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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 33-48904
PNEUMO ABEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1238996
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
THIRD STREET AND JEFFERSON AVENUE, CAMDEN, N.J. 08104
(Address of principal executive offices) (Zip Code)
609-964-8840
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days. X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
There are no shares of common stock held by non-affiliates. As of March 31,
1997, all of the Registrant's outstanding common stock was indirectly held by
Power Control Technologies, Inc.
The number of shares of Common Stock outstanding as of March 1997 was 1,000
shares.
Page 1 of
Index to Exhibits on Page 21
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PART I
ITEM 1. BUSINESS
GENERAL
Mafco Worldwide Corporation ("Mafco Worldwide"), a Delaware corporation,
was formed in 1991. Prior to June 15, 1995, Mafco Worldwide was an indirect
wholly owned subsidiary of Mafco Holdings Inc. ("Holdings"). On June 15, 1995,
Holdings and Mafco Consolidated Group Inc. ("Mafco") formerly known as Abex
Inc., consummated an agreement and plan of merger (the "Abex Merger"). As a
result of the Abex Merger, Mafco Worldwide became an indirect wholly owned
subsidiary of Mafco. On November 25, 1996, Mafco and Power Control
Technologies, Inc., a Delaware corporation ("PCT"), consummated the
transactions contemplated by a Stock and VSR Purchase Agreement (the "Purchase
Agreement"), dated as of October 23, 1996, by and among Mafco, PCT and PCT
International Holdings Inc., ("Purchaser") a Delaware corporation and wholly
owned subsidiary of PCT. Pursuant to the Purchase Agreement, Purchaser
acquired from Mafco all the issued and outstanding shares (the "Shares") of
capital stock of Flavors Holdings Inc., a Delaware corporation and wholly
owned subsidiary of Mafco ("Flavors"), and 23,156,502 Value Support Rights
(each a "VSR").
In consideration for the Shares and VSRs, Purchaser paid Mafco cash in
the amount of $180 million. In addition, Purchaser will pay Mafco deferred
cash payments of $3.7 million on June 30, 1997 and $3.5 million on December
31, 1997.
Mafco owns approximately 29% of the outstanding shares of PCT common
stock..
Immediately following the acquisition of Flavors, Purchaser contributed
all outstanding shares of common stock of Pneumo Abex Corporation, a Delaware
corporation ("Pneumo Abex" or the "Company"), to Flavors and Flavors
contributed such shares to Mafco Worldwide, which resulted in Pneumo Abex
becoming a wholly owned subsidiary of Mafco Worldwide. On November 25, 1996,
Mafco Worldwide merged with and into Pneumo Abex (the "Merger") with Pneumo
Abex being the surviving corporation, the directors of Mafco Worldwide
becoming the directors of Pneumo Abex and Pneumo Abex becoming a wholly owned
subsidiary of Flavors.
Since Mafco Worldwide and Pneumo Abex were under common control at the
time of the Merger, the Merger has been accounted for in a manner similar to a
pooling-of-interests from November 25, 1996 with Mafco Worldwide as the
predecessor company. In addition, Purchaser's basis of accounting is not
reflected in these financial statements due to the Company's public debt.
Pneumo Abex was incorporated in Delaware on June 30, 1986, and is an
indirect wholly-owned subsidiary of PCT.
PCT has been a public company since June 15, 1995 when shares of its
common stock, par value $.01 per share (the "PCT Common Stock"), were publicly
distributed (the "PCT Distribution") to existing stockholders of Abex Inc.,
PCT's former parent ("Abex"), in connection with the Abex Merger and the
related transfer (the "Transfer") of substantially all of Abex's consolidated
assets and liabilities to a subsidiary of Mafco with the remainder being
retained by the Company. On July 16, 1992, Abex was spun off (the "Abex
Distribution") from the Henley Group Inc. ("Henley Group").
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Following the Abex Distribution and prior to the PCT Distribution, Abex,
through the Company, sold three of its five operating divisions and combined
the two others to form Aerospace. Prior to July 16, 1992, PCT was an indirect
wholly owned subsidiary of Henley Group. On April 15, 1996, the Company sold
to Parker Hannifin Corporation ("Parker Hannifin") its entire aerospace
operations including substantially all of its assets (the "Aerospace Sale").
The Company and its predecessors have been engaged in the licorice
extract and flavorings business since 1850. Based upon its knowledge of the
licorice industry, the Company believes that it is the world's largest
producer of licorice extract and the only manufacturer of licorice extract in
the United States. The Company also believes that it manufactures more than
70% of the worldwide licorice extract sold to end-users. Approximately 72% of
the Company's licorice sales are to the worldwide tobacco industry for use as
flavoring and moistening agents in the manufacture of American blend
cigarettes as well as other tobacco products (moist snuff, chewing tobacco and
pipe tobacco). While licorice extract represents a small percentage of the
total cost of manufacturing American blend cigarettes and other tobacco
products, the particular formulation and quantity used by each brand is an
important element of the brand's flavor.
The Company also sells licorice extract to worldwide confectioners, food
processors and pharmaceutical manufacturers for use as flavoring or masking
agents. In addition, the Company sells licorice root residue as a garden mulch
under the name Right Dress. The Company's other products, which are about 17%
of the Company's revenues, include non-licorice natural flavors, spices and
botanicals that are used as flavoring ingredients in food and tobacco
products.
The Company has achieved its position as the world's leading manufacturer
of licorice extract through its experience in obtaining licorice root, its
technical expertise at maintaining the consistency and quality of its product
and its ability to develop and manufacture proprietary formulations for
individual customers and applications.
The Company's principal executive offices are located at Third Street and
Jefferson Avenue, Camden, New Jersey 08104, and its telephone number is (609)
964-8840.
OPERATING STRATEGIES
The Company intends to maintain its position as the world leader in
licorice extract: (a) by continuing to expand in foreign markets as the
popularity of American blend cigarettes continues to increase; (b) by
improving its manufacturing process and raw material procurement in order to
achieve lower costs and; (c) by forming joint ventures in strategic areas of
the world to increase its overall licorice business.
PRODUCTS AND MANUFACTURING
Licorice extract products. The Company produces a variety of licorice
products from licorice root, licorice extract produced by others and certain
other flavor ingredients at its facilities in Camden, New Jersey and Gardanne,
France. The Company selects licorice root from various sources to optimize
flavoring and chemical characteristics and then shreds the root to matchstick
size. Licorice solids are then extracted from the shredded root with hot
water. After filtration and evaporation, the concentrated extract is converted
into powder, semifluid or blocks, depending on the customer's requirements,
and then packaged and shipped. For certain customers, extracts from root may
be blended with licorice extracts from other producers and non-licorice
ingredients to produce licorice
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flavors that meet the individual customer's requirements. Licorice extract can
be further purified to produce licorice derivatives. The Company maintains
finished goods inventories of sufficient quantity to provide immediate
delivery to its domestic tobacco and non-tobacco customers. Foreign orders for
licorice extract are produced upon receipt of orders and are available to ship
in approximately 30 days.
Other products. The Company also sells non-licorice flavoring agents to
the tobacco, spice, pharmaceutical and health food industries. The Company
cleans, grinds or cuts unprocessed spices and botanicals, principally chilies,
sage, cassia (cinnamon) and cocoa bean shells to customer specifications.
RAW MATERIALS
Licorice extract is derived from the roots of the licorice plant, a
shrub-like leguminous plant that is indigenous to the Middle East and Central
Asia. The plant's roots, which can be up to several inches thick and up to 25
feet long are harvested when the plant is about four years old. They are then
cleaned, dried and bagged or pressed into bales. Through its foreign
suppliers, the Company acquires the root in local markets for shipment to the
Company's processing facilities in Camden, New Jersey or Gardanne, France.
Most of the licorice root processed by the Company originates in Afghanistan,
China, Pakistan, Azerbaijan, Uzbekistan, Turkmenistan, Syria and Turkey.
Through many years of experience, the Company has developed extensive
knowledge and relationships with their suppliers in these areas. Although the
amount of licorice root the Company purchases from any individual source or
country varies from year to year depending on cost and quality, the Company
endeavors to purchase some licorice root from all available sources. This
enables the Company to maintain multiple sources of supply and relationships
with many suppliers so that if the licorice root from any one source becomes
temporarily unavailable or uneconomic, the Company will be able to replace
that source with licorice root from another area or supplier. During 1996, the
Company had many suppliers of root and two suppliers, one in Pakistan and one
in China, each supplied 15% and 20%, respectively of the Company's total root
purchases. The Company tries to maintain a sufficient licorice root inventory
and open purchase contracts to meet production needs for up to two years.
Licorice root has an indefinite retention period as long as it is kept dry,
and therefore the Company experiences no raw material spoilage. The Company
has been able to obtain licorice root without interruption since World War II
even though there has been periodic instability in the areas of the world
where licorice root grows.
In addition to licorice root, the Company also purchases significant
quantities of licorice extract produced by others for use as a raw material.
These licorice extracts are available from producers primarily in China in
quantities sufficient to meet the Company's current requirements and
anticipated requirements for the foreseeable future. During 1996, the Company
had three licorice suppliers of licorice extracts who supplied more than 10%
each of total licorice extract purchases.
Other non-licorice raw materials for the Company's other blended licorice
and non-licorice products are commercially available through many domestic and
foreign sources.
SALES AND MARKETING
All licorice sales in the U.S. (including sales of licorice extract to
U.S. cigarette manufacturers for use in American blend cigarettes to be
exported) are made through the Company's executive offices located in Camden,
New Jersey, with technical support from the Company's research and development
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department. Outside the U.S., the Company sells its products directly from its
Camden, New Jersey offices and through its French subsidiary, exclusive agents
and independent distributors.
The Company has established strong relationships with its customers in
the tobacco and other industries because of its expertise in producing and
supplying consistent quality licorice products with a high level of service
and security of supply. The Company ships products worldwide and provides
technical assistance for product development for both tobacco and non-tobacco
applications.
The Company sells licorice root residue, a by-product of the licorice
extract manufacturing process, as a garden mulch under the name Right Dress.
Distribution of Right Dress is limited to the area within a 200-mile radius of
Camden, New Jersey due to shipping costs and supply limitations.
In 1996, the Company's ten largest customers, seven of which are
manufacturers of tobacco products, accounted for approximately 58% of the
Company's sales and one customer, Philip Morris Companies Inc. ("Philip
Morris"), accounted for 26% of the Company's sales. If Philip Morris were to
stop purchasing licorice extract from the Company, it would have a significant
adverse effect on the financial results of the Company.
COMPETITION
The Company believes that its position as the largest manufacturer of
licorice extract in the world arises from its long-standing ability to provide
its customers with a steady supply of high quality and consistent products,
together with superior technical support. Producing licorice extract of
consistently high quality at low cost requires an experienced work force,
careful manufacturing and rigorous quality control. The Company's long-term
relationships and knowledge of the licorice root market are of great value in
enabling it to consistently acquire quality raw materials at reasonable cost.
Although the Company could face increased competition in the future, the
Company currently encounters limited competition in sales of licorice extract
to tobacco companies in many of its markets as a result of the factors
described above and the large investments in inventories of raw materials and
production facilities that are required to adequately fulfill its customers'
needs. Other markets in which the Company operates, particularly the
confectionery licorice market in Europe, are more competitive. Significant
competing producers of licorice extract are government owned and private
corporations in China, a government owned corporation in Iran and a government
affiliated corporation based in Israel.
THE TOBACCO INDUSTRY
Developments and trends within the tobacco industry may have a material
effect on the operations of the Company.
Producers of tobacco products are subject to regulation in the U.S. at
the federal, state and local levels. Together with changing public attitudes
toward smoking, a constant expansion of smoking regulations since the early
1970s has been a major cause for the decline in consumption. Moreover, the
trend is toward increasing regulation of the tobacco industry.
