<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1999 Commission file number: 0-5223
CUTCO INDUSTRIES, INC.
--------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
New York 11-1771806
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
6900 Jericho Turnpike, Syosset, New York 11791
- ----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (516) 677-0320
--------------
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.10 per share
--------------------------------------
(Title of Class)
Check whether the Issuer (sometimes hereinafter called the "Registrant"): (1)
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period that
the Issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of the
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
State Issuer's revenues for its most recent fiscal year. $6,213,116
State the aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant, computed by reference to the price at which
the stock was sold, or the average bid and asked prices of such stock, as of a
specified date within 60 days prior to the date of filing:
$6,040,000 as of September 17, 1999.
There were 847,125 shares of Common Stock outstanding as of September 17, 1999.
Transitional Small Business Disclosure Format (check one). Yes No X
---- ----
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-KSB
FOR THE YEAR ENDED JUNE 30, 1999
INFORMATION REQUIRED IN ANNUAL REPORT OF SMALL BUSINESS ISSUERS
PART I
Item 1. DESCRIPTION OF BUSINESS.
CutCo Industries, Inc. (the "Company") is a New York
corporation organized in 1955. It is engaged primarily in the franchising of
hair care salons under the names "Haircrafters" and "Great Expectations
Precision Haircutters".
As previously reported by the Company in a current report on
Form 8-K dated March 3, 1999, in February 1999 the Company sold 30 of its retail
hair care salons to Regis Corporation ("Regis") for $1,800,000, which was
subsequently reduced to $1,600,000. The agreement with Regis provided with
certain exceptions that the Company would not compete with Regis in the
ownership or management of hair care salons located within a ten mile radius of
those salons sold to Regis. During the fiscal year ended June 30, 1999, the
Company sold and abandoned additional retail stores. As of June 30, 1999, the
Company did not own any retail stores and was solely engaged in franchising
operations.
On August 2, 1999, Marvin W. Marcus and Don vonLiebermann,
then the sole officers and directors of the Company, sold an aggregate of
300,000 shares of common stock of the Company owned or controlled by them
(approximately 35.4% of the Company's then outstanding shares) to Shera Corp. In
connection with this Messrs. Marcus and vonLiebermann resigned as officers and
directors of the Company, their employment agreements were terminated and they
each received a termination fee of $100,000. They also entered into consulting
agreements with the Company under which they have been paid $32,000 each. Also
in connection with the transaction with Shera Corp., Mr. vonLiebermann agreed to
vote the shares of common stock held or controlled by him as directed by Shera
Corp. and Mr. vonLiebermann granted to Shera Corp. an option to purchase 25,000
shares of common stock of the Company for a price of $4.00 for a period of one
year.
NARRATIVE DESCRIPTION OF BUSINESS
The Company's principal business is franchising hair care
salons under its proprietary names. Its Haircrafters ("Haircrafters") program
caters to economy-minded clientele at salons located largely in shopping
centers. Its Great Expectations Precision Haircutters ("Great Ex") program is
designed to appeal to fashion-conscious individuals at salons located mainly in
shopping malls. The Company has existing area distributor relationships with
several of its franchisees under which they are licensed to grant subfranchises
under the Company's proprietary names.
In September 1996, the Company acquired a cosmetology
technical training school in Easley, South Carolina, which operated in a 3,000
square foot retail location at an annual rental of $12,000 under a lease
expiring
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December 31, 1998. This operation was discontinued in June 1998. The facility
was closed in February 1999.
As of September 18, 1999, the Company's franchisees (including
subfranchisees) operated 156 licensed salons, which included 126 Haircrafters
salons, 29 Great Ex salons and one Natisse salons in the United States and
Canada.
The Company's standard franchise agreement grants a franchisee
the right to use the Company's proprietary names and marks in accordance with
the Company's system, which includes standards and specifications related to
products and services sold, maintenance of premises and employee conduct. A
franchisee is required to pay an initial fee, currently $20,000 for the
Haircrafters and Great Ex programs, and a weekly royalty, currently 6% of gross
sales from the franchisee's salon. The Company also presently offers a variety
of discount programs under which a franchisee operating multiple salons may be
entitled to discounts of 25% of the initial franchise fee on any additional
franchises he may purchase. The franchise agreement has an initial term of 15
years, with three five-year renewal options. The Company shares the initial
franchise fees and royalties received on account of subfranchises sold by its
area distributors, who perform continuing services for such subfranchisees.
In 1992 the Company introduced a New Area Development program,
under which qualified existing franchisees could acquire an exclusive territory
for the operation of existing and additional salons, in consideration of an
initial fee (which could be financed over four years) based on a percentage of
sales of the franchisee's existing salons and the franchisee's agreement to open
and maintain a minimum number of additional salons within the exclusive
territory. The additional salons would be opened by the franchisee at a reduced
license fee, and the royalties payable by the franchisee with respect to any
salon operated within the exclusive territory (including existing salons) would
be reduced by 50%. At September 17, 1999, there were 40 licensed salons
operating under the New Area Development Program. The Company no longer offers
this program.
The Company provides its franchisees with site-location
assistance, training, and promotional and advertising assistance. In addition,
the Company sells products and equipment (including fixtures, hair sprays, wave
set solutions, shampoos, etc.) primarily for use or resale by its franchisees.
The number of the Company's franchised hair care salons has
been steadily decreasing for the last several years.
The Company's franchise activities in the United States are
regulated by the Federal Trade Commission ("FTC") and various states. The FTC
requires that, before offering or selling a franchise, a franchisor provide a
prospective franchisee with an offering circular containing detailed information
about the franchisor (including audited financial statements), its franchise
program and agreements. Thirteen states require that a franchisor register and
provide prospective franchisees with a similar document before offering or
selling franchises to persons connected with those states. The FTC and the
aforementioned states require that a franchisor amend such document annually,
and more frequently, if necessary, upon any material change
2
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in the information disclosed therein. The Company seeks to comply with the
disclosure requirements to which it is subject and the registration requirements
in all states requiring registration and in which the Company desires to sell
franchises. The Company does not plan to sell franchises in those states
requiring registration, but in which the Company's offering circular is not
registered.
The Company's ability to register and protect its proprietary
marks is important to the success of its franchised salons and to the
marketability of its franchises. The Company's principal proprietary marks in
the hair salon and hair care business (and the year of the first Federal
registration of each) include: "Haircrafters International" (1978); "Great
Expectations Precision Haircutters" (registered as a trade name in 1976 and a
logotype in 1978); "Great Ex" (1981); "Haircrafters" (1984); and "Natisse"
(1990). In addition, the Company acquired the mark "Freestyle" (1975) in 1989
from Freestyle, Inc. Federal service mark registrations in effect prior to
November 1989 remain effective for twenty years, subject to their remaining in
use, and are renewable for additional ten year terms. Federal service mark
registrations initially registered during or after November 1989 remain
effective for an initial ten year period subject to their remaining in use, and
are renewable for additional successive ten year terms. The Company is of the
opinion that its proprietary marks afford sufficient protection for its
purposes.
The Company encounters competition in its business activities
from many firms, some of which are larger and more diversified and have greater
assets and resources. The hair care business and the franchising business are
highly competitive. The Company sells hair care products and equipment to
franchisees, but the Company's franchisees also purchase hair care products and
equipment from unrelated third parties. Data upon which the Company reliably can
estimate its relative competitive position is unavailable in the hair salon
industry because many of the Company's competitors are privately held and do not
publish financial information.
The Company made no material expenditures on Company-sponsored
research and development or customer-sponsored research activities relating to
products, services or techniques during fiscal 1998 or fiscal 1999.
As of September 17, 1999, the Company employed approximately 6
persons, all of whom are full time employees.
The Company does not expect that compliance with federal,
state and local laws, rules and regulations, enacted or adopted, relating to the
discharge of materials into the environment, will materially affect the
Company's capital expenditures, earnings or competitive position.
Item 2. DESCRIPTION OF PROPERTY.
The Company's principal executive offices are located in
approximately 5,400 square feet of office space at 6900 Jericho Turnpike,
Syosset, New York, under a lease expiring in February 2002. The current monthly
rental payable by the Company is approximately $10,700.
In connection with the Company's anticipated relocation of its
operations to California, the Company leases approximately 2,560 square feet
3
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of office space at 11777 San Vicente Boulevard, Los Angeles, California under a
lease expiring in September 2002. The annual rental payable by the Company is
approximately $77,000.
Wholly-owned subsidiaries of the Company also lease the
premises of approximately 38 salons that are subleased to franchisees at the
primary lease rental cost together, in certain cases, with an administrative
fee. Neither the Company nor its subsidiaries have any other liability with
respect to, or interest in, any of the leases on the premises of the Company's
other franchised outlets.
The Company's leases in most cases provide for payment of the
costs of insurance, utilities, real estate tax escalation and related lease
charges, in addition to rent.
Item 3. LEGAL PROCEEDINGS.
As a result of normal and routine business operations, the
Company and its subsidiaries are, from time to time, parties to legal
proceedings incidental to their businesses. In the opinion of management,
none of such presently pending proceedings will have a material effect on the
Company's financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
4
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PART II
Item 5. MARKET PRICE FOR COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
(a) Through March 31, 1998, the Company's Common Stock was
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"). Effective with the close of business on that date, the
Company was delisted from The NASDAQ Stock Market. Since that date, the
Company's Common Stock has traded on the OTC Bulletin Board. The prices in
the table below represent the range of high and low closing bid quotations as
reported by NASDAQ for each quarterly period until March 31, 1998 and, after
such date, as reported on the OTC Bulletin Board. The quotations represent
prices between dealers, do not include retail markups, markdowns or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Year ended Year ended
June 30, 1999 June 30, 1998
------------------ ------------------
High Low High Low
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter 7.88 .69 1.38 1.12
2nd Quarter 5.63 1.88 1.46 1.12
3rd Quarter 2.75 1.13 1.25 1.00
4th Quarter 2.00 1.38 1.25 1.00
</TABLE>
(b) As of September 17, 1999, the Company had approximately
220 security holders of record, not including owners whose holdings are in
single accounts of clearing houses or broker nominees.
(c) The Company did not pay any dividends in fiscal 1999 or
fiscal 1998.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Liquidity and Capital Resources:
Cash and cash equivalents were $1,528,000 at June 30, 1999, as
compared to $754,000 at June 30, 1998. In addition, the Company had marketable
securities of $845,000 at June 30, 1999, as compared to $153,000 at June 30,
1998. In fiscal 1999, the primary source of the Company's liquidity and capital
resources was net cash provided by operating activities of $253,000, as compared
to $50,000 in fiscal 1998.
The Company had a current ratio of 10.74 at June 30, 1999, as
compared to 2.59 at June 30, 1998.
5
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Subsequent to June 30, 1999, the Company sold its marketable
securities and made a $1,385,000 loan at 8% to Shera Corp., a related party.
Such loan is collateralized by 300,000 shares of Common Stock of the Company.
Results of Operations:
In fiscal 1999, revenues from Company-owned salon operations
decreased as compared to the prior year. The decrease in revenues was mainly
attributable to the sale, closure, or abandonment of all Company-owned stores
during fiscal 1999 for a net gain of $753,756. As of June 30, 1998, there were
40 Company-owned salons. During fiscal 1999, the Company-owned stores
contributed a $129,000 operating loss.
Sales of equipment and products remained relatively constant.
For fiscal 1999, there was a increase of 18%.
Royalties and service fees decreased by 19% in fiscal 1999, as
compared to a decrease of 11% in fiscal 1998. This decrease is due to a decline
in the number of franchised hair salons. The number of franchised hair salons
has been steadily decreasing for several years (292 at June 30, 1996, 276 at
June 30, 1997, 191 at June 30, 1998 and 160 at June 30, 1999). The decline in
franchised salons resulted from non-renewal of franchise agreements, as well as
lease terminations in franchised salons. The Company granted one new franchise
in 1995, four in 1996, one in 1997 and one in 1998.
The Company expects the decline in royalties and franchise
fees to continue as a result of attrition of existing licensees, without
replacements with new licensees. The Company does not anticipate significant
hair care franchise sales from new locations for fiscal 2000, due to
increased competition for new locations, coupled with a longer period from a
salon's opening until it achieves profitable operations. In fact, the Company
expects a further decline in royalties for fiscal 2000 in light of franchise
contract and lease contract terminations that occurred at the end of fiscal
1999.
Franchise fee income reported in fiscal 1999 were $157,000
as compared to fiscal 1998 of $11,000. The Company believes that the number
of franchised salons, and franchise fee income and royalty income, will
decrease in the foreseeable future. In addition, franchise fee income is
expected to decrease as payments to the Company under notes obtained in
connection with that Program cease at the varying maturities of such notes.
In fiscal 1999, selling, general and administrative
expenses decreased by 22%, or $477,000, from $2,170,000 in fiscal 1998. The
decreases were mainly due to lower lease occupancy and payroll costs. Fiscal
2000 expenses will be lower due to decrease in employees and general expenses.
Other net income increased from $123,000 in fiscal 1998 to
$970,000 in fiscal 1999. The increases resulted from contractual payments due
from certain licensees, interest and dividend income, and the sale of 30
stores for a gain of $863,000.
There were state income tax charges of $42,000 in fiscal 1999
as compared to $17,000 in fiscal 1998. Since the Company files separate
subsidiary state income tax returns, rather than consolidated state income tax
returns, the Company was not able to offset certain subsidiary losses against
other subsidiary income in fiscal 1999 and 1998. The Company has not
6
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recognized the future tax benefit of its net operating loss carryforwards,
because presently the Company cannot reasonably estimate the benefits that may
be realized upon profitable future operations.
The Company's salons and franchising activities, including its
sales of franchises, are not materially affected by seasonal fluctuations in the
volume of business. Furthermore, inflation has not materially affected the
Company's revenues and income during the past two fiscal years.
The Company has retained a software consultant to analyze the
software changes that need to be made in order to render the Company's computer
systems Year 2000 compliant. The Company is unable at present to estimate the
cost of any needed revisions to its computer systems, but does not believe that
it will experience material difficulties in attaining such compliance. The
Company does, however, rely on vendors, franchisees and others to render their
systems Year 2000 compliant. Any failure on their part to ensure such compliance
in a timely manner may have a material adverse effect on the Company's ability
to obtain goods and/or services necessary to the operation of its business or to
receive timely payments and/or accurate reports from its franchisees.
