar peril. Neither shall there be
any abatement or reduction of rent or recovery by Lessee from Lessor on account
of partial or total failure of, damage caused by Lessening of supply of, or
stoppage of, heat, air conditioning, electric light, power, water, plumbing,
sewage, elevators or any other service, nor
14
<PAGE> 15
on account of any damage or annoyance occasioned by water, snow, or ice being
upon or coming through the roof, skylight, trap doors, windows or otherwise, or
by any defect or break in any pipes, tanks, fixtures, or otherwise whereby
steam, water, snow, smoke or gas, leak, issue or flow into the Leased Premises,
nor on account of any damage or annoyance occasioned by the condition or
arrangements of any electric of other wiring, nor on account of any damage or
annoyance arising from any acts, omissions, or negligence of CO-tenants or other
occupants of the building, or of owners or occupants of adjacent or contiguous
property, nor on account of the making of major repairs, alterations, repairs,
improvements or structural changes to the building, or any thing or service
therein or there on, or contiguous thereto provided the same shall be made with
reasonable expedition.
Without restricting the foregoing, Lessor shall not be liable for any
other damage to or loss, theft, or destruction of property, or death of, or
injury to, persons at any time being or on the premises or in or about the
building, howsoever occurring.
40. INSURANCE REQUIREMENTS
The Lessee agrees that it shall abide to Lessor's Insurers' regarding
stacking distances of goods, materials and equipment to furnaces, building's
walls and sprinkler heads and other regulations.
41. CONTAMINATING GOODS
The Lessee agrees not to store in the Leased Premises any goods which
may cause contamination of any nature to the goods of any other Lessee in the
same building adjacent to the said areas he is leasing.
42. INSURANCE ON WAREHOUSED GOODS
The Lessee undertakes to take out and keep in force during the term of
this lease, insurance covering loss or damage to the contents warehoused by him
in the Leased Premises to the extent of the full insurable value of such
contents. The Lessee shall obtain from its insurers a waiver of all the
subrogation rights of said insurers against the Lessor.
43. SPECIAL CONDITIONS
Lessee acknowledges the execution of this Lease shall constitute a
conclusive and irrefutable presumption that all agreements and representations
of any kind whatsoever, written or oral, previously entered into or made by the
parties hereto, or their agents, shall be solely those set forth in this Lease.
All sums payable here under by Lessee to Lessor as rent and additional
rent shall be so payable without set off, compensation or deduction what so
ever.
15
<PAGE> 16
IN WITNESS WHEREOF THE PARTIES HERETO HAVE SIGNED THE FOREGOING DEED OF
LEASE ON THE DAY AND YEAR HERE IN BEFORE SET FORTH.
- ------------------------------------ PER;
WITNESS ----------------------------------
(LESSOR)
- ------------------------------------ PER;
WITNESS ----------------------------------
(LESSEE)
PER;
----------------------------------
(LESSEE)
16
<PAGE> 1
Exhibit 10.20
PROMISSORY NOTE
$1,052,541.71 Deerfield Beach, Florida December 31, 1997
- ------------------ ---------------- -----------------
(Principal) (Location) (Date)
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
JACQUES COHEN the principal sum of ONE MILLION FIFTY TWO THOUSAND FIVE HUNDRED
FORTY ONE AND 71/100 Dollars, ($1,052,541.71), with interest thereon from
DECEMBER 31, 1997 at the rate of ten per cent per annum until maturity. Said
principal and interest being payable on DEMAND. Both principal and interest
being payable in lawful money of the United States at DEERFIELD BEACH, FL, or
at such other place as the holder hereof may designate in writing.
/s/ Jacques Cohen
-----------------------------------
<PAGE> 1
Exhibit 10.21
PROMISSORY NOTE
$267,976.73 Deerfield Beach, Florida December 31, 1997
- ------------------ ---------------- ----------- ----
(Principal) (Location) (Date)
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
GABRIEL COHEN the principal sum of TWO HUNDRED SIXTY SEVEN THOUSAND NINE HUNDRED
SEVENTY SIX AND 73/100 Dollars, ($267,976.73), with interest thereon from
DECEMBER 31, 1997 at the rate of TEN per cent per annum until maturity. Said
principal and interest being payable on DEMAND. Both principal and interest
being payable in lawful money of the United States at DEERFIELD BEACH, FL, or
at such other place as the holder hereof may designate in writing.
/s/ Gabriel Cohen
-----------------------------------
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports, and to all references to our firm, included in or made a part of this
Amendment No. 1 to the registration statement.
ARTHUR ANDERSEN LLP
Miami, Florida,
September 10, 1998.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF RONALD KORN
The undersigned, a nominee for director of Prestige Cosmetics
Corporation, a Florida corporation (the "Company"), hereby (i) consents to being
nominated for the position of director of the Company and agrees to serve as
such if elected, and (ii) consents to being named as a prospective director
and/or director nominee in the Company's Registration Statement on Form S-1
relating to the Company's initial public offering of its common stock, and in
the Prospectus contained therein proposed to be circulated in connection with
such offering, and all amendments thereto.
Executed this 16th day of June, 1998.
/s/ Ronald Korn
-----------------------------------
Ronald Korn
<PAGE> 2
EXHIBIT 23.3
CONSENT OF W. KEITH SCHILIT
The undersigned, a nominee for director of Prestige Cosmetics
Corporation, a Florida corporation (the "Company"), hereby (i) consents to being
nominated for the position of director of the Company and agrees to serve as
such if elected, and (ii) consents to being named as a prospective director
and/or director nominee in the Company's Registration Statement on Form S-1
relating to the Company's initial public offering of its common stock, and in
the Prospectus contained therein proposed to be circulated in connection with
such offering, and all amendments thereto.
Executed this 21st day of August, 1998.
/s/ W. Keith Schilit
-----------------------------------
W. Keith Schilit
<PAGE> 3
EXHIBIT 23.3
CONSENT OF ANN SPECTOR LEIFF
The undersigned, a nominee for director of Prestige Cosmetics
Corporation, a Florida corporation (the "Company"), hereby (i) consents to being
nominated for the position of director of the Company and agrees to serve as
such if elected, and (ii) consents to being named as a prospective director
and/or director nominee in the Company's Registration Statement on Form S-1
relating to the Company's initial public offering of its common stock, and in
the Prospectus contained therein proposed to be circulated in connection with
such offering, and all amendments thereto.
Executed this 21st day of August, 1998.
/s/ Ann Spector Leiff
-----------------------------------
Ann Spector Leiff
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