For more than 30 years, the sale and use of cigarettes has been subject
to opposition from government and health officials in the U.S. and other
countries due to claims that cigarette smoking is harmful to an individual's
health. These claims have resulted in a number of substantial restrictions on
the marketing, advertising and use of cigarettes, in diminished social
acceptability of smoking and in
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activities by anti-smoking groups designed to inhibit cigarette sales. The
effects of these claims together with substantial increases in state and
federal taxes on cigarettes have resulted in lower cigarette consumption,
which is likely to continue in the future.
During the period 1992-1996, U.S. cigarette consumption declined at an
average of 0.7% per year and exports of cigarettes by U.S. manufacturers
increased at an average rate of 6.0% per year. The growth of U.S. cigarette
exports is due to successful marketing of U.S. cigarette brands by U.S.
tobacco manufacturers and the increasing popularity of the lighter flavor of
American blend cigarettes, particularly in Europe and Asia. In addition,
certain countries have reduced trade barriers that had previously limited
imports of cigarettes manufactured by U.S. manufacturers. In response to the
growing popularity of American blend cigarettes and increased exports by U.S.
manufacturers, foreign manufacturers are now producing American blend
cigarettes.
Consumption of chewing tobacco and moist snuff is concentrated primarily
in the United States. U.S. production of chewing tobacco products has steadily
declined for more than a decade and from 1992 through 1996 it has declined by
4.3%. Consumption has declined because chewing tobacco appeals to a limited
and declining customer base, primarily males living in rural areas. Moist
snuff consumption has risen steadily since the mid-1970s and has increased
1.2% from 1992 through 1996 due to the shift away from cigarettes and other
types of smoking tobacco.
Health Regulations. Federal law has required health warnings on
cigarettes since 1965 and has recently required states, in order to receive
full funding for federal substance abuse block grants, to establish a minimum
age of 18 years for the sale of tobacco products, together with an appropriate
enforcement program. In recent years, a variety of bills relating to tobacco
issues have been introduced in the Congress of the United States, including
bills that would have (i) prohibited the advertising and promotion of all
tobacco products and/or restricted or eliminated the deductibility of such
advertising expenses; (ii) increased labeling requirements on tobacco products
to include, among other things, addiction warnings and lists of additives and
toxins; (iii) modified federal preemption state laws to allow state courts to
hold tobacco manufacturers liable under common law or state statutes; (iv)
shifted regulatory control of tobacco products and advertisements from the FTC
to the FDA; (v) increased tobacco excise taxes; and (vi) required tobacco
companies to pay for health care costs incurred by the federal government in
connection with tobacco related diseases. Hearings have been held on certain
of these proposals; however, to date, none of such proposals or similar bills
may have an adverse effect on the sales or operations of the Company. In
addition, various federal agencies, including the FDA as discussed below, have
recently proposed to regulate the tobacco industry.
In addition, federal, state and local legislative and regulatory bodies
have increasingly moved to curtail smoking by prohibiting smoking in certain
public places, restricting the sale of tobacco products to minors, increasing
labeling requirements, regulating the marketing, promotion and advertisement
of cigarettes and smokeless tobacco and protecting non-smokers from so-called
"second-hand" smoke. Smokeless tobacco manufacturers are subject to similar
health warning regulations as cigarette producers, and there has been
litigation that claims smokeless tobacco causes oral cancer. To the extent
that further actions are taken to regulate tobacco products and restrict
smoking, such actions could have a material adverse effect on the Company.
Some foreign countries have also taken steps to restrict or prohibit cigarette
advertising and promotion, to require ingredient disclosure, to impose maximum
constituent levels, to increase taxes on cigarettes, to control prices, to
restrict imports, to ban or severely restrict smoking in workplace and public
places, and otherwise to discourage cigarette smoking.
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As a producer of food-grade products, the Company's licorice business is
subject to certain FDA and New Jersey Department of Health Regulations.
Compliance with these regulations has not had a material effect on the
licorice business.
Tobacco Industry Litigation. The cigarette and smokeless tobacco
industries have experienced and are experiencing significant health-related
litigation involving tobacco and health issues. Current tobacco litigation
generally falls within one of three categories: class actions, individual
actions and actions brought about by individual states or localities to
recover Medicaid costs allegedly attributable to tobacco-related illnesses.
The pending actions allege a broad range of injuries resulting from the use of
tobacco products or exposure to tobacco smoke and seek various remedies,
including compensatory and, in some cases, punitive damages together with
certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. There can be no assurance that there will
not be an increase in health-related litigation involving tobacco and health
issues against the cigarette industry or that the Company, as a supplier to
the tobacco industry, will not be party to such litigation. This litigation,
if successful, could have a material adverse effect on the Company.
Excise Taxes. The tobacco industry, including cigarettes and smokeless
tobacco, has been subject to federal, state and local excise taxes for many
years. In recent years, federal, state and local governments have proposed
increases to such taxes as a means of both raising revenue and discouraging
the consumption of tobacco products. The Company is unable to predict the
likelihood of enactment of such proposals or the extent to which enactment of
such proposals would effect tobacco sales. A significant reduction in
consumption of cigarettes and other tobacco products could have a material
adverse effect on the Company.
SEASONALITY
The licorice business is generally non-seasonal. However, sales of Right
Dress garden mulch occur primarily in the first seven months of the year.
BACKLOG
The backlog of the Company at any time is generally not significant.
Domestic and foreign tobacco orders are received quarterly, monthly or weekly
depending upon the customers. Certain confectionery customers negotiate annual
contracts which were not significant at December 31, 1996.
EMPLOYEES
At December 31, 1996, the Company has approximately 291 employees. The
Company has 154 employees covered under collective bargaining agreements. The
agreement covering employees at the Camden, New Jersey facility expires at the
end of May 1997. Management believes that its employee relations are good.
CORPORATE INDEMNIFICATION MATTERS
The Company is indemnified by third parties with respect to certain of its
contingent liabilities, such as certain environmental and asbestos matters, as
well as certain tax and other matters. In order to implement the Transfer, a
subsidiary of Abex and PCT, the Company and certain other subsidiaries of PCT
entered into a transfer agreement (the "Transfer Agreement"). Under the
Transfer Agreement,
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substantially all of Abex's consolidated assets and liabilities, other than
those relating to the Aerospace Business, were transferred to a subsidiary of
Mafco, with the remainder being retained by the Company. The Transfer
Agreement provides for appropriate transfer, indemnification and tax sharing
arrangements, in a manner consistent with applicable law and existing
contractual arrangements.
The Transfer Agreement requires such subsidiary of Mafco to undertake
certain administrative and funding obligations with respect to certain
asbestos claims and other liabilities retained by the Company. The Company
will be obligated to make reimbursement for the amounts so funded only when
amounts are received by the Company under related indemnification and
insurance agreements. Such administrative and funding obligations would be
terminated as to asbestos products claims in the case of bankruptcy of the
Company or PCT or of certain other events affecting the availability of
coverage for such claims from third party indemnitors and insurers. The
Transfer Agreement further provides for certain funding indemnification and
cooperation arrangements between PCT, the Company and such subsidiary in
respect of certain liabilities which may arise under the Employee Retirement
Security Act of 1974 in respect of the sale of Pneumo Abex's friction products
division in 1995.
ITEM 2. PROPERTIES
THE COMPANY'S PRINCIPAL PROPERTIES ARE AS FOLLOWS:
<TABLE>
<CAPTION>
OWNED APPROXIMATE
OR FLOOR SPACE
LOCATION USE LEASED (SQUARE FEET)
- -------- --- ------ -------------
<S> <C> <C> <C>
Camden, New Jersey Licorice manufacturing, warehousing Owned 390,000
and corporate headquarters
Camden, New Jersey Warehousing Leased(a) 140,000
Gardanne, France Licorice manufacturing and administration Owned 48,900
Richmond, Virginia Manufacturing and warehousing Owned 45,000
for non-licorice products
Richmond, Virginia Manufacturing and administration Leased(b) 65,000
for non-licorice products
</TABLE>
- ----------------------
(a) Lease expires on March 31, 1998.
(b) Lease expires on October 30, 2001
The Company believes that its facilities are well maintained and are
in substantial compliance with environmental law and regulations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to lawsuits incidental to its business. The
Company believes that the outcome of such pending legal proceedings in the
aggregate will not have a material adverse effect on the Company's
consolidated financial position or results of operations. The Company carries
general liability insurance but has no health hazard policy which, to the best
of the Company's knowledge, is consistent with the tobacco industry practice.
See Item 1. Business - The Tobacco Industry
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In addition, various legal proceedings, claims and investigations are
pending against the Company, including those relating to commercial
transactions, product liability, safety and health matters and other matters.
The Company is involved in various stages of legal proceedings, claims,
investigations and cleanup relating to environmental natural resource matters,
some of which relate to waste disposal sites. Most of these matters are
covered by insurance, subject to deductibles and maximum limits, and by
third-party indemnities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no active market for the Registrant's common stock; all issued
and outstanding shares of common stock are indirectly held by PCT.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the
Company for each of the years in the five year period ended December 31, 1996.
The selected historical financial data of the Company have been derived from
the audited financial statements of the Company and Mafco Worldwide prior to
the merger with Pneumo Abex on November 25, 1996. Since Mafco Worldwide and
Pneumo Abex were under common control at the time of the Merger, the Merger
has been accounted for in a manner similar to a pooling-of-interests from
November 25, 1996 with Mafco Worldwide as the predecessor company. In
addition, Purchaser's basis of accounting is not reflected in these financial
statements due to the Company's public debt.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and the notes thereto
included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN MILLIONS)
1996 1995 1994 1993 1992
---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net Sales.................. $103.4 $103.2 $95.6 $92.4 $100.1
Cost of Sales.............. 57.4 60.0 57.4 55.3 60.4
-------- ------- ------ -------- -------
Gross Profit............... 46.0 43.2 38.2 37.1 39.7
SG&A Expenses.............. 9.4 9.2 8.5 9.0 8.9
-------- ------- ------ -------- -------
Operating Income........... 36.6 34.0 29.7 28.1 30.8
Interest income............ (.4) (.5) (.2) (.1) (.5)
Interest expense........... 12.5 13.5 14.7 15.6 16.5
Amortization of debt
issuance costs .......... .9 .9 .9 1.1 1.3
Other, net................. (.3) .3 .2 .2 .5
-------- ------- ------ -------- -------
Income Before Income Taxes
and Extraordinary Loss.... 23.9 19.8 14.1 11.3 13.0
Income Taxes............... 9.0 7.7 5.4 4.2 4.8
-------- ------- ------ -------- -------
Income Before
Extraordinary Loss........ 14.9 12.1 8.7 7.1 8.2
Extraordinary Loss......... .6(a) 2.7(a) 7.6(a)
-------- ------- ------ -------- -------
Net Income................. $ 14.3 $ 12.1 $ 6.0 $ 7.1 $ .6
======== ======= ====== ======== ========
OTHER DATA:
Depreciation expense....... $ 2.0 $ 1.8 $ 1.7 $ 1.6 $ 1.5
Capital expenditures....... 1.9 2.3 1.9 1.4 2.0
BALANCE SHEET DATA:
Cash and cash equivalents.. $ 3.5 $ 8.5 $ 7.6 $ 1.9 $ 3.1
Inventories................ 46.3 45.5 47.6 53.3 44.0
Total assets............... 126.6 85.3 85.9 87.7 82.6
Long term debt ............ 91.9 118.3 124.0 131.1 134.2
Stockholder's equity (deficit) 5.0(b) (47.3) (51.4) (58.3) (64.8)
</TABLE>
(a) Reflects the write-off of deferred financing costs resulting from the
refinancing of the long term debt inNovember 1992 and June 1994 and
prepayments in 1996.