Item 7. FINANCIAL STATEMENTS.
(Response begins on page numbered F-1, which follows page II-4.)
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
As previously reported in the Company's Current Report on
Form 8-K for an event of June 10, 1998, on that date the Company terminated
Grant Thornton LLP ("Grant Thornton") as the Company's independent auditors.
The termination, which was approved by the Board of Directors of the Company,
resulted solely from the Company's desire to curtail expenses for
professional services. Grant Thornton's reports on the financial statements
of the Company for the past two years did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. There were no disagreements with Grant
Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s),
if not resolved to the satisfaction of Grant Thornton, would have caused
Grant Thornton to make reference to the subject matter of such
disagreement(s) in connection with its report during either of the Company's
two most recent fiscal years or any subsequent interim period preceding the
dismissal of Grant Thornton as the Company's independent auditors. On June
10, 1998, the Company's Board of Directors approved the selection of Nussbaum
Yates & Wolpow, P.C. ("NY&W") as its new independent auditors. On the same
date, NY&W accepted such appointment. The Company had not previously
consulted with NY&W regarding any accounting matters.
On September 14, 1999 in connection with the Company's
planned relocation of its offices to California, the Company terminated NY&W
as its independent auditors. NY&W had reported on the Company's financial
statements for the year ended June 30, 1998. NY&W's report did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope or accounting principles. There were no
disagreements with NY&W on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
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disagreements, if not resolved to the satisfaction of NY&W would have caused
NY&W to make reference to the subject matter of such disagreements in connection
with its report for the year ended June 30, 1998 or any subsequent interim
period prior to its termination. On September 14, 1999, the Company's Board of
Directors approved the selection of Jay J. Shapiro, CPA, a Professional
Corporation ("Shapiro") as its independent auditor. On that date, Shapiro
accepted such appointment. The Company had not previously consulted with Shapiro
regarding any accounting matters.
8
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PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a).
The following list sets forth information as of September 17,
1999, as to all directors and executive officers of the Company during its 1999
fiscal year and as of September 17, 1999:
RON OREN, age 42, has been the President and a Director of the
Company since August 2, 1999. For more than 10 years, he has been a private
investor engaged in real estate transactions for his own account and the
management of real estate which he holds. Mr. Oren has also been an investor in
public companies for his own account.
LAURA BALLEGEER, age 29, has been the Secretary and a
Director of the Company since August 2, 1999. For more than 5 years, she has
been a private investor engaged in real estate transactions for her own
account. Ms. Ballegeer has also managed investments for a limited number of
private investors.
MARVIN W. MARCUS, age 74, was Chairman of the Board of
Directors of the Company from October 1, 1986, Vice President-Financial Planning
from May 1984 and a Director from 1970. From 1970 until April 1984 and from May
1998 until August 2, 1999, Mr. Marcus was Treasurer and Chief Financial Officer
of the Company. He resigned from all positions on August 2, 1999. Mr. Marcus is
a certified public accountant and for more than 20 years has been a principal in
the accounting firm of Gettry, Marcus, Stern & Lehrer, CPA, P.C., formerly known
as Gettry, Marcus & Co., located in New York, New York.
DON VONLIEBERMANN, age 61, was President of the Company from
October 1, 1986, and a Director from 1975. Mr. vonLiebermann resigned as an
officer and Director of the Company on August 2, 1999.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Based solely upon a review of any Forms 3 and 4 and
amendments thereto furnished to the Registrant under Rule 16a-3(d) during its
most recent fiscal year and any Forms 5 and amendments thereto furnished to
the Registrant with respect to its most recent fiscal year, and any written
representations that no such Forms 3, 4, 5 or amendments to any of them, was
required during the most recent fiscal year, the Registrant believes that no
person who at any time during the fiscal year was a director, officer, or
beneficial owner of more than 10% of any class of equity securities of the
Registrant, failed to file on a timely basis reports required by Section
16(a) during the most recent fiscal year or prior years.
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Item 10. EXECUTIVE COMPENSATION.
The following table shows information regarding
compensation for services rendered in all capacities to the Company and its
subsidiaries during the fiscal years ended June 30, 1997, 1998 and 1999, to
the three (3) highest paid persons who are, or at some point during the
fiscal year ended June 30, 1999 were, officers or directors of the Company
(being the only such persons whose aggregate annual compensation exceeds
$100,000). A fee of $500 per meeting is paid to non-employee members of the
Board for attendance in person at Board meetings.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
SECURITIES
NAME AND SALARY ($) UNDERLYING OTHER COMPEN-
PRINCIPAL POSITION YEAR (1)(2) OPTION GRANTS SATION
- ------------------ ---- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Don vonLiebermann, 1999 202,000 -- (3)
President 1998 202,000 -- (3)
1997 202,000 -- (3)
Marvin W. Marcus, 1999 184,500 -- (3)
Chairman of the Board 1998 184,500 -- (3)
1997 184,500 -- (3)
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Messrs. Marcus and vonLiebermann resigned as an officers, directors and
employees of the Company effective August 2, 1999. Each of them was paid
his annual salary at the rates set forth above through such date, as
well as termination of employment payments of $100,000 each and payments
in connection with consulting agreements of $32,000 each.
(2) Does not include $32,400, $32,400 and $32,400 paid to the accounting
firm of Gettry, Marcus, Stern & Lehrer, CPA, P.C. (formerly known as
Gettry, Marcus & Co.), in which Mr. Marcus is a principal, for services
rendered by the firm during the fiscal years ended June 30, 1999, 1998
and 1997, respectively, in the preparation of federal, state and local
tax returns and performance of other accounting services for the Company
and its subsidiaries, inclusive of disbursements.
(3) The Company provided and maintained automobiles for use by Marvin W.
Marcus and Don vonLiebermann in connection with Company business
during each of fiscal years 1997, 1998 and 1999. The aggregate annual
cost to the Company for these automobiles in each year was
approximately $48,000. To the extent these automobiles were used for
other than Company business, the cost of rental and maintenance may be
considered compensation to the above-named individuals. No value for
personal use of automobiles by such individuals has been included in
the aggregate remuneration table set forth above.
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EMPLOYMENT AGREEMENTS
Each of Messrs. Marcus and vonLiebermann had entered into
Employment Agreements with the Company dated October 15, 1998, and amended April
1, 1999. Those Agreements provided for annual salaries of $184,500 for Mr.
Marcus and $210,000 for Mr. vonLiebermann. The Employment Agreements were
terminated as of August 2, 1999, in connection with the sale of Mr. Marcus and
Mr. vonLeibermann of the shares of common stock of the Company owned or
controlled by them to Shera Corp. Upon termination of employment they were each
paid a termination fee of $100,000 and consulting fees of $32,000.
Effective August 2, 1999, the Company entered into Employment
Agreements with Ron Oren and Laura Ballegeer, providing for annual salaries to
them of $192,000 and $77,000, respectively. The Employment Agreements also
contain customary provisions relating to payment or reimbursement of expenses,
disability, non-competition, confidentially and termination.
STOCK OPTION PLANS
The Company has two stock option plans for officers, directors
and employees of the Company and its subsidiaries. One plan was adopted on
November 15, 1990 (the "1990 Plan")and the other plan was adopted by the Board
of Directors on August 2, 1999 (the "1999 Plan"). On August 2, 1999, options to
purchase 60,000 shares of common stock under the 1990 Plan and 100,000 shares
under the 1999 Plan were granted to Ron Oren and options to purchase 50,000
shares under the 1999 Plan were grated to Laura Ballegeer. The exercise price of
these options was $3.00 per share. Adoption of the 1999 Plan must be approved by
the shareholders prior to August 1, 2000.
Options granted under the Plans to employees may be either
incentive stock options or non-qualified stock options at the discretion of the
Board. Options granted under the Plans to non-employee directors must be
non-qualified stock options. Non-qualified stock options are not intended to
qualify for incentive stock option plan treatment.
The Plans give sole discretion to the Board to grant
options to purchase the Company's Common Stock at not less than the market
value of the shares on the date of grant. Options granted under the Plans
must expire no later than ten years (five years, if the grantee is a director
or holder of 10% of the voting stock of the Company), after the date of grant.
During fiscal 1999, 66,500 options were exercised under the
1990 Plan.
As of June 30, 1999, there were 60,000 shares
available for grant under the 1990 Plan.
Item 11. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS.
VOTING SECURITIES.
The following table sets forth information at September 17,
1999 concerning ownership of the Company's Common Shares by (i) the two (2)
highest paid persons who are officers and directors of the Company (at September
17, 1998, there were only two executive officers and directors), (ii) all
officers and directors of the Company, as a group, and (iii) each person who
owns of
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record, or is known to the Company to own beneficially, more than 10% of the
Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------- ---------------------- --------
SOLE VOTING AND SHARED VOTING AND
INVESTMENT POWER INVESTMENT POWER
---------------- -----------------
<S> <C> <C> <C>
Ron Oren(2) 185,000(5) 460,000 45.6%
9641 Charleville Blvd.
Suite 546
Beverly Hills, 90212
Oren Family Trust(2) - 0 - 325,000(3) 38.3%
P.O. Box 16001
Beverly Hills, CA 90209
Shera Corp. 325,000(3) -0- 38.3%
9461 Charleville Blvd.
Suite 546
Beverly Hills, CA 90212
Simcha Oren(4) - 0 - 325,000(3) 5.6%
9641 Charleville Blvd.
Suite 546
Beverly Hills, CA 90212
Laura Ballegeer 50,000 (6) 5.6%
806 North Alpine Drive
Beverly Hills, CA 90210
All officers and
directors as a group
(2 persons) 235,000(3)(5)(6) 510,000(3)(5)(6) 49.4%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Each named person or group is deemed to be the beneficial owner of
securities that may be acquired within sixty days through the
exercise of options, warrants and rights, if any, and such securities
are deemed to be outstanding for the purpose of computing the
percentage of the class beneficially owned by such person or group.
Such securities are not deemed to be outstanding for the purpose of
computing the percentage of the class beneficially owned by any other
person or group. Accordingly, the indicated number of shares includes
shares issuable upon exercise of options (including employee stock
options) held by such person or group.
(2) Ron Oren is the Trustee of the Oren Family Trust which is the sole
shareholder of Shera Corp.
(3) Includes an option to purchase 25,000 outstanding shares held by
Shera Corp.
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(4) Simcha Oren is the mother of Ron Oren and is the sole beneficiary of
the Oren Family Trust.
(5) Includes options to purchase 160,000 shares under the Company's 1990
and 1999 Stock Option Plans.
(6) Includes options to purchase 50,000 shares under the Company's 1999
Stock Option Plan.
FISCAL YEAR END OPTION VALUES
As of June 30, 1999, there were no securities underlying unexercised
options held by the executive officers and directors of the Company identified
in the Summary Compensation Table.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See footnote (2) of the aggregate annual remuneration table under
"Aggregate Annual Remuneration," for a discussion of amounts paid by the Company
during fiscal 1999 to Gettry, Marcus, Stern & Lehrer, CPA, P.C., a New York City
accounting firm in which Marvin Marcus, a former shareholder and former director
and executive officer of the Company is a partner.
With respect to the fees paid by the Company for services, as
described in the preceding paragraph, Management believes that such fees are
substantially comparable to the fees that would have been paid to unaffiliated
parties providing such services to the Company.
On August 11, 1999, the Company made a loan to Shera Corp., a
principal shareholder, in the face amount of $1,385,000, due in one year with
interest at eight percent (8%) per annum. The loan is secured by 300,000 shares
of common stock of the Company.
13
<PAGE>
<TABLE>
<CAPTION>
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Index to Exhibits.