(b) Reflects the effects of the merger of Mafco Worldwide and Pneumo Abex, a
capital contribution of $17 million and the dividends paid of $12.5
million by Mafco Worldwide in 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere in
this Form 10-K. See "Index to Consolidated Financial Statements and Schedule.
GENERAL
The discussion below relates to the consolidated results of operations of
Mafco Worldwide prior to November 25, 1996 and the consolidated results of
Mafco Worldwide and Pneumo Abex from November 25, 1996.
RESULTS OF OPERATIONS
During 1993, the Company's largest customer substantially reduced the
price of its premium brand cigarettes in order to regain market share which
had been lost to generic or "no frills" type cigarettes. The generic
cigarettes sold at a discount to premium brands and had captured a substantial
share of the U.S. cigarette market. In addition, cigarette inventories at
distributors were reduced by abandoning the practice of loading distributors
with cigarettes at the end of each quarter. As a result of these actions, the
Company sold less licorice extract to the cigarette industry in 1993 than in
previous years. In 1994, the Company's sales volume to the cigarette industry
increased as production volumes in the cigarette industry returned to pre 1993
levels. This trend continued in 1995 and 1996.
Year ended December 31, 1996 compared with the year ended December 31, 1995.
Net sales in 1996 and 1995 were $103.4 million and $103.2 million,
respectively. U.S. sales increased $0.6 million in 1996 to $63.3 million. The
increase is due to higher average selling prices in 1996 as compared to 1995
of $1.5 million, partially offset by decreased shipment volume of $0.9 million
due to decreased demand from the Company's smokeless tobacco customers. The
higher selling prices were a result of changes in the mix of licorice products
sold to customers. Foreign sales in 1996 decreased by $0.4 million to $40.1
million in 1996. The decrease was due to lower average selling prices in 1996.
Cost of sales was $57.4 million in 1996 as compared to $60.0 million in
1995. The decrease of $2.6 million was due to lower material costs and a gain
on an insurance claim of $0.5 million. As a percentage of net sales, cost of
sales decreased to 55.5% in 1996 from 58.1% in 1995 as a result of the lower
material costs and the insurance gain.
Selling, general and administrative ("SG&A") expenses were $9.4 million in
1996 and $9.2 million in 1995. The increase of $0.2 million resulted from
higher compensation and pension benefit expenses in 1996 offset in part by a
bad debt recovery of $0.8 million. As a percentage of net sales, SG&A expenses
were 9.1% and 8.9% in 1996 and 1995, respectively.
As a result of the increased sales and lower costs and the non-recurring
gains from the insurance claim and from the bad debt recovery in 1996,
operating income increased to $36.6 million from $34.0 million in 1995, an
increase of $2.6 million or 7.6%.
Interest expense was $12.5 million in 1996 and $13.5 million in 1995, a
decrease of $1.0 million due to lower debt outstanding at lower average
interest rates in 1996.
11
<PAGE>
The Company's 1996 provision for income taxes as a percentage of income
before income taxes decreased to 37.7% in 1996 from 39.0% in 1995. The
decrease relates primarily to a reduction in the valuation allowance which
represents the Company's net operating loss carryforwards, which are expected
to be utilized. Based upon the results of operations of the Company over the
last several years and taking into consideration the current operating
environment of the tobacco industry, the Company believes that it is more
likely than not that these tax benefits will be realized. However, realization
of the net deferred tax assets and future reversals of the valuation allowance
will depend on future earnings and accordingly the valuation allowance will be
evaluated on a periodic basis.
The Company recorded an extraordinary loss of $0.6 million, net of a $0.3
million tax benefit as a result of prepaying its Senior Term Loans in December
1996. Deferred debt issuance costs which were being amortized over the term of
the loans were expensed as extraordinary.
Year ended December 31, 1995 compared with the year ended December 31, 1994:
Net sales in 1995 and 1994 were $103.2 million and $95.6 million,
respectively, an increase of $7.6 million or 7.9%. Both U.S. sales and foreign
sales (including export shipments) increased over 1994. U.S. sales increased
$3.0 million in 1995 to $62.7 million. Shipment volume increased by $5.2
million over 1994 due to increased demand from the Company's tobacco industry
customers. This increase in volume was offset by lower average selling prices
in 1995 as compared to 1994 of $2.3 million. The lower selling prices were a
result of incentives to customers and shifts by customers to alternative
licorice products. Foreign sales in 1995 increased by $4.6 million or 12.9% to
$40.5 million from $35.9 million in 1994. The increase was due to higher
shipment volume of $3.1 million and higher average selling prices of $1.5
million.
Cost of sales was $60.0 million and $57.4 million, respectively. The
increase of $2.6 million was due to the increase in sales in 1995. As a
percentage of net sales, cost of sales decreased slightly to 58.1% in 1995
from 60.0% in 1994 as a result of lower material costs and lower labor and
overhead costs due to higher production volumes.
SG&A expenses were $9.2 million in 1995 and $8.5 million in 1994. The
increase of $0.7 million resulted from higher compensation and pension benefit
expenses in 1995. As a percentage of net sales, SG&A expenses were 8.9% in
both 1995 and 1994.
As a result of the increased sales and lower costs in 1995, operating
income increased to $34.0 million from $29.7 million in 1994, an increase of
$4.3 million or 14.5%.
Interest expense was $13.5 million in 1995 and $14.7 million in 1994, a
decrease of $1.2 million due to lower debt outstanding at lower average
interest rates in 1995.
The Company's 1995 provision for income taxes as a percentage of income
before income taxes increased slightly to 39.0% from 38.8% in 1994.
In 1994, the Company recorded an extraordinary loss of $2.7 million, net
of a $1.7 million tax benefit, as a result of the June 1994 refinancing of
indebtedness. Prepayment premiums, original issue discounts and certain other
capitalized costs of the refinanced indebtedness were expensed as the
extraordinary loss.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were $19.6 million,
$17.1 million and $18.6 million for the years ended December 31, 1996, 1995
and 1994, respectively. The increase of $2.5 million in 1996 was a result of
higher 1996 profits partially offset by an increase in inventory. The decrease
of $1.5 million in 1995 was a result of a lower inventory decrease, an
increase in accounts receivable and a decrease in accounts payable in 1995
offset by higher 1995 profits, distributions from affiliates, and lower income
taxes paid to Holdings and Mafco in 1995. The Company's working capital
requirements, especially for inventory, are affected by customer demand,
current and prospective supplies of raw materials and raw material prices.
Inventory levels have remained relatively constant over the past three years
and at December 31, 1996 the Company's inventories were $46.3 million.
Management believes that 1997 inventories should remain the same as compared
to the 1996 levels based upon estimated shipments to customers and existing
and planned purchases of raw materials. Management expects that inventory
levels may continue to fluctuate in the future as the Company takes advantage
of opportunities to purchase quality inventory at the lowest possible costs
while maintaining its policy of purchasing some licorice root from all
available sources to maintain relationships with its suppliers.
Capital expenditures were $1.9 million, $2.3 million and $1.9 million for
the years ended December 31, 1996, 1995 and 1994, respectively. While the
Company has not made any significant purchase commitments for capital
expenditures, they are planned to be approximately $3.1 million for 1997. In
addition, the Company has entered into an agreement to invest in a joint
venture in the People's Republic of China totaling $1.3 million in 1997.
During 1996, the Company made scheduled amortization payments of its
Senior Term Loans of $8.7 million. In addition, in December 1996, the Company
prepaid all of its Senior Term Loans totaling $25.1 million. The cash used for
this prepayment was partially contributed by PCT ($17.0 million), the
Company's available cash and borrowings under the revolving credit facility
($7.3 million).
In June 1995, prior to the Abex Merger, the Company paid a $9.0 million
dividend to Holdings and in 1996, prior to the acquisition by PCT and the
Merger, the Company paid a total of approximately $12.5 million in dividends
to Mafco.
Under the senior credit agreement as amended in February 1997, the Company
may borrow up to $12.5 million under a revolving credit facility. At December
31, 1996, approximately $2.3 million of this facility had been reserved to
support lender guarantees for outstanding letters of credit. Management
believes the remaining availability of approximately $2.9 million under the
revolving credit facility and cash generated from operations will be
sufficient to meet the Company's needs for working capital, capital
expenditures and debt service.
TAX MATTERS
In connection with the Abex Merger and the Transfer, Mafco and the Company
entered into a tax sharing agreement. Under the indemnification provisions of
the tax sharing agreement and with respect to periods ending on or prior to
June 15, 1995, Mafco will generally be required to pay any tax liabilities of
the Company, except for foreign income taxes related to Aerospace. At December
31, 1996, the Company had available federal net operating loss carryforwards
of approximately $194.0 million, which expire in years 2000 through 2011.
13
<PAGE>
The IRS is currently examining the returns for the years 1989, 1990 and
1991. The Company has been notified by the IRS that its 1994 and its short
period 1995 return will be examined. The amount of net operating loss
carryforwards available at December 31, 1996 could be affected by the outcome
of this examination.
OTHER
Various legal proceedings, claims and investigations are pending against
the Company and PCT, including those relating to commercial transactions,
product liability, safety and health matters and other matters. PCT and Pneumo
Abex are involved in various stages of legal proceedings, claims,
investigations and cleanup relating to environmental or natural resource
matters, some of which relate to waste disposal sites. Most of these matters
are covered by insurance, subject to deductibles and maximum limits, and by
third-party indemnities.
The Company is indemnified by third parties with respect to certain of its
contingent liabilities, such as certain environmental and asbestos matters, as
well as certain tax and other matters. In order to implement the Transfer, a
subsidiary of Abex and PCT, the Company and certain other subsidiaries of PCT
entered into a transfer agreement (the "Transfer Agreement"). Under the
Transfer Agreement, substantially all of Abex's consolidated assets and
liabilities, other than those relating to the Aerospace Business, were
transferred to a subsidiary of Mafco, with the remainder being retained by the
Company. The Transfer Agreement provides for appropriate transfer,
indemnification and tax sharing arrangements, in a manner consistent with
applicable law and existing contractual arrangements.
The Transfer Agreement requires such subsidiary of Mafco to undertake
certain administrative and funding obligations with respect to certain
asbestos claims and other liabilities retained by the Company. The Company
will be obligated to make reimbursement for the amounts so funded only when
amounts are received by the Company under related indemnification and
insurance agreements. Such administrative and funding obligations would be
terminated as to asbestos products claims in the case of bankruptcy of the
Company or PCT or of certain other events affecting the availability of
coverage for such claims from third party indemnitors and insurers. The
Transfer Agreement further provides for certain funding indemnification and
cooperation arrangements between PCT, the Company and such subsidiary in
respect of certain liabilities which may arise under the Employee Retirement
Security Act of 1974 in respect of the sale of Pneumo Abex's friction products
division in 1995.
In the opinion of management, based upon the information available at this
time, the outcome of the outstanding matters referred to above will not have a
material adverse effect on the Company's financial position or results of
operations.
FOREIGN EXCHANGE
Most of the Company's export sales and purchase of licorice raw materials
are made in U.S. dollars. The Company's French subsidiary sells in all
European currencies as well as the U.S. dollar and purchases raw materials
principally in U.S. dollars.
QUARTERLY RESULTS
Approximately 58%, 60% and 61% of the Company's sales in 1996, 1995 and
1994, respectively, were made to the Company's ten largest customers.
Individual orders tend to be relatively large and
14
<PAGE>
thus quarterly results may be affected depending upon the particular quarter
in which an order is shipped. As a result, quarterly sales and operating
income are affected by changes in the customers' ordering policies and
production requirements. Additionally, changes in the mix of raw materials
used in the manufacturing process may cause fluctuations in operating income.
The effect of these changes on the Company's annual results of operations has
generally not been material.