Page
----
<S> <C> <C>
(3) The Registrant's Restated Certificate of Incorporation
is incorporated by reference to Exhibit 3(a) to the
Registrant's Registration Statement on Form S-1 filed
on October 25, 1968 (File No. 2-30569). N/A
(3.1) A Certificate of Amendment to the Registrant's
Certificate of Incorporation, dated October 26, 1981,
is incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for its 1982
fiscal year. N/A
(3.1.1) A Certificate of Amendment to the Registrant's Certificate of
Incorporation, dated December 6, 1983, is incorporated by
reference to Exhibit 3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1983. N/A
(3.1.2) A Certificate of Amendment to the Registrant's Certificate of
Incorporation, dated December 21, 1987 is incorporated by
reference to Exhibit 3.1.2 to the Registrant's Annual Report
on Form 10-K for its 1988 fiscal year. N/A
(3.1.3) A Certificate of Change to the Registrant's Certificate of
Incorporation, dated November 10, 1993, is incorporated by
reference to Exhibit 3(i) to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1994. N/A
(3.1.4) Certificate of Merger of CutCo Holdings Corp. into the
Registrant dated June 11, 1987 is incorporated by
reference to Exhibit 3.1.3 to the Registrant's Annual
Report on Form 10-K for its 1987 fiscal year. N/A
(3.1.5) Agreement and Plan of Merger dated December 30, 1986
by and among the Registrant, CutCo Holdings Corp. and
CutCo Merger Corp. is incorporated by reference to
Exhibit 3.1.4 to the Registrant's Annual Report on
Form 10-K for its 1987 fiscal year. N/A
14
<PAGE>
<CAPTION>
EXHIBITS (CONTINUED) Page
----
<S> <C> <C>
(3.2) The Registrant's By-laws, as amended to date are
incorporated by reference to Exhibit
3.1.3 to the Registrant's Annual Report on
Form 10-K for its 1990 fiscal year. N/A
(10.1) The Registrant's form of franchise agreement for use
in the United States is incorporated by reference to
Exhibit 10.1 to the Registrant's Annual Report on Form
10-KSB for the 1995 fiscal year. N/A
(10.2.1)* The Registrant's 1987 Stock Option Plan is incorporated by
reference to Exhibit B to the Registrant's Proxy Statement
dated October 23, 1987, and mailed to shareholders on or about
that date in connection with the Registrant's annual meeting
of shareholders held on December 3, 1987. N/A
(10.2.2)* The Registrant's 1990 Stock Option Plan is incorporated by
reference to Exhibit A to the Registrant's Proxy Statement
dated December 3, 1990, and mailed to shareholders on or about
that date in connection with the Registrant's annual meeting
of shareholders held on January 11, 1991. N/A
(10.3) Asset Purchase Agreement between Four Star Pizza
Franchising Corporation ("Franchising") and Rolling
Winds Corporation, dated November 11, 1993, is
incorporated by reference to Exhibit 10.1 to the
Registrant's current Report on Form 8-K for an Event
of November 11, 1993 ("November 1993 Form 8-K"). N/A
(10.3.1) Management's Master License Agreement with Rolling Winds
Corporation, dated as of November 11, 1993, is incorporated by
reference to Exhibit 10.3 to the Registrant's November 1993
Form 8-K. N/A
(10.3.2) Sale Agreement for sale of "Four Star" Licensing
rights. N/A
(10.4)* Employment Agreement dated as of April 24, 1991
between the Registrant and Marvin W. Marcus, as
amended by letter dated May 15, 1992 is incorporated
by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the 1992 fiscal year. N/A
15
<PAGE>
<CAPTION>
EXHIBITS (CONTINUED) Page
----
<S> <C> <C>
(10.4.1)* Employment Agreement dated as of April 24, 1991 between the
Registrant and Don vonLiebermann, as amended by letter dated
May 15, 1992 is incorporated by reference to Exhibit 10.9.1 to
the Registrant's Annual Report on Form 10-K for the 1992
fiscal year. N/A
(10.4.2)* Employment Agreement dated as of April 24, 1991, between the
Registrant and Michael Kramer, as amended by letter dated May
15, 1992, is incorporated by reference to Exhibit 10.9.2 to
the Registrant's Annual Report on Form 10-K for the 1992
fiscal year. N/A
(10.5)* Letter agreement dated June 22, 1994, amending
Employment Agreement dated as of April 24, 1991
between the Registrant and Marvin W. Marcus, is
incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the 1994
fiscal year. N/A
(10.5.1)* Letter agreement dated June 22, 1994, amending Employment
Agreement dated as of April 24, 1991 between the Registrant
and Don vonLiebermann, is incorporated by reference to Exhibit
10.6.1 to the Registrant's Annual Report on Form 10-K for the
1994 fiscal year. N/A
(10.5.2)* Letter Agreement dated June 22, 1994, amending Employment
Agreement as of April 24, 1991 between the Registrant and
Michael Kramer, is incorporated by reference to Exhibit 10.6.2
to the Registrant's Annual Report on Form 10-KSB for the 1994
fiscal year. N/A
(10.6)* Letter agreement dated as of August 14, 1996, amending
Employment Agreement dated as of April 24, 1991
between the Registrant and Marvin W. Marcus. N/A
(10.6.1)* Letter agreement dated as of August 14, 1996, amending
Employment Agreement dated as of April 24, 1991
between the Registrant and Don vonLiebermann. N/A
(10.6.2)* Letter agreement dated as of August 14, 1996, amending
Employment Agreement dated as of April 24, 1991
between the Registrant and Michael Kramer. N/A
16
<PAGE>
<CAPTION>
EXHIBITS (CONTINUED) Page
----
<S> <C> <C>
(10.7)* Letter agreement dated as of July 27, 1998, amending
Employment Agreement dated as of April 24, 1991
between the Registrant and Marvin W. Marcus. N/A
(10.7.1)* Letter agreement dated as of July 27, 1998, amending
Employment Agreement dated as of April 24, 1991
between the Registrant and Don vonLiebermann. N/A
(10.7.2)* Severance agreement dated as of April 24, 1998,
between the Registrant and Michael Kramer. N/A
(10.7.3)* Agreement for Purchase and Sale of Assets dated as of February
12, 1999, between Regis Corporation and Registrant is
incorporated by reference to Exhibit 7.1 to the Registrant's
Current Report on Form 8-K for an Event of March 3, 1999. N/A
(10.8.1)* Letter Agreement dated August 2, 1999 between the
Registrant and Marvin Marcus terminating Employment
Agreement. ___
(10.8.2)* Letter Agreement dated August 2, 1999 between the
Registrant and Don vonLiebermann terminating
Employment Agreement. ___
(10.8.3)* Consulting Agreement dated August 2, 1999 between
Registrant and Don vonLiebermann. ___
(10.8.4)* Consulting Agreement dated August 2, 1999 between
Registrant and Marvin Marcus. ___
(10.8.5)* Employment Agreement dated August 2, 1999 between
Registrant and Ron Oren. ___
(10.8.6)* Employment Agreement dated August 2, 1999 between
Registrant and Laura Ballegeer. ___
(21) Subsidiaries of the Registrant. N/A
(23) Consent of Independent Certified Public Accountants. E-__
(b) Reports on Form 8-K.
There were no Reports on Form 8-K filed by the Registrant
during the last quarter of the fiscal year covered by this
Report.
</TABLE>
- -----------------------------------------------------
* Denotes management contract or compensatory plan or arrangement.
17
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CUTCO INDUSTRIES, INC.
By: s/ Ron Oren
-----------------------------
President and Director
Dated: October 8, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
TITLE NAME AND SIGNATURE DATE
----- ------------------ ----
<S> <C> <C>
President, Treasurer,
Principal Financial
and Accounting Officer,
Director /s/ Ron Oren October 8, 1999
---------------------
(Ron Oren)
Secretary, Director
/s/ Laura Ballegeer October 8, 1999
---------------------
(Laura Ballegeer)
</TABLE>
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
YEARS ENDED JUNE 30, 1999 AND 1998
FINANCIAL STATEMENTS AND REPORTS OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
YEARS ENDED JUNE 30, 1999 AND 1998
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Reports of Independent Certified Public Accountants F-3
F-3a
Consolidated financial statements:
Balance sheets F-4
Statements of operations F-6
Statements of shareholders' equity F-7
Statements of cash flows F-8
Notes to consolidated financial statements F-10
</TABLE>
<PAGE>
JAY J. SHAPIRO, C.P.A.
A PROFESSIONAL CORPORATION
16501 VENTURA BOULEVARD
SUITE 650
ENCINO, CALIFORNIA 91436
PH: (818) 990-4204 FX: (818) 990-4944
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
CutCo Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of CutCo Industries,
Inc. and Subsidiaries as of June 30, 1999 and the related consolidated
statements of operations, stockholders' 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 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 consolidated financial position of CutCo Industries,
Inc. and Subsidiaries as of June 30, 1999 and the results of their operations
and their consolidated cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Encino, California
September 20, 1999
F-3
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,528,108 $753,658
Marketable securities 844,903 153,376
Notes receivable - Regis Corporation 109,859 0
Notes and accounts receivable, net 323,323 343,267
Merchandise inventory 0 364,185
Deferred income taxes 0 130,000
Prepaid expenses, taxes and miscellaneous receivables 38,989 85,259
Assets held for sale 0 100,000
---------- ----------
Total current assets 2,845,182 1,929,745
---------- ----------
Property and equipment:
Furniture, fixtures and equipment 130,253 1,841,077
Leasehold improvements 0 70,944
---------- ----------
130,253 1,912,021
Less accumulated depreciation and amortization (108,505) (1,095,843)
---------- ----------
21,748 816,178
---------- ----------
Other assets:
Notes receivable, non-current, net 258,234 77,246
Deferred charges and other 0 63,570
Deposits 22,708 74,733
---------- ----------
280,942 215,549
---------- ----------
$3,147,872 $2,961,472
---------- ----------
---------- ----------
</TABLE>
(Continued)
See notes to financial statements
F-4
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 1999 AND 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $232,725 $567,381
Current portion of long-term debt 0 6,860
Accrued and withheld taxes, other than income taxes 398 146,669
Income taxes payable 31,558 25,073
----------- ----------
Total current liabilities 264,681 745,983
----------- ----------
Deposits payable 31,369
----------
Deferred income 43,121
----------
Deferred income taxes 130,000
Total Liabilities 950,473
----------
Commitments and contingencies(Notes 5, 8 and 12)
Stockholders' equity:
Common stock, $.10 par value, authorized
5,000,000 shares, issued 1,950,206 and
1,883,706 in 1999 and 1998, respectively 195,021 188,371
Additional paid-in capital 4,275,725 4,185,250
Retained earnings 1,894,037 1,118,970
----------- ----------
6,364,783 5,492,591
----------- ----------
Less common stock held in treasury, at cost,
1,103,081 shares (3,481,592) (3,481,592)
----------- ----------
2,883,191 2,010,999
----------- ----------
$3,147,872 $2,961,472
----------- ----------
----------- ----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
---- ----
<S> <C> <C>
Revenues:
Owned retail stores $4,468,853 $6,896,700
Sales of equipment and products 235,237 199,542
Royalties and service fees 1,351,723 1,663,193
Franchise fee income 157,303 10,793
----------- -----------
6,213,116 8,770,228
----------- -----------
Costs and expenses:
Direct costs of owned retail stores 4,260,741 6,512,973
Cost of equipment and products sold 192,388 149,440
Depreciation and amortization 186,408 466,412
Selling, general and administrative expenses 1,693,266 2,169,554
Provision for (recovery of) doubtful accounts and
notes receivables 33,406 ( 14,946)
----------- -----------
6,366,209 9,283,433
----------- -----------
Loss from operations (153,093) (513,205)
----------- -----------
Other income:
Interest and dividend income 121,530 51,309
Gain (loss) on sale/abandonment of assets 753,756 (150,589)
Other income( net of $6,536 interest expense in 1998) 95,182 222,075
----------- -----------
970,468 122,795
----------- -----------
Income (loss) before income taxes 817,375 (390,410)
Income tax provision ( 42,308) ( 16,847)
----------- -----------
Net income (loss) 775,067 ($407,257)
----------- -----------
----------- -----------
Basic net income( loss) per common share $ .96 ($ .52)
----------- -----------
----------- -----------
Diluted net income(loss) per share $ .89 ($ .52)
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements
F-6
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------ Paid-in Retained --------------
Shares Amount Capital Earnings Shares Amount Total
------ ------ ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1997 1,883,706 $188,371 $4,185,250 $1,526,227 1,103,081 ($3,481,592) $2,418,256
Net Loss ( 407,257) ( 407,257)
--------- --------- ---------- ----------- ---------- ------------ -----------
Balance at
June 30, 1998 1,883,706 188,371 4,185,250 1,118,970 1,103,081 (3,481,592) 2,010,999
Options exercised 66,500 6,650 90,475 97,125
Net Income 775,067 775,067
--------- --------- ---------- ----------- ---------- ------------ -----------
Balance at
June 30, 1999 1,950,206 $195,021 $4,275,725 $1,894,037 1,103,081 ($3,481,592) $2,883,191
--------- --------- ---------- ----------- ---------- ------------ -----------
--------- --------- ---------- ----------- ---------- ------------ -----------
</TABLE>
See notes to financial statements
F-7
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $775,067 ($407,257)
--------- --------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 181,246 464,413
Provision for (recovery of) doubtful accounts and
notes receivable, net 33,406 ( 14,946)
Gain on sale of retail stores -- Regis (863,000) 0
Loss on abandonment of property and
equipment, net 109,244 150,589
Changes in operating assets and liabilities:
Notes and accounts receivable 304,309 ( 7,591)
Merchandise inventory 0 12,612
Prepaid expenses, taxes and miscellaneous
receivables 46,270 45,952
Deposits and other 215,595 31,152
Accounts payable and accrued expenses (334,656) (255,942)
Accrued and withheld taxes, other than income taxes (146,270) 71,502
Income taxes payable 6,485 (6,380)
Deposits payable (31,389) ( 31,130)
Deferred income (43,121) ( 2,588)
--------- --------
(521,881) 457,643
--------- --------
Net cash provided by operating activities 253,186 50,386
--------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,474) (26,017)
Sale(Purchase) of marketable securities, net (691,527) 346,007
Sale of company-owned store assets,net 1,125,000 0
--------- --------
Net cash provided by (used in) investment activities 430,999 319,990
--------- --------
</TABLE>
See notes to financial statements
F-8
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from financing activities:
Principal payments on loans ($6,860) ($167,558)
Exercise of stock options 97,125 0
---------- ---------
Net cash used in financing activities 90,265 ( 167,558)
---------- ---------
Net increase in cash and cash equivalents 774,450 202,818
Cash and cash equivalents, beginning of year 753,658 550,840
---------- ---------
Cash and cash equivalents, end of year $1,528,108 $753,658
---------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 0 $ 6,536
---------- ---------
---------- ---------
Income taxes $ 11,200 $ 15,847
---------- ---------
---------- ---------
Non-cash investment and financing activities:
Notes and accounts receivable received in connection
with sale of salons $ 153,000 $ 0
---------- ---------
---------- ---------
</TABLE>
See notes to financial statements
F-9
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
CutCo Industries, Inc. and Subsidiaries (the "Company") was primarily
engaged in the operation and franchising of hair care salons. As of
June 30, 1999 the company-owned or retail store operations have been
sold , closed, or abandoned.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of CutCo Industries, Inc. and its subsidiaries, all of which are
wholly-owned. All significant intercompany balances and transactions
have been eliminated.
INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities, which are classified as
"available for sale" and reported at fair market value, at June 30,
1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
U.S Treasury Notes 397,529 100,376
Mutual Funds 0 53,000
Common Stocks 447,374 0
-------- --------
$844,903 $153,376
-------- --------
-------- --------
</TABLE>
As of June 30, 1999 and 1998, fair value approximated cost.
In August 1999, the Company liquidated the marketable securities
portfolio with an approximate cost of $942,000 at a loss of
approximately $26,000.
MERCHANDISE INVENTORIES
Inventory, consisting primarily of merchandise held for resale in its
company-owned stores, was stated at the lower of cost or market. Cost
was determined using the first-in, first-out method. The Company holds
no inventory as of 6/30/99.