INFLATION
Since 1993, inflationary increases for raw materials and other costs have
not been significant. In the future if inflationary increases for raw
materials and other costs are significant the Company may not be able to pass
these cost increases to its customers through price increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements and supplementary data listed in the
accompanying Index to Consolidated Financial Statements and Schedule on page
F-1 herein. Information required by other schedules called for under
Regulation S-X is either not applicable or is included in the financial
statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
directors and executive officers of the Company as of March 1997:
<TABLE>
<CAPTION>
YEARS WITH
NAME AGE POSITION COMPANY
- ---- --- -------- -----------
<S> <C> <C>
Ronald O. Perelman 54 Chairman of the Board of Directors 16
Theo W. Folz 53 Vice Chairman of the Board 2
of Directors, Chief Executive Officer
Howard Gittis 63 Director 6
Stephen G. Taub 45 President and Chief Operating Officer 21
Pramathesh S. Vora 50 Senior Vice President 19
Peter W. Grace 52 Senior Vice President: Finance 18
</TABLE>
All directors are elected annually to serve until the next annual
shareholder meeting and until their successors have been elected and
qualified.
RONALD O. PERELMAN has been Chairman of the Board of Directors and a
Director of the Company since 1996 (director of Mafco Worldwide since 1992)
and has been Chairman of the Board of
15
<PAGE>
Directors and Chief Executive Officer of Mafco Holdings Inc. ("Holdings")
and MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), diversified
holding companies, and various affiliates since 1980. Mr. Perelman
is also Chairman of the Board of Directors of Andrews Group Incorporated
("Andrews Group"), Consolidated Cigar Holdings Inc. ("Cigar
Holdings"), Mafco and Meridian Sports Incorporated ("Meridian") and Mr.
Perelman is the Chairman of the Executive Committees of the Boards of Marvel
Entertainment Group, Inc. ("Marvel"), Revlon Consumer Products Corporation
("Revlon Products") and Revlon, Inc. ("Revlon"). Mr. Perelman is also a
Director of the following corporations which file reports pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"): Andrews Group, The
Coleman Company, Inc. ("Coleman"), Coleman Holdings Inc. ("Coleman Holdings"),
Coleman Worldwide Corporation ("Coleman Worldwide"), Cigar Holdings,
Consolidated Cigar Corporation ("Cigar Corp."), California Federal Bank, A
Federal Savings Bank ("CalFed"), First Nationwide Holdings Inc. ("First
Nationwide Holdings"), First Nationwide (Parent) Holdings Inc. ("First
Nationwide Parent"), Mafco, Marvel, Marvel Holdings Inc., Marvel III Holdings
Inc., Marvel (Parent) Holdings Inc., Meridian, PCT, Revlon Worldwide
Corporation ("Revlon Worldwide"), Revlon, Revlon Products and Toy Biz. Mr.
Perelman's term as Director of the Company expires in 1998. (On December 27,
1996, Marvel, Marvel Holdings, Marvel Parent and Marvel III and several other
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code.)
THEO W. FOLZ has been Vice Chairman and Chief Executive Officer of the
Company and its predecessor Mafco Worldwide, since January 1995. He was
appointed a Director, President and Chief Executive Officer of PCT in 1996. He
has been President, Chief Executive Officer and a Director of Cigar Holdings
and Cigar Corp. since June 1996 and August 1984, respectively. Mr. Folz is a
Director of the following corporations which file reports pursuant to the
Exchange Act: Cigar Holdings, Cigar Corp., Mafco and PCT.
HOWARD GITTIS has been a Director of the Company since 1996 ( a director
of Mafco Worldwide since 1992) and Vice Chairman of Holdings and MacAndrews
Holdings, diversified holding companies, and various affiliates since 1985.
Mr. Gittis is a Director of the following corporations which file reports
pursuant to the Exchange Act: Andrews Group, CalFed, Cigar Corp., Cigar
Holdings, First Nationwide Holdings, First Nationwide Parent, Mafco, PCT,
Revlon Worldwide, Revlon Products, Revlon, Jones Apparel Group, Inc., Loral
Space and Communications Ltd. and Rutherford-Moran Oil Corporation.
STEPHEN G. TAUB joined the Company in 1975 as an Industrial Engineer and
in 1982 became the Company's Vice President of Manufacturing. In 1987 Mr. Taub
was elected Senior Vice President and his responsibilities included the
Company's manufacturing, botanical and spice operations, as well as marketing
of the Company's products to the confectionery and pharmaceutical industries
in Western Europe. He became President and Chief Operating Officer of the
Company on January 1, 1993.
PRAMATHESH S. VORA joined the Company in 1977 as a chemical engineer. In
1978, Mr. Vora became the Research and Development Manager and in 1982, he was
given responsibility for Quality Control. In 1984, Mr. Vora was elected Vice
President of Research and Development, including areas of quality control and
technical marketing. In January 1986, he was also given responsibility for
international tobacco sales and marketing for Europe, Asia and South America.
He became a Senior Vice President of the Company on January 1, 1993.
PETER W. GRACE joined the Company in 1978 as Controller and was
subsequently elected Vice President in January 1982. He is responsible for all
domestic and international accounting, treasury
16
<PAGE>
and MIS functions of the Company. He became a Senior Vice President of the
Company on January 1, 1993.
COMPENSATION OF DIRECTORS
Directors who do not receive compensation as officers or employees of the
Company or any of its affiliates are paid a fee of $25,000 per year plus
$1,000 for each meeting of the board of directors or any committee that they
attend.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation that the Company paid to
its Chief Executive Officer and the three most highly compensated officers for
services in all capacities to the Company for the years ended December 31,
1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal All Other
Position Year Salary($) Bonus($) Compensation($)
- ------------------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Theo Folz 1996 330,000 363,000 -
Vice Chairman of the 1995 300,000 300,000
Board of Directors,
Chief Executive Officer
Stephen G. Taub 1996 400,000 475,000 3,963(a)
President & Chief Operating 1995 370,000 475,000 10,312(a)
Officer 1994 290,000 290,000 4,748(a)
Pramathesh S. Vora 1996 180,000 198,000 3,963(a)
Senior Vice President 1995 170,000 107,500 4,699(a)
1994 140,000 84,000 4,414(a)
Peter W. Grace 1996 158,500 174,350 4,139(a)
Senior Vice President - 1995 150,000 90,000 5,219(a)
Finance 1994 140,000 94,000 4,278(a)
</TABLE>
(a) All Other Compensation represents the Company matching 401(k)
contributions and Supplemental Medical and Dental Expense Plan benefits.
In 1996, through the date of the Aerospace Sale, Albert D. Indelicato
acted as President and Chief Executive Officer of Pneumo Abex. He was paid a
salary of $192,708 and a bonus of $1,000,000 for services rendered in this
capacity.
COMPENSATION PLANS AND ARRANGEMENTS
EMPLOYMENT AGREEMENTS. Certain of the Company's executive officers are
parties to employment agreements with the Company or Mafco. The following is a
description of certain terms of such agreements.
17
<PAGE>
Mr. Folz has an employment contract with Mafco which includes
compensation for his duties as Chief Executive Officer of the Company. The
portion allocable to the Company is reimbursed by the Company and is shown in
the compensation table above. Mr. Folz received no other benefits from the
Company nor is he a participant in the Company pension plans.
The Company entered into an employment agreement with Mr. Taub which
provides for him to be employed commencing on September 1, 1996 through
December 31, 2000. At any time on or after December 31, 1999, the Company will
have the right to give written notice of the non-renewal of the employment
term. Upon the giving of such notice, the employment term is automatically
extended so that it ends twelve months after the last day of the month in
which the notice was given. From and after January 1, 2001 the employment term
is extended on a day-to-day basis until the Company gives notice of
non-renewal, as described above. Mr. Taub will be paid an annual base salary
of not less than $400,000 for 1996 and $500,000 for 1997 through 2000, subject
to increase at the discretion of the Company. Mr. Taub may earn a performance
bonus of up to 150% of base salary, subject to an annual maximum of $1
million, pursuant to his participation in the Company's performance bonus plan
("Performance Bonus Plan"). All such bonus payments are subject to PCT
stockholder approval of the Performance Bonus Plan. In the event of a breach
of the agreement by the Company, Mr. Taub is entitled to terminate the
employment agreement; in that event or in the event the Company terminates the
agreement other than for cause or Mr. Taub's disability, Mr. Taub is generally
entitled to receive payment of base salary and bonus and the continuation of
benefits for the longer of the remaining term of the agreement or twelve
months, offset by any other compensation Mr. Taub earns during this period.
The Company also entered into employment agreements with Messrs. Grace
and Vora which provide for each to be employed commencing on September 1, 1996
through December 31, 1999. At any time on or after December 31, 1998, the
Company will have the right to give notice of the non-renewal of the
employment term. Upon the giving of such notice the employment term is
automatically extended so that it ends twelve months after the last day of the
month in which the notice was given. From and after January 1, 2000, the
employment term is extended on a day-to-day basis until the Company gives
notice of non-renewal, as described above. Mr. Grace will be paid an annual
base salary of not less than $158,500 subject to increase at the discretion of
the Company. Mr. Vora will be paid an annual base salary of not less than
$180,000, also subject to increase at the discretion of the Company. Messrs.
Grace and Vora may earn a performance bonus of up to 150% of base salary,
subject to an annual maximum of $1 million, pursuant to their participation in
the Performance Bonus Plan. All such bonus payments are subject to PCT
stockholder approval of the Performance Bonus Plan. In the event of a breach
of an agreement by the Company, Messrs. Grace and Vora are entitled to
terminate their respective employment agreements; in that event or in the
event that the Company terminates an agreement other than for cause or
disability, the executive is generally entitled to receive payment of base
salary and bonus and the continuation of benefits for the longer of the
remaining term of the agreement or twelve months, offset by any other
compensation the executive earns during this period.
RETIREMENT PLANS
PENSION PLAN FOR SALARIED EMPLOYEES. The Company established the Defined
Benefit Pension Plan for Salaried Employees (the "Salaried Pension Plan")
effective as of December 31, 1990, in replacement of a prior plan.
Participants in the Salaried Pension Plan generally include participants under
the prior plan and certain salaried exempt employees who are at least age 21
and credited with at
18
<PAGE>
least one thousand hours of service in any Plan Year (as defined in the
Salaried Pension Plan) since the date such employee commenced employment.
Benefits to participants vest fully after five years of service and such
benefits are determined primarily by a formula taking into account an average
final compensation determined by averaging the three consecutive completed
calendar years of greatest compensation earned during the participant's
service to the Company and the number of years of service attained by the
individual participant. Benefits are subject to the maximum limitations
imposed by federal law on pension benefits. The annual limitation in 1996 was
$120,000, based on a maximum allowable compensation of $150,000. Such
compensation is composed primarily of regular base salary, bonus and employer
contributions to qualified deferred compensation plans. Subject to certain
restrictions, participants may make voluntary after-tax contributions of up to
ten percent of their aggregate compensation. Any such voluntary contributions
are fully vested and nonforfeitable at all times.
Benefits under the Salaried Pension Plan are payable upon normal
retirement age of 65, vested termination, disability and death. A participant
may elect to commence early benefit payments at any time after age 55 with 10
years of service at amounts reduced from those payable upon normal retirement
age.
The Company has established the Mafco Worldwide Corporation Benefit
Restoration Plan (the "Restoration Plan") effective January 1, 1994 which was
designed to restore retirement benefits to those employees whose eligible
pension earnings were limited to $150,000 under regulations enacted by the
Internal Revenue Service. OBRA '93 limited pension benefits under tax
qualified plans based on maximum compensation of $150,000, which will be
adjusted annually based upon inflation. Had the enactment of OBRA '93 not
limited pension benefits under tax qualified plans the limit would have been
$255,300 in 1996, The Restoration Plan was established to provide pension
benefits to those employees who would have lost benefits due to the reduction
in the maximum compensation allowed for the calculation of benefits under the
Salaried Pension Plan. The Restoration Plan will not be funded and all other
vesting and payment rules will follow the Salaried Pension Plan.