F-10
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to related the cost
of depreciable assets to operations over their estimated service lives
(generally 5 to 10 years on a straight-line basis). Leasehold
improvements at the retail stores are amortized over the term of the
lease or service lives of the improvements, whichever is shorter. The
costs of additions and improvements which substantially extend the
useful life of a particular asset are capitalized. Repair and
maintenance costs are charged to expense. The 1999 depreciation expense
for corporate furniture and equipment was $15,500.
DEFERRED CHARGES
The excess of cost over the fair value of net assets acquired
(goodwill) was amortized on a straight-line basis over 10 or 15 years.
REVENUES
Income from sales of franchises is recognized when the Company has
substantially fulfilled its related obligations under the franchise
agreement. Until such time, fees are deferred, net of related direct
costs. Royalties from franchisees are reported as revenue as the fees
are earned and become receivable from the franchisee.
INCOME TAXES
Deferred income taxes are recognized for temporary differences between
financial statements and income tax bases of assets and liabilities,
net operating loss carryforwards and tax credit carryforwards, for
which income tax expenses or benefits are expected to be realized in
future years. A valuation allowance has been established to reduce such
deferred tax assets as it is more likely than not that such assets will
not be realized. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
F-11
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
EARNINGS PER SHARE
For the year ended June 30, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share,"
which replaces the presentation of primary earnings per share ("EPS")
and fully diluted EPS with a presentation of basic EPS and diluted EPS.
Basic EPS excludes common stock equivalents and is computed by dividing
net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period( 810,000 for
1999 and 780,625 shares for 1998). Diluted EPS reflects the potential
dilution that could occur if common stock equivalents such as stock
options were exercised. The effect of stock options on the calculation
of earnings per common share was anti-dilutive in 1998 and resulted in
871,000 weighted shares for 1999.
STOCK-BASED COMPENSATION PLANS
The Company maintains two stock option plans, as more fully described
in Note 6 to the financial statements, accounted for using the
"intrinsic value" method pursuant to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure provisions of SFAS
No. 123, "Accounting for Stock-based Compensation."
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
BUSINESS CONCENTRATIONS AND FINANCIAL INSTRUMENTS
Financial instruments which subject the Company to concentration of
credit risk consist primarily of accounts and notes receivable relating
to the Company's franchising operations. Concentrations consist of
multiple location franchisees who are located in specific geographic
areas. The Company routinely addresses the financial strength of its
franchisees and provides for al allowance for estimated uncollectible
amounts. The Company's principal financial instruments consist of
investments in marketable securities, accounts and notes receivable and
long-term debt. The Company believes that the carrying amount of such
instruments approximates fair value.
F-12
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
USE OF ESTIMATES AND OTHER
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reports amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The significant estimates include, but are not limited to,
the allowance for doubtful accounts, inventory valuation, deferred
charges and income taxes.
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company
operates within one business segment and these statements have no
material impact on our consolidated financial position, results of
operations of cash flows.
2. ACQUISITIONS AND DISPOSITIONS
During fiscal 1997, the Company acquired a cosmetology technical
training school ("school") for $45,000 in cash. The remaining carrying
value of $18,680 related to this acquisition, which was accounted for
as a purchase, was written off in fiscal 1998 as the school was closed.
The Company sold its Four Star Pizza business as of November 8, 1993
for the initial consideration of $50,000 in cash and $150,000 in 8%
promissory notes payable monthly over six years. In addition, the
Company was entitled to future monthly royalties equal to 25% of
initial franchise fees collected and 1.25% of gross sales generated by
Four Star Pizza licensees. In August, 1998, the Company received
$90,000 and a promissory note of $10,000 in consideration for
terminating the license agreement. Notes receivable of $58,112 and the
remaining net realizable value of the licensing rights of $41,888 are
included as assets held for sale as of June 30. 1998. In connection
therewith, the licensing rights were reduced by approximately $45,000
which is included in 1998 amortization expense.
In 1998, deferred charges included goodwill of $74,470, deferred costs
for area distributorships of $11,357 and other assets of $5118, net of
$27,375 accumulated amortization.
F-13
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
2. ACQUISITIONS AND DISPOSITIONS (CON'T)
In February 1999, the Company sold 30 retail stores (75% of
company-owned units) to Regis Corporation ("Regis") for $1.6 million
cash and recognized a net gain of approximately $863,000. The Company
agreed not to "compete" with the units sold and to allow Regis "first
right of refusal" for franchisee buyouts in return for a 3% of net
sales monthly payment for two years.
In addition, the Company sold three retail stores and abandoned nine
retail stores during fiscal 1999. These transactions involving net book
value and related disposal costs resulted in a net loss of
approximately $109,244.
As of June 30, 1999, the Company did not own any retail stores and was
strictly a franchising operation. Such retail stores with approximate
net book value of $1.2 million were sold, closed or abandoned during
1999.
The fiscal 1999 loss from operations includes a $129,000 loss generated
by company-owned stores before their disposition.
F-14
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
3. NOTES AND ACCOUNT RECEIVABLE
Notes and accounts receivable consist of the following:
<TABLE>
<CAPTION>
June 30
---------
1999 1998
---- ----
<S> <C> <C>
Notes receivable $710,223 $508,107
Less non-current portion (504,329) (229,487)
------- -------
Notes receivable, current portion 205,894 278,620
Accounts receivable 242,429 250,501
------- -------
448,323 529,121
Less allowance for doubtful accounts
and notes (125,000) (185,854)
------- -------
$323,323 $343,267
-------- --------
-------- --------
Notes receivable, non-current 504,329 229,487
Less allowance for doubtful notes (246,095) (152,241)
------- -------
Notes receivable, non-current, net $258,234 $77,246
-------- --------
-------- --------
</TABLE>
Through fiscal 1994, the Company received notes aggregating $895,119 in
connection with the sale of area franchise rights. The notes are
receivable in 48 equal installments with interest, and the related
franchise fee income will be recognized as the notes are collected.
During fiscal 1998 the Company recognized $1,087 of franchise fee
income relating to the collection of such notes.
F-15
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
4. LONG-TERM DEBT
On April 12, 1993 the Company issued two unsecured promissory notes of
$190,000 and $160,000 in connection with an acquisition of eight
salons. These notes are payable in 59 equal monthly installments
consisting of principal and interest (8.5%) in the amounts of $2,985
and $2,513, respectively, which commenced on May 12, 1993 and mature on
April 12, 1998, with final payments of $66,500 and $56,000,
respectively. Annually, in the event the prime rates exceeds 7%, such
notes shall bear interest at the prime rates, and the remaining balance
of the note shall be amortized in equal monthly payments as if the
original maturity date was April 12, 2000. The notes were fully paid in
April 1998.
On September 25, 1995, the Company issued a $20,000 promissory note in
connection with the acquisition of one salon. The note is payable in 48
monthly installments consisting of principal and interest (7%) of $479
and the final balance of $6,860 was fully paid in fiscal 1999.
5. STOCK OPTIONS
The Company has incentive stock option plans, as amended, which became
effective in 1987 and 1990. The exercise price of options granted under
the plan shall not be at less than fair value at date of grant. Subject
to termination of employment, options granted expire up to ten years
from date of grant, and are non-transferable other than on death.
Options become exercisable at the rate of twenty-five percent per year,
commencing with the date of grant. Options for person who attain
fifteen years of service with the Company are fully exercisable on the
date granted.
F-16
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
5. STOCK OPTION (CON'T)
The following summarizes the changes in options outstanding under the
Company's stock options plans for the two years ended June 30, 1999:
<TABLE>
<CAPTION>
Weighted-
Average
Number Option Price Exercise
of Shares Per Share Price
--------- --------- ------
<S> <C> <C> <C>
Outstanding at June 30, 1997 132,000 $1.25-3.03 $1.63
Canceled (24,000) $1.25-2.75 $1.50
-------
Outstanding at June 30, 1998 108,000 $1.25-3.03 $1.66
-------
Exercised (66,500) $1.25-3.03 $1.70
Canceled (41,500) $1.25-3.03 $1.70
-------
Outstanding at June 30, 1999 0
-------
-------
Options exercisable at June 30, 1999 0 $1.25-3.03 $1.73
-------
-------
Options exercisable at June 30, 1998 99,500 $1.25-3.03 $1.70
-------
-------
</TABLE>
At June 30, 1999 and 1998, the Company had 60,000 shares available for
grant. In August 1999, the Company granted all 60,000 shares to the new
controlling shareholder (Note 12).
If the Company had elected to recognize compensation expense based upon
the fair value at the grant dates for awards under these plan
consistent with the methodology prescribed by SFAS No. 123, the
Company's reported net income (loss) and net income (loss) per share
would be reduced to the pro forma amount indicated below for the years
ended June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Income (loss):
As reported $775,000 ($407,257)
Pro forma $772,000 ($ 409,795)
Basic Income (loss) per common share:
As reported $.96 ($.52)
Pro forma $.96 ($ .52)
</TABLE>
F-17
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
5. STOCK OPTION (CON'T)
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before fiscal 1996. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
for the fiscal years ended June 30, 1998 and 1999: expected volatility
of 30%; risk-free interest rate of 5.7%; and expected term of 5 years
for both years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the use of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
6. INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return and separate state and local returns. Income tax expense for the
years ended June 30, 1999 and 1998 is composed of state and local
taxes.
The reasons for the difference between the total tax provision and the
amount computed by applying the statutory Federal income tax rate to
the income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
Expected tax provision (benefit) $263,500 ($133,000)
State and local income taxes, net of
Federal income tax benefit 32,000 11,000
Increase (decrease) in valuation allowance (110,000) 155,000
Utilization of net operating loss (125,192) 0
Other (18,000) (16,153)
---------- --------
$42,308 $16,847
---------- --------
---------- --------
</TABLE>
F-18
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
6. INCOME TAXES (CON'T)
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Gross deferred tax liability, tax depreciation 0 ($130,000)
--------- --------
--------- --------
Gross deferred tax assets:
Bad debt reserves 126,000 115,000
Net operating loss carryforward 312,000 558,000
Tax credits 52,000 49,000
Other 0 8,000
--------- --------
490,000 730,000
Valuation allowance (490,000) (600,000)
--------- --------
Net deferred tax assets 0 130,000
--------- --------
Net deferred tax liability $ - $ -
--------- --------
--------- --------
</TABLE>
The Company has net operating loss(reduced for 1999 tax effect of gain
on sale of retail stores) and tax credit carryforwards of approximately
$917,000 and $52,000, respectively, expiring through 2018.
7. FRANCHISING INFORMATION
The Company operated a chain of its own retail hair care salons and has
granted franchises for hair care salons throughout the United States.
As of June 30, 1999 there were no company-owned salons in operation,
compared to 40 at June 30, 1998. The number of franchised salons was
160 and 191 at June 30, 1999 and 1998. The Company did not record any
initial franchise fees during the year ended June 30, 1999 and 1998.
During the year ended June 30, 1998, the Company closed 4 salons and
the cosmetology technical training school.
8. COMMITMENTS
The Company leases office and salon facilities and also leases certain
equipment under operating leases that expire through 2007. The leases
provide for minimum annual rentals and, in most cases, for percentage
rentals based on sales in excess of specified minimum amounts, real
estate taxes and other expenses. Certain of the leased premises are
sublet to licensees at rentals equal to those paid by the Company.
Certain of the leases contain options to renew. Over 40 leases were
assigned to others during fiscal 1999.
F-19
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
8. COMMITMENTS (CON'T)
The following is a schedule of approximate minimum rentals and
subrental income under non-cancelable operating leases having an
initial or remaining term of more than one year as of June 30, 1999:
<TABLE>
<CAPTION>
Minimum
Amounts to be Net
Minimum Received from Minimum
Rentals Subleases Rentals
------- --------- -------
<S> <C> <C> <C>
Year ending June 30,
2000 $991,000 $613,000 $378,000
2001 700,000 535,000 165,000
2002 425,000 300,000 125,000
2003 200,000 88,000 112,000
2004 100,000 100,000 0
Thereafter 300,000 300,000 0
------- ------- -------
$2,716,000 $1,936,000 $780,000
---------- ---------- --------
---------- ---------- --------
</TABLE>
The following is a schedule of approximate rental expense (net of
sublease rental income) for the years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Minimum rentals $941,000 $984,000
Percentage rentals, real estate taxes 90,000 195,000
------ ---------
$1,031,000 $1,179,000
---------- ----------
---------- ----------
</TABLE>
10. OTHER INCOME
Other income for 1998 includes the fourth quarter collection of
$180,000 of past due royalties that were previously written off. Other
income for 1999 includes $45,000 in closing credit adjustments.
11. ADVERTISING
Advertising costs were approximately $30,100 and $110,000 for the years
ended June 30, 1999 and 1998.
F-20
<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
12. SUBSEQUENT EVENTS
a) In August 1999, the two controlling stockholders ("Former
Stockholders") sold their 35% interest (300,000 common shares)
in the Company to Shera Corp., a Nevada corporation, "Shera,"
for $1.2 million in cash. In addition, Former Stockholders
were given termination payments of $100,000 and consulting
agreements at $48,000 each. As of the report date, $132,000
had been paid to each of the Former Stockholders by the
Company.
The President of Shera became the Company's new Chairman and
Chief Executive Officer under a three-year employment
agreement with annual compensation of $192,000. In addition,
he received 60,000 options under the 1990 Plan at $3.00
exercise price and 100,000 options at $3.00 exercise price
under the new 1999 Incentive and Non-Qualified Stock Option
Plan(the"Plan"). The new Secretary and Director for the
Company also received 50,000 options and 250,000 of the Plan's
5-year options are still available for grant.
b) The Company entered into a loan agreement with Shera which
provides for a loan of $1,385,000 for a period of one year.
The loan bears monthly interest at the rate of 8% per annum
with principal due at maturity. The loan is collateralized by
the 300,000 shares held by Shera.
c) A new lease was executed by the Company in August 1999 for a
new facility in Los Angeles, California. The lease begins on
October 1, 1999 for a three-year term with minimum monthly
rent of $6,400 and a security deposit of $6,789.
F-21
<PAGE>
Exhibit 10.8.1
CUTCO INDUSTRIES, INC.
6900 Jericho Turnpike
Syosset, New York 11791
August 2, 1999
Mr. Marvin Marcus
45 Cardinal Drive
East Hills, New York 11576
Dear Mr. Marcus:
Reference is hereby made to your employment agreement with CutCo
Industries, Inc. (the "Company") dated as of October 15, 1998, as amended as
of April 1, 1999 (the "Employment Agreement").
This letter is being delivered to induce you to resign your
employment as an officer and employee of the Company. In lieu of any
severance or termination of employment payments or other compensation you may
be entitled to receive under the Employment Agreement following termination of
employment after a change of control of the Company, you agree to accept the
sum of $100,000 in full satisfaction of any such, or any other, compensation
and severance claims.
The Company hereby reaffirm the validity of its undertakings set
forth in the Indemnity Agreement dated as of October 15, 1998 between the
Company and you, and agrees that any expenses (including reasonable fees and
disbursements of counsel selected by you) incurred by you after the date
hereof in connection with the informal inquiry commenced by the Southeast
Regional Office of the Securities and Exchange Commission regarding CutCo
Acquisition Corporation shall be promptly reimbursed by the Company.
As of the date hereof, you shall deliver to the Company all credit
cards of the Company and consent that the Company cancel, in accordance with
applicable law, all benefits and corporate perquisites, other than the use of
a Company leased vehicle.
Very truly yours,
CUTCO INDUSTRIES, INC.
By: /s/ Ron Oren
------------------------
Ron Oren
President
AGREED TO:
- ----------------------------------
Marvin Marcus
<PAGE>
Exhibit 10.8.2
CUTCO INDUSTRIES, INC.
6900 Jericho Turnpike
Syosset, New York 11791
August 2, 1999
Mr. Don vonLiebermann
54 Kellogg Hill Road
Weston, Connecticut 06883
Dear Mr. vonLiebermann:
Reference is hereby made to your employment agreement with CutCo
Industries, Inc. (the "Company") dated as of October 15, 1998, as amended as
of April 1, 1999 (the "Employment Agreement").
This letter is being delivered to induce you to resign your employment
as an officer and employee of the Company. In lieu of any severance or
termination of employment payments or other compensation you may be entitled
to receive under the Employment Agreement following termination of employment
after a change of control of the Company, you agree to accept the sum of
$100,000 in full satisfaction of any such, or any other, compensation and
severance claims.
The Company hereby reaffirm the validity of its undertakings set forth
in the Indemnity Agreement dated as of October 15, 1998 between the Company
and you, and agrees that any expenses (including reasonable fees and
disbursements of counsel selected by you) incurred by you after the date
hereof in connection with the informal inquiry commenced by the Southeast
Regional Office of the Securities and Exchange Commission regarding CutCo
Acquisition Corporation shall be promptly reimbursed by the Company.
As of the date hereof, you shall deliver to the Company all credit cards
of the Company and consent that the Company cancel, in accordance with
applicable law, all benefits and corporate perquisites, other than the use of
a Company leased vehicle.
Very truly yours,
CUTCO INDUSTRIES, INC.
By:
----------------------------------
Ron Oren
President
AGREED TO:
/s/ Don vonLiebermann
- ---------------------------
Don vonLiebermann
<PAGE>
Exhibit 10.8.3
CONSULTING AGREEMENT dated and effective
as of August 2, 1999 by and between CUTCO
INDUSTRIES, INC., a New York corporation,
with offices at 6900 Jericho Turnpike,
Syosset, New York 11791 (the "Company") and
DON VONLIEBERMANN, with an address at 54
Kellogg Hill Road, Weston, Connecticut
06883 (the "Consultant").
--------------------
Company desires to obtain the benefit of the services of Consultant
as an advisor and consultant in connection with relationships with
franchisees of Company; and
Consultant desires to render such services to Company.
NOW, THEREFORE, the parties agree as follows:
1. TERM. Company hereby engages and retains Consultant, and
Consultant hereby agrees to render services as an advisor and consultant to
Company, for a term commencing on the date hereof and ending two months from
the date hereof (the "Consulting Term").
2. SERVICES. The services to be rendered by Consultant on
Company's behalf shall consist of advice to Company's senior executives as
may be requested of Consultant from time to time during the Consulting Term
with respect to relationships with franchisees of Company, and telephone
calls and correspondence with franchisees of Company, as may be requested of
Consultant. Such advice shall be rendered at Company's place of business in
Syosset, New York during normal business hours.
3. CONSULTING FEE; USE OF LEASED VEHICLES. (a) Consultant shall
receive a fee of $48,000 for all consulting services rendered pursuant to
this Agreement, with $32,000 being payable concurrently with the execution of
this Agreement and $16,000 being due and payable one month from the date
hereof. During the Consulting Term, Consultant, at the expense of Company,
shall continue to use Company leased vehicle provided for his use prior to
commencement of the Consulting Term.
<PAGE>
(b) At the termination of the Consulting Term, Consultant, at his
expense, shall continue using the leased vehicle for his personal account,
and continue in effect insurance for the leased vehicle. Consultant shall, on
or before the due date of each monthly rental payment, pay an amount equal to
the rent payment to the Company. The Company shall make the rental payment
directly to the vehicle lessor. Each of the Company and Consultant shall
indemnify the other for any failure to carry out the preceding provisions of
this paragraph.
(c) Upon no less than 45 days advance notice, the Company may
require the Consultant to surrender possession of the leased vehicle to the
Company at the end of any month for which Consultant made a payment to the
Company. In which event, upon surrender of the vehicle, all obligations of
the Consultant to maintain insurance and make payments equivalent to rental
payments under the vehicle lease shall terminate.
4. REIMBURSEMENT OF EXPENSES. Company shall reimburse Consultant
for any reasonable out-of-pocket disbursements and expenses that Consultant
may incur in connection with the performance of its duties hereunder,
subject to the submission to Company of satisfactory documentation in support
thereof.
5. REIMBURSEMENT OF FEES AND EXPENSES OF COUNSEL. Company shall
reimburse Consultant, or pay directly, all reasonable legal fees and other
expenses paid or incurred by Consultant pursuant to any dispute between
Company and Consultant relating to this Agreement or seeking to enforce the
provisions of this Agreement, if Consultant is successful pursuant to a legal
judgment, arbitration or settlement.
6. NON-COMPETITION AND SECRECY.
6.1 NO COMPETING EMPLOYMENT. For the duration of the
Consulting Term and for one (1) year thereafter (such period being referred
to hereinafter as the "Restricted Period"), Consultant shall not, directly or
indirectly, own an interest in manage, operate, join, control, lend money, or
render financial or other assistance to or participate in or be connected
with, as an officer, employee, partner, stockholder, consultant or otherwise,
any individual, partnership, firm, corporation or other business organization
or entity that competes within the United States with Company; PROVIDED,
HOWEVER, that nothing in this Section 6.1 shall prohibit Consultant from
making
2
<PAGE>
a non-controlling passive investment in a corporation whose shares are
publicly traded.
6.2 NO INTERFERENCE. During the Restricted Period,
Consultant shall not, whether for his own account or for the account of any
other individual, partnership, firm, corporation or other business
organization (other than Company), intentionally solicit, endeavor to entice
away from Company, or otherwise interfere with the relationship of Company
with, any person who is employed by or otherwise engaged to perform services
for Company.
6.3 SECRECY. Consultant recognizes that by reason of his
prior employment by Company and his rendering of services hereunder, he has
and may acquire confidential information and trade secrets concerning the
operations of Company, the use or disclosure of which could cause Company
substantial loss and damages which could not be readily calculated and for
which no remedy at law would be adequate. Accordingly, Consultant covenants
and agrees with Company that he will not at any time, except in performance
of Consultant's obligations to Company hereunder or with the prior written
consent of Company, directly or indirectly, disclose any secret or
confidential information that he may learn or has learned by reason of his
association with Company. The term "confidential information" includes,
without limitation, information not previously disclosed to the public or to
the trade by management of Company with respect to the services, trade
secrets and other intellectual property, systems, procedures, manuals,
confidential reports, financial information (including the revenues, costs or
profits associated with any of its services), business plans, prospects or
opportunities of Company but shall exclude any information already in the
public domain. Notwithstanding anything to the contrary herein contained,
Consultant's obligation to maintain the secrecy and confidentiality of the
confidential information under this Section 6.3 shall not apply to any such
confidential information which is disclosed through any means other than as
a result of any act by Consultant constituting a breach of this Agreement or
which is required to be disclosed under applicable law.
6.4 INJUNCTIVE RELIEF. Without intending to limit the
remedies available to Company, Consultant acknowledges that a breach of any
of the covenants contained in this Section 6 may result in material
irreparable injury to Company for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely
and that, in the event of such a breach or threat thereof, Company shall be
entitled to seek to obtain a temporary restraining order and/or a preliminary
injunction restraining Consultant from engaging in activities prohibited by
this Section 6 or such other relief as may be required to specifically
enforce any of the covenants in this Section 6.
3
<PAGE>
7. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, is declared by
any arbitration panel or court of competent jurisdiction to be invalid or
unenforceable:
(a) Such invalidity or unenforceability shall not affect
the remaining provisions of this Agreement or the application of such
provisions to persons or circumstances other than those to which it is held
invalid or unenforceable; and
(b) If such invalidity or unenforceability is due to the
court's determination that the provision's scope is excessively broad or
restrictive under applicable law then in effect, the parties hereby jointly
request that such provision be construed by modifying its scope so as to be
enforceable to the fullest extent compatible with applicable law then in
effect.
8. ENTIRE AGREEMENT: SCOPE. This instrument contains the entire
agreement of the parties as to the subject matter hereof. No waiver or
modification hereof shall be valid unless in writing signed by the parties.
This instrument independent of, and have no application to or effect upon,
the Termination Agreement and the options to purchase shares of common stock
of Company referred to therein.
9. GOVERNING LAW. This Agreement shall be construed according to the
laws of the State of New York and shall be binding upon the parties hereto,
and their respective successors and assigns.
10. JURISDICTION. Any legal action or proceeding with respect to
this Agreement shall be brought in the courts of the State of New York
situated in the City and County of New York, or of the United States of
America for the Southern District of New York, and, by execution and delivery
of this agreement, Company and Consultant hereby accepts for itself and
himself, and in respect of its or his property generally the exclusive
jurisdiction of the aforesaid courts. Company and Consultant hereby
irrevocably waives, in connection with any such action or proceeding, (a) any
objection, including, without limitation, any objection to the laying of
venue or based on the grounds of forum NON CONVENIENS, which it may now or
hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions and (b) the right to interpose any noncompulsory
set-off, counterclaim or cross-claim. Company and Consultant irrevocably
consents to the service of
4
<PAGE>
process of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to it or him at the address set forth in the beginning of this
Agreement.
IN WITNESS WHEREOF, the parties hereunto have caused this Agreement
to be signed as of the day and year first above written.
CUTCO INDUSTRIES, INC.
By: /s/ Ron Oren
---------------------------------------
Ron Oren
President and Chief Executive Officer
----------------------------------------
Don vonLiebermann
5
<PAGE>
Exhibit 10.8.4
CONSULTING AGREEMENT dated and
effective as of August 2, 1999 by
and between CUTCO INDUSTRIES,
INC., a New York corporation,
with offices at 6900 Jericho
Turnpike, Syosset, New York
11791 (the "Company") and MARVIN
MARCUS, with an address at 45
Cardinal Drive, East Hills, New
York 11576 the "Consultant").
-------------------------
Company desires to obtain the benefit of the services of Consultant as
an advisor and consultant in connection with relationships with franchisees
of Company; and
Consultant desires to render such services to Company.
NOW, THEREFORE, the parties agree as follows:
1. TERM. Company hereby engages and retains Consultant, and Consultant
hereby agrees to render services as an advisor and consultant to Company, for
a term commencing on the date hereof and ending two months from the date
hereof (the "Consulting Term").
2. SERVICES. The services to be rendered by Consultant on Company's
behalf shall consist of advice to Company's senior executives as may be
requested of Consultant from time to time during the Consulting Term with
respect to relationships with franchisees of Company, and telephone calls and
correspondence with franchisees of Company, as may be requested of
Consultant. Such advice shall be rendered at Company's place of business in
Syosset, New York during normal business hours.
3. CONSULTING FEE; USE OF LEASED VEHICLES. (a) Consultant shall receive
a fee of $48,000 for all consulting services rendered pursuant to this
Agreement, with $32,000 being payable concurrently with the execution of this
Agreement and $16,000 being due and payable one month from the date hereof.
During the Consulting Term, Consultant, at the expense of Company, shall
continue to use Company leased vehicle provided for his use prior to
commencement of the Consulting Term.
<PAGE>
(b) At the termination of the Consulting Term, Consultant, at his
expense, shall continue using the leased vehicle for his personal account,
and continue in effect insurance for the leased vehicle. Consultant shall, on
or before the due date of each monthly rental payment, pay an amount equal to
the rent payment to the Company. The Company shall make the rental payment
directly to the vehicle lessor. Each of the Company and Consultant shall
indemnify the other for any failure to carry out the preceding provisions of
this paragraph.
(c) Upon no less than 45 days advance notice, the Company may
require the Consultant to surrender possession of the leased vehicle to the
Company at the end of any month for which Consultant made a payment to the
Company. In which event, upon surrender of the vehicle, all obligations of
the Consultant to maintain insurance and make payments equivalent to rental
payments under the vehicle lease shall terminate.
4. REIMBURSEMENT OF EXPENSES. Company shall reimburse Consultant for any
reasonable out-of-pocket disbursements and expenses that Consultant may incur
in connection with the performance of its duties hereunder, subject to the
submission to Company of satisfactory documentation in support thereof.
5. REIMBURSEMENT OF FEES AND EXPENSES OF COUNSEL. Company shall
reimburse Consultant, or pay directly, all reasonable legal fees and other
expenses paid or incurred by Consultant pursuant to any dispute between
Company and Consultant relating to this Agreement or seeking to enforce the
provisions of this Agreement, if Consultant is successful pursuant to a legal
judgment, arbitration or settlement.