The following table shows estimated annual benefits payable upon
retirement under the Salaried Pension Plan and the Restoration Plan:
Estimated Annual Straight Life Annuity Benefits at
Retirement with Indicated Years of Credited Service
<TABLE>
<CAPTION>
Highest
Consecutive
Three Year
Average
Annual
Compensation 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
100,000 25,226 33,635 42,044 42,044 42,044
125,000 32,726 43,635 54,544 54,544 54,544
150,000 40,226 53,635 67,044 67,044 67,044
175,000 47,726 63,635 79,544 79,544 79,544
200,000 55,226 73,635 92,044 92,044 92,044
225,000 62,726 83,635 104,544 104,544 104,544
250,000 69,854 93,139 116,424 116,424 116,424
300,000 69,854 93,139 116,424 116,424 116,424
</TABLE>
19
<PAGE>
Benefits shown above reflect the straight life benefit form of payment for
employees, assume normal retirement at age 65, reflect the deduction for
Social Security amounts, but do not reflect the offset for actuarial
equivalent benefit derived from the employer contribution account in the
401(k) Plan.
As of December 31, 1996, credited years of service for each of the individuals
listed on the Cash Compensation Table were as follows: Mr. Taub, 21 years; Mr.
Grace, 18 years; and Mr. Vora, 19 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Company
did not have a compensation committee during 1996. Mr. Folz, who is Chief
Executive Officer of the Company, is also a director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's common stock is indirectly owned by PCT. Mafco owns
approximately 29% of the outstanding shares of PCT common stock. Mafco is 85%
owned by Holdings and the sole stockholder of Holdings is Ronald O. Perelman,
who is Chairman of the Board and Chief Executive Officer of Holdings and
certain of its subsidiaries. The principal executive offices of Holdings are
located at 35 East 62nd Street, New York, NY 10021.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSFER AGREEMENT. In connection with the Abex Merger and the related
Transfer of substantially all of Abex's consolidated assets and liabilities to
a subsidiary of Mafco with the remainder being retained by the Company, the
Company, PCT, a subsidiary of Mafco and another subsidiary of Abex entered
into the Transfer Agreement. The Transfer Agreement provides for appropriate
transfer, indemnification and tax sharing arrangements, in a manner consistent
with applicable law and existing contractual arrangements.
The Transfer Agreement requires such subsidiary to undertake certain
administrative and funding obligations with respect to certain asbestos claims
and other liabilities retained by the Company. The Company will be obligated
to make reimbursement for the amounts so funded only when amounts are received
by the Company under related indemnification and insurance arrangements. Such
administrative and funding obligations would be terminated as to asbestos
products claims in the case of a bankruptcy of Pneumo Abex or PCT or of
certain other events affecting the availability of coverage for such claims
from third party indemnitors and insurers. The Transfer Agreement further
provides for certain funding indemnification and cooperation arrangements
between the Company and such subsidiary in respect of certain liabilities
which may arise under the Employee Retirement Income Security Act of 1974 in
respect of the sale of Abex Friction Products on November 21, 1994.
INCOME TAXATION. On November 14, 1996, the Company and PCT entered into a
Tax Sharing Agreement pursuant to which the Company agrees to pay to PCT
amounts equal to the taxes that the Company would otherwise have to pay if it
were to file separate income tax returns. Under existing federal regulations
the Company is liable for the consolidated federal income taxes of PCT for any
taxable year in which it is a member of the consolidated group of which PCT is
the common parent.
LICENSE AGREEMENT. Pursuant to the License Agreement, Holdings has
licensed to the Company, on a royalty-free basis, the right to use the name
"MacAndrews & Forbes" until November 12, 1997.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1 and 2) Financial statements and financial statement schedule II. See
Index to Consolidated Financial Statements and Schedule which appears on page
F-1 herein.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
1.1 Underwriting Agreement among Bear, Stearns & Co. Inc. and
Morgan Stanley & Co. Incorporated and the Company.
2.1 Master Asset Purchase Agreement, dated as of January 15,
1996, as amended, by and among the Company, PCT and Parker
Hannifin, without exhibits and schedules (incorporated by
reference to Exhibit 2.1 to PCT's Form 10-K dated December
31, 1995).
2.2 Closing Agreement, dated as of April 15, 1996, by and among
PCT, Pneumo Abex and Parker Hannifin (incorporated by
reference to Exhibit 2.2 to PCT's Form 8-K dated April 30,
1996).
2.3 Stock and VSR Purchase Agreement, dated as of October 23,
1996, by and among Mafco Consolidated Group, Inc., Power
Control Technologies, Inc. and PCT International Holdings
Inc. (incorporated by reference from Exhibit 7 of the Mafco
Consolidated Group Inc.'s Schedule 13D, dated October 25,
1996, filed with respect to Power Control Technologies,
Inc.)
3.1 Certificate of Incorporation of the Company.
3.2 By-laws of the Company.
4.1 Form of Indenture, together with form of Senior Subordinated
Note (incorporated by reference to Amendment No. 1 to Mafco
Worldwide's Registration Statement on Form S-1 (33-48904)
(the "1992 S-1")).
4.2 First Supplemental Indenture, dated as of November 25, 1996,
between Pneumo Abex Corporation and First Trust of New York,
National Association, pursuant to the Indenture dated as of
November 12, 1992 between Mafco Worldwide Corporation and
First Trust of New York, National Association (successor to
Security Pacific National Trust Company (New York), as
trustee).
4.3 Form of Purchase Agreement among Mafco Worldwide, Flavors
Holdings Inc. and the institutional sellers party thereto
(incorporated by reference to Amendment No. 2 to the 1992
S-1).
21
<PAGE>
4.4 Credit Agreement dated as of June 29, 1994 between the
Company and the Banks (as defined in the Credit Agreement)
and Chase Manhattan Bank, N.A., as agent (incorporated by
reference to Mafco Worldwide Form 10-Q filed August 16,
1994).
4.5 Consent Number 5 and First Amendment, dated as of November
11, 1996, to the Credit Agreement dated as of June 29, 1994
among Mafco Worldwide, the Banks (as defined in the Credit
Agreement) and The Chase Manhattan Bank, N.A., as agent
(incorporated by reference to Power Control Technologies
Corporation's Form 10K filed on March 24, 1997).
4.6 Consent Number 6 and Second Amendment, dated as of December
12, 1996, to the Credit Agreement, dated as of June 29, 1994
among Pneumo Abex Corporation, the Banks (as defined in the
Credit Agreement) and The Chase Manhattan Bank, as agent
(incorporated by reference to Power Control Technologies
Corporation's Form 10K filed on March 24, 1997).
4.7 Third Amendment dated as of February 5, 1997, to the Credit
Agreement, dated as of June 29, 1994 among Pneumo Abex
Corporation, the Banks (as defined in the Credit Agreement
and The Chase Manhattan Bank, as agent (incorporated by
reference to Power Control Technologies Corporation's Form
10K filed on March 24, 1997).
4.8 Assumption Agreement, dated as of November 25, 1996, made by
Pneumo Abex Corporation in favor of the Banks (as defined in
the Assumption Agreement and The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A.) as
agent (incorporated by reference to Power Control
Technologies Corporation's Form 10K filed on March 24,
1997).
10.1 Transfer Agreement among the Company, MCG Intermediate
Holdings Inc., Pneumo Abex and PCT International Holdings
Inc. (incorporated by reference to Exhibit 10.1 to PCT's
Current Report on Form 8-K dated June 28, 1995).
10.2 Stock Purchase Agreement, dated April 28, 1988, between
Pneumo Abex and Whitman Corporation (incorporated by
reference to Exhibit 2.1 to Pneumo Abex's Registration
Statement on Form S-1, Commission File No. 33-22725) as
amended by an Amendment, dated as of August 29, 1988, and a
Second Amendment and related Settlement Agreement, dated
September 23, 1991 (incorporated by reference to exhibit
10.4 to Abex Inc.'s Annual Report on Form 10-K for 1992).
10.3 Asset Purchase Agreement, dated as of May 15, 1993, between
Pneumo Abex and The BF Goodrich Company (incorporated by
reference to Exhibit 2.1 to Abex Inc.'s Current Report on
Form 8-K dated June 10, 1993).
10.4 Asset Purchase Agreement, dated as of November 21, 1994, by
and between Pneumo Abex and Wagner Electric Corporation
(incorporated by reference to Exhibit 1 to Abex Inc.'s
Current Report on Form 8-K dated November 21, 1994).
10.5 Lease dated as of December 26, 1989, between MacAndrews &
Forbes Group, Inc. and Fulton Bottom Associates, L.P., as
amended on May 14, 1990, and as further amended on October
15, 1991.
22
<PAGE>
10.6 Contract dated as of May 31, 1994 between the Company and
the Licorice and Paper Employees Association of Camden, NJ,.
10.7 Agreement dated January 1, 1994 between M.F. Neal & Co. and
Local Union No. 309T. Pages 137 to 155.
10.8 Form of Reimbursement Agreement between the Company and
Holdings.
10.9 Form of License Agreement between the Company and Holdings.
10.10* Employment Contracts dated as of September 1, 1996, between
the Company and Mr. Taub, Mr. Vora, and Mr. Grace.
10.11 Form of Lease to be dated March 31, 1993 between the Company
and H.W.R. Corporation.
11.00* Tax Sharing Agreement between the Company and PCT dated as
of November 14, 1996.
22* Subsidiaries of the Company.
25* Powers of Attorney executed by Messrs. Gittis, Folz and
Perelman.
27* Financial Data Schedule
* Filed herein.
(b) Reports on Form 8-K filed during last quarter of the year ended December
31, 1996.
Report Dated November 25, 1996, pursuant to the change in
control of the Registrant.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized in the City of
Camden, State of New Jersey on March 31, 1997.
MAFCO WORLDWIDE CORPORATION
By:*
-----------------------------------------
Theo W. Folz
Vice Chairman of the Board of Directors
and Chief Executive Officer
By:/s/ Stephen G. Taub
-----------------------------------------
Stephen G. Taub
President and Chief Operating Officer
By:/s/ Peter W. Grace
-----------------------------------------
Peter W. Grace
Senior Vice President - Finance, and
Principal Accounting Officer
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 of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C>
* Chairman of the
- -------------------------------- Board of Directors March 31, 1997
Ronald O. Perelman
Vice Chairman of the
Board of Directors,
* and Chief Executive
- -------------------------------- Officer March 31, 1997
Theo W. Folz
*
- --------------------------------
Howard Gittis Director March 31, 1997
* The undersigned by signing his name hereto does hereby execute this Form
10-K pursuant to powers of attorney filed as exhibits to this Form 10-K.
By:/s/ Peter W. Grace
---------------------------------
Peter W. Grace
Attorney-in-Fact
</TABLE>
24
<PAGE>
PNEUMO ABEX CORPORATION AND SUBSIDIARIES
ITEM 8, ITEM 14 (A)(1) AND (2) AND (D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1996
The following consolidated financial statements of Pneumo Abex Corporation are
included in Item 8:
As of December 31, 1996 and 1995 and for the years ended December 31, 1996,
1995 and 1994.
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheets.................................................F-3
Consolidated Statements of Income...........................................F-4
Consolidated Statements of Stockholder's Equity (Deficit)...................F-5
Consolidated Statements of Cash Flows.......................................F-6
Notes to Consolidated Financial Statements..................................F-7
The following financial statement schedule of Pneumo Abex Corporation is
included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts.............................F-18
ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE
ACCOUNTING REGULATION OF THE SECURITIES AND EXCHANGE COMMISSION ARE NOT
REQUIRED UNDER THE RELATED INSTRUCTIONS OR ARE INAPPLICABLE AND, THEREFORE,
HAVE BEEN OMITTED.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Pneumo Abex Corporation
We have audited the accompanying consolidated balance sheets of Pneumo Abex
Corporation (successor to Mafco Worldwide Corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholder's equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(1 and 2). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pneumo Abex Corporation and subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
New York, New York
February 11, 1997
F-2
<PAGE>
PNEUMO ABEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- -----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 3.5 $ 8.5
Trade accounts receivable, net................................................... 11.3 10.4
Inventories ................................................................... 46.3 45.5
Prepaid expenses and other....................................................... 2.2 3.5
------ -----
Total current assets......................................................... 63.3 67.9
Property, plant and equipment, net................................................... 10.4 10.6
Pension asset........................................................................ 14.1 -
Deferred tax asset................................................................... 34.8 1.0
Intangibles and other assets......................................................... 4.0 5.8
------- ------
TOTAL ASSETS......................................................................... $126.6 $85.3
====== =====
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt................................................ $ - $ 10.2
Foreign borrowings............................................................... - 0.7
Accounts payable................................................................. 5.2 5.6
Accrued interest................................................................. 1.3 1.3
Accrued compensation and benefits................................................ 3.1 2.4
Income taxes payable............................................................. 1.4 0.6
Payable to parent................................................................ 7.1 -
Accrued expenses and other....................................................... 4.7 0.6
----- ------
Total current liabilities.................................................... 22.8 21.4
Long-term debt....................................................................... 91.9 108.1
Other liabilities.................................................................... 6.9 3.1
Commitments and contingencies........................................................ - -
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, par value $1.00 per share, 1,000 shares authorized,
issued and outstanding....................................................... - -
Additional paid-in-capital....................................................... 51.2 -
Accumulated deficit.............................................................. (47.4) (49.2)
Currency translation adjustment.................................................. 1.2 1.9
------ ------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT)................................................. 5.0 (47.3)
------- -----
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)................................... $126.6 $ 85.3
====== ======
See Notes to Consolidated Financial Statements
F-3
<PAGE>
PNEUMO ABEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER
-----------------------------------
1996 1995 1994
------ ------ ------
1994
NET SALES.............................................................. $103.4 $103.2 $95.6
Cost of sales.......................................................... 57.4 60.0 57.4
------- ------ ------
GROSS PROFIT........................................................... 46.0 43.2 38.2
Selling, general & administrative expenses............................. 9.4 9.2 8.5
------- ------ ------
OPERATING INCOME....................................................... 36.6 34.0 29.7
Interest income........................................................ (0.4) (0.5) (0.2)
Interest expense....................................................... 12.5 13.5 14.7
Amortization of debt issuance costs.................................... 0.9 0.9 0.9
Other, net............................................................. (0.3) 0.3 0.2
------- -------- ------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS...................... 23.9 19.8 14.1
Income taxes........................................................... 9.0 7.7 5.4
------- ------ ------
INCOME BEFORE EXTRAORDINARY LOSS....................................... 14.9 12.1 8.7
Extraordinary loss on refinancing of debt, net of tax
benefits of $0.3 in 1996 and $1.7 in 1994............................. 0.6 - 2.7
------- -------- ------
NET INCOME............................................................. $ 14.3 $12.1 $ 6.0
====== ===== =====
See Notes to Consolidated Financial Statements
F-4
<PAGE>
PNEUMO ABEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL ACCUM- CURRENCY
COMMON PAID IN ULATED TRANSLATION
STOCK CAPITAL DEFICIT ADJUSTMENT TOTAL
------- ----------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993.................. $ - $0.1 $(58.4) $ - $(58.3)
Net income ......................... 6.0 6.0
Translation adjustment ................ 0.9 0.9
------ ------ ------ ------- -------
Balance December 31, 1994.................. - 0.1 (52.4) 0.9 (51.4)
Net income ......................... 12.1 12.1
Cash dividends paid.................... (0.1) (8.9) (9.0)
Translation adjustment................. 1.0 1.0
------ ------ ------ ------- -------
Balance December 31, 1995.................. - - (49.2) 1.9 (47.3)
Effect of Pneumo Abex Merger........... 34.2 34.2
Capital Contribution................... 17.0 17.0
Net income ......................... 14.3 14.3
Cash dividends paid.................... (12.5) (12.5)
Translation adjustment................. (0.7) (0.7)
------ ------ ------ ------- -------
Balance December 31, 1996.................. $ - $51.2 $(47.4) $1.2 $5.0
===== ===== ====== ===== =====
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
PNEUMO ABEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.. ..................................................... $14.3 $12.1 $ 6.0
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Extraordinary loss................................................ 0.9 - 4.4
Depreciation and amortization..................................... 2.9 2.8 2.8
Income of affiliates (higher) lower than distributions............ - 0.7 (0.3)
Changes in assets and liabilities net of assets and
liabilities from the Merger:
Increase in trade accounts receivable.......................... - (1.5) (0.1)
(Increase) decrease in inventories............................. (1.2) 2.6 6.5
Increase (decrease) in accounts payable........................ (0.4) (0.4) 1.2
Increase (decrease) in income taxes payable to parent.......... 0.2 0.3 (3.2)
Other, net..................................................... 2.9 0.5 1.3
------ ------ ------
Cash from operating activities................................ 19.6 17.1 18.6
------ ------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures............................................... (1.9) (2.3) (1.9)
Proceeds from sale of joint venture................................ - 0.1 0.4
------ ------ ------
Cash used in investing activities............................ (1.9) (2.2) (1.5)
------ ------ ------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds revolving credit facility................................. 7.3 - -
Foreign borrowings................................................. (0.7) 0.7 -
Dividends paid..................................................... (12.5) (9.0) -
Repayment of borrowings............................................ (33.8) (5.7) (57.4)
Proceeds from long-term debt....................................... - - 50.0
Refinancing costs.................................................. - - (4.0)
Capital contribution............................................... 17.0 - -
------ ------ ------
Cash used in financing activities............................ (22.7) (14.0) (11.4)
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (5.0) 0.9 5.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 8.5 7.6 1.9
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 3.5 $ 8.5 $ 7.6
===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest .......................................................... $12.5 $14.2 $ 14.2
Income taxes, net of refunds....................................... 7.4 6.6 6.3
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BACKGROUND AND BASIS OF PRESENTATION
Mafco Worldwide Corporation ("Mafco Worldwide"), a Delaware corporation,
was formed in 1991. Prior to June 15, 1995, Mafco Worldwide was an indirect
wholly owned subsidiary of Mafco Holdings Inc. ("Holdings"). On June 15, 1995,
Holdings and Mafco Consolidated Group Inc. ("Mafco") formerly known as Abex
Inc., consummated an agreement and plan of merger. As a result of the merger,
Mafco Worldwide became an indirect wholly owned subsidiary of Mafco. On
November 25, 1996, Mafco and Power Control Technologies, Inc., a Delaware
corporation ("PCT"), consummated the transactions contemplated by a Stock and
VSR Purchase Agreement (the "Purchase Agreement"), dated as of October 23,
1996, by and among Mafco, PCT and PCT International Holdings Inc.,
("Purchaser") a Delaware corporation and wholly owned subsidiary of PCT.
Pursuant to the Purchase Agreement, Purchaser acquired from Mafco, all the
issued and outstanding shares (the "Shares") of capital stock of Flavors
Holdings Inc., a Delaware corporation and wholly owned subsidiary of Mafco
("Flavors"), and 23,156,502 Value Support Rights (each a "VSR").
In consideration for the Shares and VSRs, Purchaser paid Mafco cash in
the amount of $180. In addition, Purchaser will pay Mafco deferred cash
payments of $3.7 on June 30, 1997 and $3.5 on December 31, 1997.
Mafco owns approximately 29% of the outstanding shares of PCT common
stock.
Immediately following the acquisition of Flavors, Purchaser contributed
all outstanding shares of common stock of Pneumo Abex Corporation, a Delaware
corporation ("Pneumo Abex" or the "Company"), to Flavors and Flavors
contributed such shares to Mafco Worldwide, which resulted in Pneumo Abex
becoming a wholly owned subsidiary of Mafco Worldwide. On November 25, 1996,
Mafco Worldwide merged with and into Pneumo Abex (the "Merger") with Pneumo
Abex being the surviving corporation, the directors of Mafco Worldwide
becoming the directors of Pneumo Abex and Pneumo Abex becoming a wholly owned
subsidiary of Flavors. Since Mafco Worldwide and Pneumo Abex were under common
control at the time of the Merger, the Merger has been accounted for in a
manner similar to a pooling-of-interests from November 25, 1996 with Mafco
Worldwide as the predecessor company. In addition, Purchaser's basis of
accounting is not reflected in these financial statements due to the Company's
public debt.
Pneumo Abex was incorporated in Delaware on June 30, 1986, and is an
indirect wholly-owned subsidiary of PCT.
PCT has been a public company since June 15, 1995 when shares of its
common stock, par value $.01 per share (the "PCT Common Stock"), were publicly
distributed (the "PCT Distribution") to existing stockholders of Abex Inc.,
PCT's former parent ("Abex"), in connection with the Abex Merger and the
related transfer (the "Transfer") to a subsidiary of Mafco of substantially
all of Abex's consolidated assets and liabilities, other than those relating
to Abex NWL Aerospace Division ("Aerospace"), which continued to be owned by
the Company. On July 16, 1992, Abex was spun off (the "Abex Distribution")
from the Henley Group Inc. ("Henley Group"). Following the Abex Distribution
and prior to the PCT Distribution, Abex, through the Company, sold three of
its five operating divisions and combined the two others to form Aerospace.
Prior to July 16, 1992, PCT was an indirect wholly owned subsidiary of Henley
Group. On April 15, 1996, the Company sold to Parker Hannifin Corporation
("Parker Hannifin") its entire Aerospace operations including substantially
all of its assets (the "Aerospace Sale").
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
The Company and its predecessors have been in the business of producing
licorice extract since 1850.
The Company produces a variety of licorice products from licorice root,
licorice extract produced by others and certain other flavor ingredients at
its facilities in Camden, New Jersey and Gardanne, France. Approximately 72%
of the Company's licorice sales are to the worldwide tobacco industry for use
as flavoring and moistening agents in the manufacture of American blend
cigarettes as well as other tobacco products (moist snuff, chewing tobacco and
pipe tobacco). While licorice extract represents a small percentage of the
total cost of manufacturing American blend cigarettes and other tobacco
products, the particular formulation and quantity used by each brand is an
important element in the brands flavor. The Company also sells licorice
extract to worldwide confectioners, food processors and pharmaceutical
manufacturers for use as flavoring or masking agents. In addition, the Company
sells licorice root residue as a garden mulch under the name Right Dress. The
Company manufactures and sells other non-licorice products which include
natural flavors, spices and botanicals that are used as flavoring ingredients
in food and tobacco products.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all material intercompany accounts
and transactions. The Company accounts for its investments in affiliates on
the equity method.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Sales are recorded when title passes to customers.
CASH EQUIVALENTS:
Cash equivalents with original maturities of 90 days or less (primarily
short term money market funds) are carried at cost which approximates market.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
determined principally by the first-in, first-out method.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets ranging
from 4 to 20 years. Leasehold improvements are amortized over their estimated
useful lives or the terms of the leases, whichever is shorter. Repairs and
maintenance are charged to operations as incurred, and expenditures for
additions and improvements are capitalized.
INCOME TAXES:
Prior to the Merger on November 25, 1996, Mafco Worldwide was included in
the consolidated federal income tax return and, in some cases, the state
income tax returns of Mafco who in turn was included in the consolidated
income tax return of Holdings and its subsidiaries. Since the Merger the
Company is included in the consolidated federal income tax return of PCT. For
all periods presented federal and state income taxes are provided as if Mafco
Worldwide filed its own income tax returns.
The Company computes income taxes under the liability method. Under
the liability method, deferred income taxes are generally determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.