6. NON-COMPETITION AND SECRECY.
6.1 NO COMPETING EMPLOYMENT. For the duration of the Consulting
Term and for one (1) year thereafter (such period being referred to
hereinafter as the "Restricted Period"), Consultant shall not, directly or
indirectly, own an interest in manage, operate, join, control, lend money, or
render financial or other assistance to or participate in or be connected
with, as an officer, employee, partner, stockholder, consultant or otherwise,
any individual, partnership, firm, corporation or other business organization
or entity that competes within the United States with Company; PROVIDED,
HOWEVER, that nothing in this Section 6.1 shall prohibit Consultant from
making
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a non-controlling passive investment in a corporation whose shares are
publicly traded.
6.2 NO INTERFERENCE. During the Restricted Period, Consultant shall
not, whether for his own account or for the account of any other individual,
partnership, firm, corporation or other business organization (other than
Company), intentionally solicit, endeavor to entice away from Company, or
otherwise interfere with the relationship of Company with, any person who is
employed by or otherwise engaged to perform services for Company.
6.3 SECRECY. Consultant recognizes that by reason of his prior
employment by Company and his rendering of services hereunder, he has and may
acquire confidential information and trade secrets concerning the operations
of Company, the use or disclosure of which could cause Company substantial
loss and damages which could not be readily calculated and for which no
remedy at law would be adequate. Accordingly, Consultant covenants and agrees
with Company that he will not at any time, except in performance of
Consultant's obligations to Company hereunder or with the prior written
consent of Company, directly or indirectly, disclose any secret or
confidential information that he may learn or has learned by reason of his
association with Company. The term "confidential information" includes,
without limitation, information not previously disclosed to the public or to
the trade by management of Company with respect to the services, trade
secrets and other intellectual property, systems, procedures, manuals,
confidential reports, financial information (including the revenues, costs or
profits associated with any, of its services), business plans, prospects or
opportunities of Company but shall exclude any information already in the
public domain. Notwithstanding anything to the contrary herein contained,
Consultant's obligation to maintain the secrecy and confidentiality of the
confidential information under this Section 6.3 shall not apply to any such
confidential information which is disclosed through any means other than as a
result of any act by Consultant constituting a breach of this Agreement or
which is required to be disclosed under applicable law.
6.4 INJUNCTIVE RELIEF. Without intending to limit the remedies
available to Company, Consultant acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable
injury to Company for which there is no adequate remedy at law, that it will
not be possible to measure damages for such injuries precisely and that,
in the event of such a breach or threat thereof, Company shall be entitled to
seek to obtain a temporary restraining order and/or a preliminary injunction
restraining Consultant from engaging in activities prohibited by this Section
6 or such other relief as may be required to specifically enforce any of the
covenants in this Section 6.
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7. SEVERABILITY. If any provision of this Agreement, or the application
of such provision to any person or circumstance, is declared by any
arbitration panel or court of competent jurisdiction to be invalid or
unenforceable:
(a) Such invalidity or unenforceability shall not affect the
remaining provisions of this Agreement or the application of such provisions
to persons or circumstances other than those to which it is held invalid or
unenforceable; and
(b) If such invalidity or unenforceability is due to the court's
determination that the provision's scope is excessively broad or restrictive
under applicable law then in effect, the parties hereby jointly request that
such provision be construed by modifying its scope so as to be enforceable to
the fullest extent compatible with applicable law then in effect.
8. ENTIRE AGREEMENT: SCOPE. This instrument contains the entire
agreement of the parties as to the subject matter hereof. No waiver or
modification hereof shall be valid unless in writing signed by the parties.
This instrument is independent of, and have no application to or effect upon,
the Termination Agreement and the options to purchase shares of common stock
of Company referred to therein.
9. GOVERNING LAW. This Agreement shall be construed according to the
laws of the State of New York and shall be binding upon the parties hereto,
and their respective successors and assigns.
10. JURISDICTION. Any legal action or proceeding with respect to this
Agreement shall be brought in the courts of the State of New York situated in
the City and County of New York, or of the United States of America for the
Southern District of New York, and, by execution and delivery of this
agreement, Company and Consultant hereby accepts for itself and himself, and
in respect of its or his property generally the exclusive jurisdiction of the
aforesaid courts. Company and Consultant hereby irrevocably waives, in
connection with any such action or proceeding, (a) any objection, including,
without limitation, any objection to the laying of venue or based on the
grounds of forum NON CONVENIENS, which it may now or hereafter have to the
bringing of any such action or proceeding in such respective jurisdictions and
(b) the right to interpose any noncompulsory set-off, counterclaim or
cross-claim. Company and Consultant irrevocably consents to the service of
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process of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to it or him at the address set forth in the beginning of this
Agreement.
IN WITNESS WHEREOF, the parties hereunto have caused this Agreement to
be signed as of the day and year first above written.
CUTCO INDUSTRIES, INC.
By:
-----------------------------------------
Ron Oren
President and Chief Executive Officer
/s/ Marvin Marcus
--------------------------------------------
Marvin Marcus
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Exhibit 10.8.5
EMPLOYMENT AGREEMENT
AGREEMENT made this 2nd day of August, 1999 between CutCo Industries,
Inc. (the "Company") and Ron Oren (the "Employee").
In order to effect the foregoing, the Company and the Employee wish to
enter into an employment agreement on the terms and conditions set forth
below. Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1) EMPLOYMENT
The Company hereby agrees to employ the Employee and the Employee
hereby agrees to serve the Company on the terms and conditions set forth
herein.
2) TERMS
The Employment of the Employee by the Company as provided in
Paragraph 1 will commence on the date hereof and end after three years on
July 31, 2002 unless sooner terminated as hereinafter provided or unless
renewed as provided in Paragraph 8 herein.
3) POSITION AND DUTIES
The Employee shall serve as President of the Company and shall have
such responsibilities and authority as may from time to
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time be assigned to the Employee by the Board or the Chief Executive Officer
of the Company. The Employee shall devote substantially all his working time
and efforts to the business and affairs of the Company.
4) PLACE OF PERFORMANCE
In connection with the Employee's employment by the Company, the
Employee shall be based at the principal executive offices of the Company
except for required travel on the Company's business to an extent
substantially consistent with present business travel obligations.
5) COMPENSATION AND RELATED MATTERS
(a) SALARY. During the period of the Employee's employment
hereunder, the Company shall pay to the Employee a salary at a rate of not
less than $192,000 per annum in equal installments as nearly as practicable
on the fifteenth and last days of each month in arrears. This salary may be
increased from time to time in accordance with normal business practices of
the Company and, if so increased, shall not thereafter during the term of
this Agreement be decreased. Compensation of the Employee by salary payments
shall not be deemed exclusive and shall not prevent the Employee from
participating in any other compensation or benefit plan of the Company. The
salary payments (including any increased salary payments) hereunder shall not
in any way limit or reduce any other obligation of the Company hereunder, and
no other
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compensation, benefit or payment hereunder shall in any way limit or reduce
the obligation of the Company to pay the Employee's salary hereunder.
(b) EXPENSES. During the term of the Employee's employment
hereunder, the Employee shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Employee in performing services
hereunder, including all expenses of travel and living expenses while away
from home on business or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in accordance with
the policies and procedures established by the Company.
(c) AUTOMOBILE ALLOWANCE. During the employment term, Employer
shall furnish to Employee an automobile owned or leased by Employer. The
terms and conditions of Employee's use of such automobile and the extent to
which Employer shall defray the costs of its operation shall be the same as
those pertaining to automobiles presently being furnished other executive and
managerial personnel of Employer.
(d) OTHER BENEFITS. The Company shall maintain in full force and
effect, and the Employee shall be entitled to continue to participate in, all
of its employee benefit plans and arrangements in effect on the date hereof
in which the Employee participates or plans or arrangements providing the
Employee with at least
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equivalent benefits thereunder. The Company shall not make any changes in
such plans and arrangements which would adversely affect the Employee's
rights to benefits thereunder, unless such change occurs pursuant to a
program applicable to all officers of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the
Employee as compared with any other officers of the Company. The Employee
shall be entitled to participate in or receive benefits under any employee
benefit plan or arrangement made available by the Company in the future to
its officers and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing paid to the Employee under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the salary payable to the Employee pursuant to Paragraph (a) of this
Section. Any payments or benefits payable to the Employee hereunder in
respect of any calendar year during which the Employee is employed by the
Company for less than the entire such year shall, unless otherwise provided
in the applicable plan or arrangement, be prorated in accordance with the
number of days in such calendar year during which he is so employed.
However, payments otherwise due the Employee pursuant to the
Company's bonus plan will not be made if the Employee's employment is
terminated, for any reason other than as described in 6(a), (b) or (d)
hereof, prior to the Company's fiscal year end.
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If the Employee's employment is terminated pursuant to 6(a), (b) or (d), the
Employee shall receive his bonus prorated in accordance with the number of
days in the Company's fiscal year during which he is so employed. If the
Employee's employment is terminated, for any reason other than cause, as
described in 6(c), on or after the Company's fiscal year end, but before
actual payment of the Company's year end bonus in September, the Employee
shall be entitled to his bonus payment for the previous year.
(e) REPAYMENT OF COMPENSATION HELD EXCESSIVE. If any part of the
salary or other compensation paid by Employers to Employee, or of any amount
paid by Employer for travel or entertainment expenses incurred by Employee,
is finally determined not to be allowable as a federal or state income tax
deduction to Employer, the part disallowed shall be repaid to Employer by
Employee.
6) TERMINATION
The Employee's employment hereunder may be terminated without any
breach of this Agreement only under the following circumstances:
(a) DEATH. The Employee's employment hereunder shall terminate upon
his death.
(b) DISABILITY. If, as a result of the Employee's
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incapacity due to physical or mental illness, the Employee shall have been
absent from his duties hereunder on a full time basis for the entire period
of six consecutive months, and within thirty (30) days after written notice
of termination is given (which may occur before or after the end of such six
month period) shall not have returned to the performance of his duties
hereunder on a full time basis, the Company may terminate the Employee's
employment hereunder.
(c) CAUSE. This Agreement shall immediately be terminated and
neither party shall have any obligation hereunder if the Employee's
employment is terminated for "cause". Termination for cause shall arise where
termination results from (a) theft or dishonesty in the conduct of the
Company's business, or intoxication while on duty, (b) deliberate and
continual refusal to perform employment duties on substantially a full time
basis, (c) deliberate and continual refusal to act in accordance with any
specific instructions of a majority of the Board of Directors of the Company,
or (d) deliberate misconduct which could be materially damaging to the
Company without reasonable good faith belief by the Employee that such
conduct was in the best interests of the Company.
If the Employee is advised that he is being terminated for cause
and within fifteen (15) days thereafter submits to the Chief Executive
Officer a written objection to such a
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determination, this Section will not be applicable unless the Executive
Committee of the Board of Directors of the Company at or before its next
regularly scheduled meeting determines by majority vote that the Employee
has been terminated for cause.
(d) TERMINATION BY THE EMPLOYEE. The Employee may terminate his
employment hereunder (i) for Good Reason or (ii) if his health should become
impaired to an extent that makes his continued performance of his duties
hereunder hazardous to his physical or mental health or his life, provided
that the Employee shall have furnished the Company with a written statement
from a qualified doctor to such effect and provided further, that at the
Company's request, the Employee shall submit to an examination by a doctor
selected by the Company and such doctor shall have concurred in the
conclusion of the Employee's doctor.
For purposes of this Agreement, "Good Reason" shall mean (A) a
Change in Control of the Company (as defined below) as well as, and as a
direct result thereof, (i) a decrease in the total amount of the Employee's
base salary below its level in effect on the date hereof, or a decrease in
the bonus percentage to which the Employee is entitled, without the
Employee's consent, provided, however, nothing herein shall be construed to
guarantee the Employee's bonus award if performance is below target, or (ii)
a reduction in the importance of the Employee's job responsibilities without
the Employee's consent, with the determination of whether
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a reduction in job responsibility has taken place to be in the sole
discretion of the Employee, or (iii) a geographical relocation of the
Employee without his consent. Absent written consent, after a Change in
Control of the Company (as defined below), no action or inaction by the
Employee within ninety (90) days following the occurrence of the events
described in 6(d)(A)(i), 6(d)(A)(ii) or 6(d)(A)(iii) hereof shall be deemed
consent to such events; (B) a failure by the Company to comply with any
material provision of this Agreement which has not been cured within ten (10)
days after notice of such noncompliance has been given by the Employee to the
Company; or (C) any purported termination of the Employee's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Paragraph (e) hereof (and for purposes of this Agreement no
such purported termination shall be effective).
For purposes of this Agreement, a "Change in Control of the
Company" shall be deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities, or (ii) during any period of two
consecutive years during the term of this Agreement, individuals who at the
beginning of such period constitute the
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Board cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the
beginning of the period.
(e) NOTICE OF TERMINATION. Any termination of the Employee's
employment by the Company or by the Employee (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Employee's employment is terminated by his death, the date of this
death, (ii) if the Employee's employment is terminated pursuant to subsection
(b) above, thirty (30) days after Notice of Termination is given (provided
that the Employee shall not have returned to the performance of his duties on
a full-time basis during such thirty (30) day period), (iii) if the
Employee's employment is terminated pursuant to subsection (c) above, the
date
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specified in the Notice of Termination, and (iv) if the Employee's employment
is terminated for any other reason, the date on which a Notice of Termination
is given, provided that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date
of Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected).
7) COMPENSATION UPON TERMINATION OR DURING DISABILITY
(a) During any period that the Employee fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), the Employee shall continue to receive his full
salary at the rate then in effect for such period until his employment is
terminated pursuant to Section 6(b) hereof, provided that payments so made
to the Employee during the first 180 days of the disability period shall be
reduced by the sum of the amounts, if any, payable to the Employee at or
prior to the time of any such payment under disability benefit plans of the
Company and which were not previously applied to reduce any such payment.
The Employee's year end bonus shall be paid in a pro rata amount to compensate
the Employee proportionately for days worked prior to the beginning of his
disability period.
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(b) Upon termination of his employment hereunder pursuant to Section
6(a), (b) or (d) hereof, the Employee shall be paid, in addition to all
other payments hereunder, one year's salary, such payment to be made in
a lump sum ten days after the termination of Employee's employment.
8) RENEWAL OF TERM OF AGREEMENT
At the end of each full year this Agreement is in effect, the
Agreement shall be automatically renewed for an additional three years,
unless the Company notifies the Employee of nonrenewal, such notice to be
delivered at least ninety (90) days prior to the end of the full year. Upon
notice of nonrenewal, the Employee will be entitled to the protection of this
Agreement for the remaining term of the Agreement, subject to all other
provisions of this Agreement.
9) COUNSEL FEES AND INDEMNIFICATION
(a) The Company shall pay or reimburse to Employee, the reasonable
fees and expenses of Employee's personal counsel for their professional
services rendered to Employee in connection with this Agreement and the
matters related thereto.
(b) In the event that (i) the Company terminates or seeks to
terminate this Agreement, alleging as justification for such termination a
material breach by Employee or a Cause, or Causes, as set out in Paragraph
6(c) hereof; Employee disputes such
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termination or attempted termination; and Employee prevails, or (ii) Employee
elects to terminate his service hereunder pursuant to Paragraph 6(d) of this
Agreement; the Company disputes its obligation to pay to Employee that
portion of his base salary as provided in Paragraph 6(d); and Employee
prevails; the Company shall pay or reimburse to Employee all reasonable costs
incurred by him in such dispute, including attorneys' fees and costs.
(c) The Company shall indemnify and hold Employee harmless to the
maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Employee in connection with the defense of, or as a result of any action or
proceeding (or any appeal from any action or proceeding) in which Employee
is made or is threatened to be made a party by reason of fact that he is or
was an employee of the Company, regardless of whether such action or
proceeding is one brought by or in the right of the Company, to procure a
judgment in its favor (or other than by or in the right of the Company).
The undertaking of subparagraphs (a) and (b) above are independent
of, and shall not be limited or prejudiced by the undertaking of this
subparagraph (c).
(d) The Company further represents and warrants: (i) that Employee
is and shall continue to be covered and insured up to
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the maximum limits provided by all insurance which the Company maintains to
indemnify its directors and officers (and to indemnify the Company for any
obligations which it incurs as a result of its undertaking to indemnify its
officers and directors); and (ii) that the Company will exert its best
efforts to maintain such insurance, in not less than its present limits, in
effect throughout the terms of Employee's employment.
(e) The Company hereby warrants and represents that the
undertakings of payment, indemnification and maintenance of insurance
covering Employee set out in (a), (b), (c) and (d) above are not in conflict
with the Articles of Incorporation or Bylaws of the Corporation or with any
validly existing agreement or other proper corporate action of the Company.
10) NON-COMPETITION REVIEW
(a) If the Employee's employment is terminated pursuant to 6(d)(A),
6(d)(B) or 6(d)(C) hereof and the Employee receives all compensation to which
he is entitled under this Agreement, for three years thereafter, Employee
will not, without the prior written approval of the Board of Directors of the
Company, become an officer, employee, agent, partner or director of any
business enterprise in substantial direct competition (as defined below) with
the Company. This same restriction shall apply if the Employee receives, for
whatever reason, such compensation as is contemplated by Section 7(d) of this
Agreement.
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(b) For the purposes of this Paragraph 10, a business enterprise
with which Employee becomes associated as an officer, employee, agent,
partner or director shall be considered in "substantial direct competition"
with the Company if it is engaged in the hair salon business.
12) CONFIDENTIALITY
The Employee acknowledges that, in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to
confidential information of special and unique nature and value relating to
such matters as the Company's trade secrets, systems, procedures, manuals,
confidential reports and lists of clients, as well as the nature and type of
building maintenance and/or other services rendered by the Company, and the
equipment and methods used by the Company. As a material inducement to the
Company to enter into this Agreement, and to pay to the Employee the
compensation referred to in this Agreement, Employee covenants and agrees
that he shall not, at any time during or following the term of his employment
hereunder, directly or indirectly, divulge or disclose, for any purpose
whatsoever, any of such confidential information which has been obtained by
or disclosed to him as a result of his employment by the Company. In the
event of a breach or threatened breach by the Employee of any of the
provisions of this Paragraph 11, the Company, in addition to and not in
limitation of any other rights, remedies or damages available to the Company
at law or in equity, shall be entitled to a permanent
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injunction in order to prevent or to restrain any such breach by Employee, or
by Employee's partners, agents, representatives, servants, employers,
employees and/or any and all persons directly or indirectly acting for or
with him.
13) SUCCESSORS; BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement
in form and substance satisfactory to the Employee to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Employee to compensation from the Company in the same
amount and on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company: shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Paragraph 12 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
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(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisees,
legatee, or other designee or, if there by no such designee, to the
Employee's estate.
14) NOTICES
For the purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Employee: Ron Oren
P.O. Box 16001
Beverly Hills, California 90209
If to Company: Cutco Industries, Inc.
6900 Jericho Turnpike
Syosset, New York 11791
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or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
15) EMPLOYEE'S OUTSIDE BUSINESS ACTIVITIES
During his employment, Employee shall devote his full energies,
interest, abilities, and productive time to the performance of this agreement
and shall not, without Employer's prior written consent, render to others
services of any kind for compensation or engage in any other business
activity that would materially interfere with the performance of his duties
under this agreement.
16) EMPLOYER'S OWNERSHIP OF INTANGIBLES
All processes, inventions, patents, copyrights, trademarks, and
other intangible rights that may be conceived or developed by Employee,
either alone or with others, during the term of Employee's employment,
whether or not conceived or developed during Employee's working hours, and
with respect to which the equipment, supplies, facilities, or trade secret
information of Employer was used, or that relate to the business of Employer
or to Employer's actual or demonstrably anticipated research and development,
or that result from any work performed by Employee for Employer, shall be the
sole property of Employer. Employee shall disclose to Employer all inventions
conceived during the term of employment, whether or not the property of
Employer under the terms
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of the preceding sentence, provided that such disclosure shall be received by
Employer in confidence. Employee shall execute all documents, including
patent applications and assignments, required by Employer to establish
Employer's rights under this Section.
17) MISCELLANEOUS
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Employee and the Company's Chief Executive Officer or
such other officer as may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the other hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of New York.
18) DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS
PROHIBITED. In the course of his employment, Employee may have access to
confidential information and trade secrets relating to Employer's business.
Except as required in the course of his
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employment by Employer, Employee will not, without Employer's prior consent,
either during his employment by Employer or for one year after termination of
that employment, directly or indirectly disclose to any third person any such
confidential information or trade secrets.
19) DISCLOSURE OF CUSTOMER INFORMATION AND SOLICITATION OF OTHER
EMPLOYEES PROHIBITED. In the course of his employment, Employee will have
access to confidential records and data pertaining to Employer's customers
and to the relationship between these customers and Employer's. Such
information is considered secret and is disclosed to Employee in confidence.
During his employment by Employer and for one year after termination of that
employment, Employee shall not directly or indirectly disclose or use any
such information, except as required in the course of his employment by
Employer. In addition, during and for one year after termination of his
employment, Employee shall not induce or attempt to induce any supplier of
Employer to discontinue representing Employer for the purpose of representing
any competitor of Employer.
20) VALIDITY
The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
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21) COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
22) ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrations in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
the Company shall be entitled to seek a restraining order or injunction in
any court of competent jurisdiction to prevent any continuation of any
violation of Paragraph 11 herein, and the Employee hereby consents that such
restraining order or injunction may be granted without the necessity of the
Company posting any bond. The expense of such arbitration shall be borne by
the Company.
23) INJUNCTION
Employee is obligated under this Agreement to render services of a
special, unique, unusual, extraordinary, and intellectual character which
give this Agreement peculiar value. The loss of these services cannot be
reasonably or adequately compensated in damages in an action at law.
Accordingly, in additional to other remedies provided by law or this Agreement,
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Employer shall have the right during the term or any renewal term of this
Agreement to obtain injunctive relief against the breach of this contract by
Employee or the performance of services elsewhere by Employee or both.
24) FORMS: LIQUIDATED DAMAGES
Because Employer's damages resulting from any breach by Employee of
Sections 12, 18 and 19 would be impracticable and extremely difficult to fix
in an actual amount, the liquidated amount of damage presumed to be sustained
from any such breach will be $10,000. That sum is agreed on as compensation
for the injury suffered by Employer and not as a penalty.
25) INTEGRATION
This Agreement contained the entire agreement between the parties
and supersedes all prior oral and written agreements, understandings,
commitments, and practices between the parties, including all prior
employment agreements, whether or not fully performed by Employee before the
date of this Agreement. No amendments to this Agreement may be made except by
a writing signed by both parties.
26) CHOICE OF LAW
The formation, construction, and performance of this Agreement
shall be construed in accordance with the laws of California.
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27) SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect. If any provision is held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless remain in full
force and effect in all other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
CUTCO INDUSTRIES, INC.
By: /s/ Laura Ballegeer
-----------------------------------
Title: Secretary
--------------------------------
EMPLOYEE
/s/ Ron Oren
---------------------------------------
Ron Oren
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Exhibit 10.8.6
EMPLOYMENT AGREEMENT
AGREEMENT made this 2nd day of August, 1999 between CutCo Industries,
Inc. (the "Company") and Laura Ballegeer (the "Employee").
In order to effect the foregoing, the Company and the Employee wish to
enter into an employment agreement on the terms and conditions set forth
below. Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1) EMPLOYMENT
The Company hereby agrees to employ the Employee and the Employee
hereby agrees to serve the Company on the terms and conditions set forth
herein.
2) TERMS
The Employment of the Employee by the Company as provided in
Paragraph 1 will commence on the date hereof and end after three years on
July 31, 2000 unless sooner terminated as hereinafter provided or unless
renewed as provided in Paragraph 8 herein.
3) POSITION AND DUTIES
The Employee shall serve as Chief Operating Officer,
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Secretary and Treasurer of the Company and shall have such responsibilities
and authority as may from time to time be assigned to the Employee by the
Board or the Chief Executive Officer of the Company. The Employee shall
devote substantially all her working time and efforts to the business and
affairs of the Company.
4) PLACE OF PERFORMANCE
In connection with the Employee's employment by the Company, the
Employee shall be based at the principal executive offices of the Company
except for required travel on the Company's business to an extent
substantially consistent with present business travel obligations.
5) COMPENSATION AND RELATED MATTERS
(a) SALARY. During the period of the Employee's employment
hereunder, the Company shall pay to the Employee a salary at a rate of not
less than $77,000 per annum in equal installments as nearly as practicable
on the fifteenth and last days of each month in arrears. This salary may be
increased from time to time in accordance with normal business practices of
the Company and, if so increased, shall not thereafter during the term of
this Agreement be decreased. Compensation of the Employee by salary payments
shall not be deemed exclusive and shall not prevent the Employee from
participating in any other compensation or benefit plan of the Company. The
salary payments (including any increased salary payments) hereunder shall not
in any way limit or
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reduce any other obligation of the Company hereunder, and no other
compensation, benefit or payment hereunder shall in any way limit or reduce
the obligation of the Company to pay the Employee's salary hereunder.
(b) EXPENSES. During the term of the Employee's employment
hereunder, the Employee shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Employee in performing services
hereunder, including all expenses of travel and living expenses while away
from home on business or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in accordance with
the policies and procedures established by the Company.
(c) AUTOMOBILE ALLOWANCE. During the employment term, Employer
shall furnish to Employee an automobile owned or leased by Employer. The
terms and conditions of Employee's use of such automobile and the extent to
which Employer shall defray the costs of its operation shall be the same as
those pertaining to automobiles presently being furnished other executive and
managerial personnel of Employer.
(d) OTHER BENEFITS. The Company shall maintain in full force and
effect, and the Employee shall be entitled to continue to participate in, all
of its employee benefit plans and arrangements in effect on the date hereof
in which the Employee participates or
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plans or arrangements providing the Employee with at least equivalent
benefits thereunder. The Company shall not make any changes in such plans and
arrangements which would adversely affect the Employee's rights to benefits
thereunder, unless such change occurs pursuant to a program applicable to all
officers of the Company and does not result in a proportionately greater
reduction in the rights of or benefits to the Employee as compared with any
other officers of the Company. The Employee shall be entitled to participate
in or receive benefits under any employee benefit plan or arrangement made
available by the Company in the future to its officers and key management
employees, subject to and on a basis consistent with the terms, conditions
and overall administration of such plans and arrangements. Nothing paid to
the Employee under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the salary payable
to the Employee pursuant to Paragraph (a) of this Section. Any payments or
benefits payable to the Employee hereunder in respect of any calendar year
during which the Employee is employed by the Company for less than the entire
such year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such
calendar year during which she is so employed.
However, payments otherwise due the Employee pursuant to the
Company's bonus plan will not be made if the Employee's employment is
terminated, for any reason other than as described in
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6(a), (b) or (d) hereof, prior to the Company's fiscal year end. If the
Employee's employment is terminated pursuant to 6(a), (b) or (d), the
Employee shall receive her bonus prorated in accordance with the number of
days in the Company's fiscal year during which she is so employed. If the
Employee's employment is terminated, for any reason other than cause, as
described in 6(c), on or after the Company's fiscal year end, but before
actual payment of the Company's year end bonus in September, the Employee
shall be entitled to her bonus payment for the previous year.
(e) REPAYMENT OF COMPENSATION HELD EXCESSIVE. If any part of the
salary or other compensation paid by Employers to Employee, or of any amount
paid by Employer for travel or entertainment expenses incurred by Employee,
is finally determined not to be allowable as a federal or state income tax
deduction to Employer, the part disallowed shall be repaid to Employer by
Employee.
6) TERMINATION
The Employee's employment hereunder may be terminated without any
breach of this Agreement only under the following circumstances:
(a) DEATH. The Employee's employment hereunder shall terminate upon
her death.
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(b) DISABILITY. If, as a result of the Employee's incapacity due to
physical or mental illness, the Employee shall have been absent from her
duties hereunder on a full time basis for the entire period of six
consecutive months, and within thirty (30) days after written notice of
termination is given (which may occur before or after the end of such six
month period) shall not have returned to the performance of her duties
hereunder on a full time basis, the Company may terminate the Employee's
employment hereunder.