PENSION PLANS:
The Company has pension plans which cover certain current and former
employees who meet eligibility requirements. Benefits are based on years of
service and, in some cases, the employee's compensation. The Company's policy
is to contribute annually the minimum amount required pursuant to the Employee
Retirement Income Security Act. Plan assets are principally invested in equity
and fixed income securities. The Company also maintains a 401(k) plan for its
non-union employees. Subsidiaries outside the United States have retirement
plans under which funds are deposited with trustees.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against income for the years ended December 31, 1996, 1995 and
1994 were $0.2, $0.3 and $0.3, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are translated into U.S.
dollars at the rates of exchange in effect at the balance sheet date. Income
and expense items are generally translated at the average exchange rates
prevailing during the period presented. Gains and losses resulting from
foreign currency transactions are included in the results of operations and
those resulting from translation of financial statements are recorded as a
component of stockholder's equity (deficit).
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. SFAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995, and therefore
the Company adopted SFAS 121 in the first quarter of 1996. The effect of the
adoption had no impact on the Company's results of operations.
INTANGIBLE ASSETS:
Intangible assets, representing goodwill is amortized on a straight-line
basis over 40 years. Accumulated amortization aggregated $0.5 and $0.4 at
December 31, 1996 and 1995, respectively. The Company's accounting policy
regarding the assessment of the recoverability of the carrying value of
goodwill is to review the carrying value of goodwill if the facts and
circumstances suggest that they may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted
future cash flows of the Company, the carrying value of goodwill will be
reduced to their estimated fair value.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- -------
<S> <C> <C>
Raw materials and supplies.................................... $34.0 $32.8
Work-in-process............................................... 0.4 0.3
Finished goods................................................ 11.9 12.4
---- ----
$46.3 $45.5
===== =====
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- -------
<S> <C> <C>
Land.......................................................... $ 0.4 $ 0.4
Buildings..................................................... 7.0 6.6
Machinery and equipment....................................... 20.8 19.3
Furniture and fixtures........................................ 0.6 0.6
Construction-in-progress...................................... 0.2 0.6
------ ------
29.0 27.5
Accumulated depreciation...................................... (18.6) (16.9)
----- ------
$10.4 $10.6
===== =====
</TABLE>
Depreciation expense was $2.0, $1.8 and $1.8 in 1996, 1995 and 1994,
respectively.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
5. INCOME TAXES
Information pertaining to the Company's income before income taxes and
extraordinary loss and the applicable provision for income taxes, excluding
amounts related to the 1996 and 1994 extraordinary losses, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
Income before income taxes and extraordinary loss:
Domestic ...................................................... $20.4 $17.9 $11.3
Foreign........................................................ 3.5 1.9 2.8
------ ------ ------
$23.9 $19.8 $14.1
===== ===== =====
Provision for income taxes:
Current:
Federal..................................................... $5.8 $5.4 $3.1
State and Local............................................. 1.2 1.0 0.6
Foreign..................................................... 1.0 0.6 0.5
----- ------ ------
8.0 7.0 4.2
Deferred:
Federal..................................................... 0.9 0.6 1.0
State and Local............................................. 0.1 0.1 0.2
Foreign.....................................................
----- ------ ------
$9.0 $7.7 $5.4
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income tax purposes. Significant components of the Company's
deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable............................................ $ - $0.6
Accrued expenses and other liabilities ........................ 2.1 0.8
Property, plant and equipment.................................. 5.2 0.9
Inventory...................................................... 0.4 0.4
Intangible assets.............................................. 29.2 -
Pension liabilities............................................ - 0.6
Net operating loss carryforwards............................... 67.9 -
Capital loss carryforwards..................................... 7.0 -
------- -----
Total deferred tax asset.................................... 111.8 3.3
Valuation allowance............................................ (71.9) -
----- ------
Total deferred tax asset net of valuation allowance......... 39.9 3.3
Deferred tax liabilities:
Pension asset.................................................. 5.1 -
Unremitted foreign earnings.................................... - 0.6
Other ........................................................ 0.1 0.3
-------- -------
Total deferred tax liability................................ 5.2 0.9
------ -------
Net deferred tax asset...................................... $34.7 $2.4
===== ====
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
The purchase of Flavors resulted in an increase in the tax bases of assets
and liabilities. Accordingly, the Company has recorded deferred tax assets for
the temporary differences arising as a result of the acquisition of Flavors.
As a result of the Merger, the Company has reduced the valuation allowance
on net deferred tax assets. Based upon the historical results of the Company
projected for a period which takes into consideration the current operating
environment in the tobacco industry, the Company believes that it is more
likely than not that it will be able to utilize these benefits.
The effective tax rate on earnings before income taxes and extraordinary
loss varies from the current statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- -------- ------
<S> <C> <C> <C>
Statutory rate................................................. 35.0% 35.0% 35.0%
State and local taxes, net..................................... 3.3 3.7 3.3
Decrease in valuation allowance................................ (1.3) - -
Other, net..................................................... 0.7 0.3 0.5
----- ------ -----
37.7% 39.0 % 38.8%
===== ====== =====
</TABLE>
At December 31, 1996, the Company had available Federal net operating loss
carryforwards of approximately $194.0, which expire in the years 2000 through
2011.
On November 25, 1996, the Company entered into a tax sharing agreement
with its parent, PCT. Pursuant to such agreement, the Company agrees to pay
its parent an amount equal to the federal and state income tax liability
calculated as if the Company were filing separate tax returns.
In order to protect the availability of the Company's net operating loss
carryforwards, the PCT charter prohibits, subject to certain exceptions,
transfers of PCT common stock until such date as fixed by the Board of
Directors of PCT to any person who owns, or after giving effect to such
transfer would own, at least 5% of the outstanding PCT common stock. The
Company has been advised by counsel that the transfer restriction in the PCT
charter is enforceable. The Company intends to take all appropriate action to
preserve the benefit of the restriction including, if necessary, the
institution of legal proceedings seeking enforcement.
In connection with the Abex Merger and the Transfer, Mafco and PCT entered
into a tax sharing agreement. Under the indemnification provisions of the tax
sharing agreement and with respect to periods ending on or prior to June 15,
1995, Mafco will generally be required to pay any tax liabilities of the
Company, except for foreign income taxes related to the Abex NWL Aerospace
division.
The IRS is currently examining the returns for the years 1989, 1990 and
1991. The Company has been notified by the IRS that its 1994 return and its
short period 1995 return will be examined. The amount of net operating loss
carryforwards available at December 31, 1996 could be affected by the outcome
of this examination.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
6. PENSION PLANS
Certain current and former employees are covered under various retirement
plans. Plans covering salaried employees generally provide pension benefits
based on years of service and compensation. Plans covering hourly employees
and union members generally provide stated benefits for each year of credited
service. Plan assets are invested primarily in common stocks, mutual funds,
fixed income securities and cash equivalents. The Company's funding policy is
to contribute annually the statutory required minimum amount as actuarially
determined.
The following table reconciles the funded status of the Company's pension
plans as of the dates indicated. (The 1996 reconciliation includes the Mafco
Worldwide and Pneumo Abex plans, while the 1995 reconciliation includes only
the Mafco Worldwide plans.):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation includes vested benefits of
$119.3 and $8.8.............................................................. $119.4 $8.9
======= ====
Plan assets at fair value............................................................ $150.2 $ 9.4
Less: projected benefit obligation for service rendered to date...................... 121.2 10.5
------ ----
Plan assets in excess of (less than) projected benefit obligation.................... 29.0 (1.1)
Unrecognized transition obligation................................................... - 0.2
Unrecognized prior service cost...................................................... 0.1 (0.2)
Unrecognized net gain................................................................ (16.6) (0.7)
------- ------
Net pension asset (liability)........................................................ $ 12.5 $( 1.8)
====== =======
</TABLE>
The Company has an unfunded supplemental benefit plan to provide salaried
employees with retirement benefits which were limited by the enactment of OBRA
93. In addition, the Company has an unfunded benefit plan which provides
benefits to certain former employees of Pneumo Abex. The projected benefit
obligation after adjusting for prior service costs and unrecognized actuarial
gains and losses included in other liabilities at December 31, 1996 was $1.2.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5% as of December 31,
1996 and 1995. The rate of increase in future compensation levels reflected in
the determination of the Company's two salaried plans was 4.5% - 5% for 1996
and 5% for 1995 for the Company's one salaried plan. The expected long-term
rate of return on assets was 8% - 9% for the two salaried plans for 1996 and
8% for the one salaried plan for 1995 and 9% and 8% for the union pension plan
for 1996 and 1995, respectively. Unrecognized items are being amortized over
the estimated remaining service lives of active employees. Certain employees
of the Company are covered under a union pension plan which provides for a
benefit accrual based upon a flat dollar amount for each year of credited
service.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
Net periodic pension expense consisted of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned during the period..................... $0.4 $0.3 $0.3
Interest cost on projected benefit obligation...................... 1.5 0.8 .7
Actual (gain) loss on plan assets.................................. (3.5) (1.8) .1
Net amortization and deferrals..................................... 1.7 1.2 (0.7)
----- ----- ------
Net pension expense............................................ $0.1 $0.5 $ 0.4
==== ==== ======
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
------ ------
<S> <C> <C>
Senior Credit:
Tranche A Term Loans........................................................... $ - $ 14.0
Tranche B Term Loans........................................................... 19.8
Revolving Credit Loans 7.3
11 7/8% Senior Subordinated Notes due 2002....................................... 84.6 84.5
------- -------
91.9 118.3
Less: current portion........................................................... - 10.2
------- -------
$91.9 $108.1
======= ======
</TABLE>
The Senior Credit was entered into in June 1994 between the Company and a
group of lenders. It was originally comprised of $30.0 in Tranche A Loans,
$20.0 in Tranche B Loans, and $25.0 in Revolving Credit Loan commitments (the
"Revolving Credit Loans"). The Tranche A and Tranche B loans were repaid in
full on December 31, 1996 partially by a $17.0 capital contribution, the
Company's available cash and borrowings of $7.3 under the revolving credit
facility. The Revolving Credit Loans are payable in full by June 30, 1999, and
there are no scheduled commitment reductions. In February 1997 the Senior
Credit was amended to reduce the Revolving Credit Loans to $12.5 and to lower
the interest rates. At December 31, 1996, $7.3 was borrowed under the
Revolving Credit Loans and $2.3 was reserved for lender guarantees on
outstanding letters of credit. The Senior Credit, as amended in February 1997,
permits the Company to choose between various interest rate options and to
specify the interest rate period to which the interest rate options are to
apply, subject to certain parameters. Borrowing options available are (i) the
Base Rate Loans (as defined) and (ii) Eurodollar Loans (as defined) plus a
borrowing margin of 1.0%. The Senior Credit provides for a commitment fee of
one quarter of one percent per annum on the unused Revolving Credit Loans.
Obligations under the Senior Credit are secured by pledges of substantially
all of the Company's domestic assets. The Senior Credit contains various
restrictive covenants which include, among other things, limitations on
indebtedness and liens, minimum interest coverage and fixed charge coverage
ratios, operating cash flow maintenance and capital expenditure limits. The
interest rate charged on outstanding senior credit borrowings at December 31,
1996 was 9.25%.