(c) CAUSE. This Agreement shall immediately be terminated and
neither party shall have any obligation hereunder if the Employee's
employment is terminated for "cause". Termination for cause shall arise where
termination results from (a) theft or dishonesty in the conduct of the
Company's business, or intoxication while on duty, (b) deliberate and
continual refusal to perform employment duties on substantially a full time
basis, (c) deliberate and continual refusal to act in accordance with any
specific instructions of a majority of the Board of Directors of the Company,
or (d) deliberate misconduct which could be materially damaging to the
Company without reasonable good faith belief by the Employee that such
conduct was in the best interests of the Company.
If the Employee is advised that she is being terminated for cause
and within fifteen (15) days thereafter submits to the
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Chief Executive Officer a written objection to such a determination, this
Section will not be applicable unless the Executive Committee of the Board of
Directors of the Company at or before its next regularly scheduled meeting
determines by majority vote that the Employee has been terminated for
cause.
(d) TERMINATION BY THE EMPLOYEE. The Employee may terminate her
employment hereunder (i) for Good Reason or (ii) if her health should become
impaired to an extent that makes her continued performance of her duties
hereunder hazardous to her physical or mental health or her life, provided
that the Employee shall have furnished the Company with a written statement
from a qualified doctor to such effect and provided further, that at the
Company's request, the Employee shall submit to an examination by a doctor
selected by the Company and such doctor shall have concurred in the
conclusion of the Employee's doctor.
For purposes of this Agreement, "Good Reason" shall mean (A) a
Change in Control of the Company (as defined below) as well as, and as a
direct result thereof, (i) a decrease in the total amount of the Employee's
base salary below its level in effect on the date hereof, or a decrease in
the bonus percentage to which the Employee is entitled, without the
Employee's consent, provided, however, nothing herein shall be construed to
guarantee the Employee's bonus award if performance is below target, or (ii)
a reduction in the importance of the Employee's job responsibilities
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<PAGE>
without the Employee's consent, with the determination of whether a reduction
in job responsibility has taken place to be in the sole discretion of the
Employee, or (iii) a geographical relocation of the Employee without her
consent. Absent written consent, after a Change in Control of the Company (as
defined below), no action or inaction by the Employee within ninety (90) days
following the occurrence of the events described in 6(d)(A)(i), 6(d)(A)(ii)
or 6(d)(A)(iii) hereof shall be deemed consent to such events; (B) a failure
by the Company to comply with any material provision of this Agreement which
has not been cured within ten (10) days after notice of such noncompliance
has been given by the Employee to the Company; or (C) any purported
termination of the Employee's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Paragraph (e) hereof
(and for purposes of this Agreement no such purported termination shall be
effective).
For purposes of this Agreement, a "Change in Control of the
Company" shall be deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities, or (ii) during any period of two
consecutive years during the term of this Agreement,
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individuals who at the beginning of such period constitute the Board cease
for any reason to constitute at least a majority thereof, unless the election
of each director who was not a director at the beginning of such period has
been approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
(e) NOTICE OF TERMINATION. Any termination of the Employee's
employment by the Company or by the Employee (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Employee's employment is terminated by her death, the date of this
death, (ii) if the Employee's employment is terminated pursuant to subsection
(b) above, thirty (30) days after Notice of Termination is given (provided
that the Employee shall not have returned to the performance of her duties on
a full-time basis during such thirty (30) day period), (iii) if the
Employee's
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employment is terminated pursuant to subsection (c) above, the date specified
in the Notice of Termination, and (iv) if the Employee's employment is
terminated for any other reason, the date on which a Notice of Termination is
given, provided that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date
of Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected).
7) COMPENSATION UPON TERMINATION OR DURING DISABILITY
(a) During any period that the Employee fails to perform her duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), the Employee shall continue to receive her full salary
at the rate then in effect for such period until her employment is terminated
pursuant to Section 6(b) hereof, provided that payments so made to the
Employee during the first 180 days of the disability period shall be reduced
by the sum of the amounts, if any, payable to the Employee at or prior to the
time of any such payment under disability benefit plans of the Company and
which were not previously applied to reduce any such payment. The Employee's
year end bonus shall be paid in a pro rata amount to compensate the Employee
proportionately for days worked
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prior to the beginning of her disability period.
(b) Upon termination of her employment hereunder pursuant to Section
6(a), (b) or (d) hereof, the Employee shall be paid, in addition to all
other payments hereunder, one year's salary, such payment to be made in
a lump sum ten days after the termination of Employee's employment.
8) RENEWAL OF TERM OF AGREEMENT
At the end of each full year this Agreement is in effect, the
Agreement shall be automatically renewed for an additional three years,
unless the Company notifies the Employee of nonrenewal, such notice to be
delivered at least ninety (90) days prior to the end of the full year. Upon
notice of nonrenewal, the Employee will be entitled to the protection of this
Agreement for the remaining term of the Agreement, subject to all other
provisions of this Agreement.
9) COUNSEL FEES AND INDEMNIFICATION
(a) The Company shall pay or reimburse to Employee, the reasonable
fees and expenses of Employee's personal counsel for their professional
services rendered to Employee in connection with this Agreement and the
matters related thereto.
(b) In the event that (i) the Company terminates or seeks to
terminate this Agreement, alleging as justification for
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such termination a material breach by Employee or a Cause, or Causes, as set
out in Paragraph 6(c) hereof; Employee disputes such termination or attempted
termination; and Employee prevails, or (ii) Employee elects to terminate her
service hereunder pursuant to Paragraph 6(d) of this Agreement; the Company
disputes its obligation to pay to Employee that portion of her base salary as
provided in Paragraph 6(d); and Employee prevails; the Company shall pay or
reimburse to Employee all reasonable costs incurred by her in such dispute,
including attorneys' fees and costs.
(c) The Company shall indemnify and hold Employee harmless to the
maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Employee in connection with the defense of, or as a result of any action or
proceeding (or any appeal from any action or proceeding) in which Employee
is made or is threatened to be made a party by reason of fact that she is or
was an employee of the Company, regardless of whether such action or
proceeding is one brought by or in the right of the Company, to procure a
judgment in its favor (or other than by or in the right of the Company).
The undertaking of subparagraphs (a) and (b) above are independent
of, and shall not be limited or prejudiced by the undertaking of this
subparagraph (c).
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(d) The Company further represents and warrants: (i) that Employee
is and shall continue to be covered and insured up to the maximum limits
provided by all insurance which the Company maintains to indemnify its
directors and officers (and to indemnify the Company for any obligations
which it incurs as a result of its undertaking to indemnify its officers and
directors); and (ii) that the Company will exert its best efforts to maintain
such insurance, in not less than its present limits, in effect throughout the
terms of Employee's employment.
(e) The Company hereby warrants and represents that the
undertakings of payment, indemnification and maintenance of insurance
covering Employee set out in (a), (b), (c) and (d) above are not in conflict
with the Articles of Incorporation or Bylaws of the Corporation or with any
validly existing agreement or other proper corporate action of the Company.
10) NON-COMPETITION REVIEW
(a) If the Employee's employment is terminated pursuant to 6(d)(A),
6(d)(B) or 6(d)(C) hereof and the Employee receives all compensation to which
she is entitled under this Agreement, for three years thereafter, Employee
will not, without the prior written approval of the Board of Directors of the
Company, become an officer, employee, agent, partner or director of any
business enterprise in substantial direct competition (as defined below) with
the Company. This same restriction shall apply if the
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Employee receives, for whatever reason, such compensation as is
contemplated by Section 7(d) of this Agreement.
(b) For the purposes of this Paragraph 10, a business enterprise
with which Employee becomes associated as an officer, employee, agent,
partner or director shall be considered in "substantial direct competition"
with the Company if it is engaged in the hair salon business.
12) CONFIDENTIALITY
The Employee acknowledges that, in and as a result of her employment
hereunder, she will be making use of, acquiring and/or adding to
confidential information of special and unique nature and value relating to
such matters as the Company's trade secrets, systems, procedures, manuals,
confidential reports and lists of clients, as well as the nature and type of
building maintenance and/or other services rendered by the Company, and the
equipment and methods used by the Company. As a material inducement to the
Company to enter into this Agreement, and to pay to the Employee the
compensation referred to in this Agreement, Employee covenants and agrees
that she shall not, at any time during or following the term of her employment
hereunder, directly or indirectly, divulge or disclose, for any purpose
whatsoever, any of such confidential information which has been obtained by
or disclosed to her as a result of her employment by the Company. In the
event of a breach or threatened breach by the Employee of any of the
provisions of
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this Paragraph 11, the Company, in addition to and not in limitation of any
other rights, remedies or damages available to the Company at law or in
equity, shall be entitled to a permanent injunction in order to prevent or to
restrain any such breach by Employee, or by Employee's partners, agents,
representatives, servants, employers, employees and/or any and all persons
directly or indirectly acting for or with him.
13) SUCCESSORS; BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement
in form and substance satisfactory to the Employee to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Employee to compensation from the Company in the same
amount and on the same terms as she would be entitled to hereunder if she
terminated her employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company: shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as
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aforesaid which executes and delivers the agreement provided for in this
Paragraph 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to her hereunder if she had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisees,
legatee, or other designee or, if there by no such designee, to the
Employee's estate.
14) NOTICES
For the purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Employee: Laura Ballegeer
P.O. Box 16001
Beverly Hills, California 90209
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If to Company: CutCo Industries, Inc.
6900 Jericho Turnpike
Syosset, New York 11791
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
15) EMPLOYEE'S OUTSIDE BUSINESS ACTIVITIES
During her employment, Employee shall devote her full energies,
interest, abilities, and productive time to the performance of this agreement
and shall not, without Employer's prior written consent, render to others
services of any kind for compensation or engage in any other business
activity that would materially interfere with the performance of her duties
under this agreement.
16) EMPLOYER'S OWNERSHIP OF INTANGIBLES
All processes, inventions, patents, copyrights, trademarks, and
other intangible rights that may be conceived or developed by Employee,
either alone or with others, during the term of Employee's employment,
whether or not conceived or developed during Employee's working hours, and
with respect to which the equipment, supplies, facilities, or trade secret
information of Employer was used, or that relate to the business of Employer
or to Employer's actual or demonstrably anticipated research and
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development, or that result from any work performed by Employee for Employer,
shall be the sole property of Employer. Employee shall disclose to Employer
all inventions conceived during the term of employment, whether or not the
property of Employer under the terms of the preceding sentence, provided that
such disclosure shall be received by Employer in confidence. Employee shall
execute all documents, including patent applications and assignments,
required by Employer to establish Employer's rights under this Section.
17) MISCELLANEOUS
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Employee and the Company's Chief Executive Officer or
such other officer as may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the other hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of New York.
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18) DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS
PROHIBITED. In the course of her employment, Employee may have access to
confidential information and trade secrets relating to Employer's business.
Except as required in the course of her employment by Employer, Employee will
not, without Employer's prior consent, either during her employment by
Employer or for one year after termination of that employment, directly or
indirectly disclose to any third person any such confidential information or
trade secrets.
19) DISCLOSURE OF CUSTOMER INFORMATION AND SOLICITATION OF OTHER
EMPLOYEES PROHIBITED. In the course of her employment, Employee will have
access to confidential records and data pertaining to Employer's customers
and to the relationship between these customers and Employer's. Such
information is considered secret and is disclosed to Employee in confidence.
During her employment by Employer and for one year after termination of that
employment, Employee shall not directly or indirectly disclose or use any
such information, except as required in the course of her employment by
Employer. In addition, during and for one year after termination of her
employment, Employee shall not induce or attempt to induce any supplier of
Employer to discontinue representing Employer for the purpose of representing
any competitor of Employer.
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20) VALIDITY
The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
21) COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
22) ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrations in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
the Company shall be entitled to seek a restraining order or injunction in
any court of competent jurisdiction to prevent any continuation of any
violation of Paragraph 11 herein, and the Employee hereby consents that such
restraining order or injunction may be granted without the necessity of the
Company posting any bond. The expense of such arbitration shall be borne by
the Company.
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23) INJUNCTION
Employee is obligated under this Agreement to render services of a
special, unique, unusual, extraordinary, and intellectual character which
give this Agreement peculiar value. The loss of these services cannot be
reasonably or adequately compensated in damages in an action at law.
Accordingly, in additional to other remedies provided by law or this Agreement,
Employer shall have the right during the term or any renewal term of this
Agreement to obtain injunctive relief against the breach of this contract by
Employee or the performance of services elsewhere by Employee or both.
24) FORMS: LIQUIDATED DAMAGES
Because Employer's damages resulting from any breach by Employee of
Sections 12, 18 and 19 would be impracticable and extremely difficult to fix
in an actual amount, the liquidated amount of damage presumed to be sustained
from any such breach will be $10,000. That sum is agreed on as compensation
for the injury suffered by Employer and not as a penalty.
25) INTEGRATION
This Agreement contained the entire agreement between the parties
and supersedes all prior oral and written agreements, understandings,
commitments, and practices between the parties, including all prior
employment agreements, whether or not fully performed by Employee before the
date of this Agreement. No
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amendments to this Agreement may be made except by a writing signed by both
parties.
26) CHOICE OF LAW
The formation, construction, and performance of this Agreement
shall be construed in accordance with the laws of California.
27) SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect. If any provision is held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless remain in full
force and effect in all other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
CUTCO INDUSTRIES, INC.
By: /s/ Ron Oren
-----------------------------------
Title: President
--------------------------------
EMPLOYEE
/s/ Laura Ballegeer
---------------------------------------
Laura Ballegeer
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[NUSSBAUM YATES & WOLPOW, P.C. LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
CutCo Industries, Inc. and Subsidiaries
Syosset, New York
We have audited the accompanying consolidated balance sheet of CutCo
Industries, Inc. and Subsidiaries as of June 30, 1998 and the related
consolidated 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 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 consolidated financial position of CutCo
Industries, Inc. and Subsidiaries as of June 30, 1998, and the results of
their operations and their consolidated cash flows for the year then ended,
in conformity with generally accepted accounting principles.
/s/ Nussbaum Yates & Wolpow, P.C.
Melville, New York
September 4, 1998