In November 1992, the Company completed a public offering in which it sold
$85.0 aggregate principal amount of 11 7/8% Senior Subordinated Notes due 2002
(the "Senior Subordinated Notes") at a price of 99.28% of face value. The
Senior Subordinated Notes mature on November 15, 2002, and are not subject to
redemption through the operation of a sinking fund. The Senior Subordinated
Notes are subject to redemption at any time after November 15, 1997, at the
option of the Company,
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
in whole or in part, at redemption prices (expressed as percentages of the
principal amount) for the 12 month period beginning each November 15:
1997-105.95%; 1998-103.96%; 1999-101.98% and 100% thereafter. Interest is
payable semiannually in May and November. The Indenture relating to the Senior
Subordinated Notes contains various restrictive covenants, which include
restrictions on the incurrence of additional debt, payments of dividends and
transactions with affiliates. In addition, upon the occurrence of a change in
control whereby any person (as defined in the Indenture) acquires directly or
indirectly more than 35% of the total voting power of all classes of the
voting stock of the Company, each holder of the Senior Subordinated Notes has
the right to require the Company subject to certain restrictions in the Senior
Credit, to repurchase the Senior Subordinated Notes at 101% of face value. The
Senior Subordinated Notes are subordinate in right of payment to the existing
Senior Credit and all future senior indebtedness of the Company.
The Company's French subsidiary has an agreement renewable annually with a
local bank whereby it may borrow up to six million French francs
(approximately $1.2 at December 31, 1996) for working capital purposes. At
December 31, 1996, no amounts were borrowed and at December 31, 1995, $0.7 was
outstanding.
8. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of trade accounts receivable. The
Company's customers are geographically dispersed, but are concentrated in the
tobacco industry. Even though seven of the Company's ten largest customers are
in the tobacco industry and account for approximately 58% of the Company's net
revenues in 1996, the Company historically has had no material losses on its
trade accounts receivable from customers in the tobacco industry. Probable bad
debt losses have been provided for in the allowance for doubtful accounts.
From time to time the Company enters into forward exchange contracts to
hedge certain receivables and firm sales commitments denominated in foreign
currencies. The effects of movements in currency exchange rates on these
instruments are recognized when the related operating revenue is recognized.
Realized gains and losses on foreign currency contracts are included in the
underlying asset or liability being hedged and recognized in earnings when the
future sales occur. At December 31, 1995, the Company had forward exchange
contracts, all having maturities of less than one year, in the amount of $0.4.
There were no outstanding contracts as of December 31, 1996.
The fair values of the Company's foreign currency contracts approximate
the carrying amounts at December 31, 1995.
The carrying amounts for cash and cash equivalents, trade accounts
receivable, accounts payable and accrued liabilities approximate fair value.
The fair value of long term debt was approximately $100.1 at December 31,
1996.
9. RELATED PARTY TRANSACTIONS
Included in the consolidated statements of earnings are sales to
Consolidated Cigar Corporation ("Cigar") of $0.2, $0.3 and $0.3 for the years
ended December 31, 1996, 1995 and 1994, respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
10. COMMITMENTS AND CONTINGENCIES
Rental expense, which includes rent for facilities, equipment and
automobiles under operating leases expiring through 2001, amounted to $0.5,
$0.5 and $0.6 for the years ended December 31, 1996, 1995 and 1994,
respectively. Future minimum rental commitments for operating leases with
noncancelable terms in excess of one year from December 31, 1996 are as
follows:
1997................................... $0.5
1998................................... 0.3
1999................................... 0.2
2000................................... 0.2
2001 and thereafter.................... 0.1
----
$1.3
====
The Company had outstanding letters of credit totaling $2.3 and $2.5 at
December 31, 1996 and 1995, respectively. Restricted cash of $1.7 at December
31, 1996 included in other assets reflects segregated cash held for the
benefit of certain parties to cover certain insurance obligations.
At December 31, 1996, the Company had obligations to purchase
approximately $14.8 of raw materials.
The Company is indemnified by third parties with respect to certain of its
contingent liabilities, such as certain environmental and asbestos matters, as
well as certain tax and other matters. In order to implement the Transfer, a
subsidiary of Abex and PCT, the Company and certain other subsidiaries of PCT
entered into a transfer agreement (the "Transfer Agreement"). Under the
Transfer Agreement, substantially all of Abex's consolidated assets and
liabilities, other than those relating to the Aerospace Business, were
transferred to a subsidiary of Mafco, with the remainder being retained by the
Company. The Transfer Agreement provides for appropriate transfer,
indemnification and tax sharing arrangements, in a manner consistent with
applicable law and existing contractual arrangements.
The Transfer Agreement requires such subsidiary of Mafco to undertake
certain administrative and funding obligations with respect to certain
asbestos claims and other liabilities retained by the Company. The Company
will be obligated to make reimbursement for the amounts so funded only when
amounts are received by the Company under related indemnification and
insurance agreements. Such administrative and funding obligations would be
terminated as to asbestos products claims in the case of bankruptcy of the
Company or PCT or of certain other events affecting the availability of
coverage for such claims from third party indemnitors and insurers. The
Transfer Agreement further provides for certain funding indemnification and
cooperation arrangements between PCT, the Company and such subsidiary in
respect of certain liabilities which may arise under the Employee Retirement
Security Act of 1974 in respect of the sale of Pneumo Abex's friction products
division in 1995.
In addition, various legal proceedings, claims and investigations are
pending against the Company and PCT, including those relating to commercial
transactions, product liability, safety and health matters and other matters.
PCT and Pneumo Abex are involved in various stages of legal proceedings,
claims, investigations and cleanup relating to environmental natural resource
matters, some of which relate to waste disposal sites. Most of these matters
are covered by insurance, subject to deductibles and maximum limits, and by
third-party indemnities.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
In the opinion of management, based upon the information available at this
time, the outcome of the outstanding defective pricing and other matters
referred to above will not have a material adverse effect on the Company's
financial position or result of operations.
The Company believes that it facilities are well maintained and are in
substantial compliance with environmental laws and regulations.
11. SIGNIFICANT CUSTOMER
The Company has a significant customer in the tobacco industry , Philip
Morris Companies, Inc., who accounted for approximately 26%, 25% and 26% of
net sales in 1996, 1995 and 1994, respectively.
12. GEOGRAPHIC SEGMENTS
The Company operates in one business segment. Information related to the
Company's geographic segments are presented below with the following
definitions:
Operating profit, as indicated below, represents net sales less operating
expenses, foreign currency transaction income (loss) and other income
(expense).
Identifiable assets are those used by each geographic segment. Goodwill
pertains to foreign operations and have been included in foreign identifiable
assets. Corporate assets are principally domestic cash and cash equivalents, a
pension asset and deferred charges.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Net Sales:
Domestic - U.S. ................................................... $ 63.3 $62.7 $59.7
- Export ................................................. 27.0 25.4 24.9
Foreign............................................................ 13.1 15.1 11.0
------- ------- ------
$103.4 $103.2 $95.6
====== ====== =====
Operating profit:
Domestic........................................................... $33.5 $30.6 $26.9
Foreign............................................................ 3.6 3.0 2.8
Equity in unconsolidated subsidiaries.............................. - 0.4 0.1
------- ------- ------
37.1 34.0 29.8
Net interest expense and financing charges............................. (13.2) (14.2) (15.7)
------- ------- ------
Income before income taxes and extraordinary loss...................... $23.9 $19.8 $14.1
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- ------
<S> <C> <C>
Identifiable assets:
Domestic (a)....................................................... $91.2 $55.0
Foreign............................................................ 16.3 17.5
Corporate.......................................................... 19.1 12.8
-------- ------
$126.6 $85.3
======== ======
</TABLE>
(a) Includes assets located in foreign countries of $0.8 and $1.8 at
December 31, 1996 and 1995, respectively.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO OTHER(1) BALANCE AT
BEGINNING COSTS AND OTHER (DEDUCTIONS) END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS ADDITIONS OF PERIOD
- ----------- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts. $1.1 - - - $1.1
---- ----- ------- ------ ------
Totals ......................... $1.1 - - - $1.1
==== = ==== = ====
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts.... $1.1 - - ($0.1) $1.0
---- ----- ------- ------ ------
Totals ......................... $1.1 - - ($0.1) $1.0
===== ====== ======= ======== ====
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts.... $1.0 $(0.8) - $(0.1) $0.1
---- ----- ------- ------ ------
Totals ......................... $1.0 $(0.8) - $(0.1) $0.1
===== ====== ======= ======= ====
</TABLE>
Note:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign translation adjustment.
F-18
<PAGE>
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of September 1,
1996, between Mafco Worldwide Corporation, a Delaware corporation (the
"Company") and Peter W. Grace (the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the
Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement;
Accordingly, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
---------------------------------
1.1 Employment, Duties. The Company hereby
employs the Executive for the Term (as defined in Section 2.1), to render
exclusive and full-time services to the Company as Senior Vice President,
Treasurer and Controller or in such other executive position as may be
mutually agreed upon by the Company and the Executive, and to perform such
other duties consistent with such position as may be assigned to the Executive
by the Board of Directors or any officer of the Company senior to the
Executive.
1.2 Acceptance. The Executive hereby
accepts such employment and agrees to render the services described above.
During the Term, the Executive agrees to serve the Company faithfully and to
the best of the Executive's ability, to devote the Executive's entire
business time, energy and skill to such employment, and to use the Executive's
best efforts, skill and ability to promote the Company's interests. The
Executive further agrees to accept election, and to serve during all or any
part of the Term, as an officer or director of the Company and of any
subsidiary or affiliate of the Company, without any compensation therefor
other than that specified in this Agreement, if elected to any such position
by the shareholders or by the Board of Directors of the Company or of any
subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed
by the Executive hereunder shall be performed primarily at
<PAGE>
the office of the Company in Camden, New Jersey, subject to reasonable travel
requirements on behalf of the Company.
2. Term of Employment; Certain Post-Term Benefits.
----------------------------------------------
2.1 The Term. The term of the Executive's
employment under this Agreement (the "Term") shall commence on September 1,
1996 and shall end on December 31, 1999 or such later date to which the Term
is extended pursuant to Section 2.2.
2.2 End-of-Term Provisions. At any time on
or after December 31, 1998 the Company shall have the right to give written
notice of non-renewal of the Term. In the event the Company gives such notice
of non-renewal, the Term automatically shall be extended so that it ends
twelve months after the last day of the month in which the Company gives such
notice. From and after January 1, 2000, unless and until the Company gives
written notice of non-renewal as provided in this Section 2.2, the Term
automatically shall be extended day-by-day; upon the giving of such notice by
the Company, the Term automatically shall be extended so that it ends twelve
months after the last day of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall
end earlier than the original December 31, 1999 termination date provided in
Section 2.1 or any extended termination date provided in Section 2.2, in
either case if sooner terminated pursuant to Section 4. Non-extension of the
Term shall not be deemed to be a wrongful termination of the Term or this
Agreement by the Company pursuant to Section 4.4.
3. Compensation; Benefits.
----------------------
3.1 Salary. As compensation for all ser-
vices to be rendered pursuant to this Agreement, the Company agrees to pay
the Executive during the Term a base salary, payable semi-monthly in arrears,
at the annual rate of not less than $158,900, less such deductions or amounts
to be withheld as required by applicable law and regulations (the "Base
Salary"). In the event that the Company, in its sole discretion, from time to
time deter-
2
<PAGE>
mines to increase the Base Salary, such increased amount shall, from and after
the effective date of the increase, constitute "Base Salary" for purposes of
this Agreement.
3.2 Bonus. In addition to the amounts to
be paid to the Executive pursuant to Section 3.1, the Executive will be
eligible to receive a bonus with respect to each calendar year included within
the Term computed in accordance with the provisions of the next two succeeding
sentences. If, with respect to any calendar year, the Company achieves EBITDA
of at least the percentage set forth in the table below of its business plan
for such year, such bonus shall be the percentage set forth in the table below
of Base Salary with respect to the year for which the bonus (any such bonus, a
"performance bonus") was earned:
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -------------
80% 60%
85 75
90 90
95 100
100 105
105 110
110 125
115 150
In the event that the Term or this Agreement is terminated other than pursuant
to Section 4.3, the Executive shall be entitled to receive a prorated
performance bonus (if such a bonus is otherwise payable) with respect to (A)
the year in which the Term or this Agreement terminated or, (B) in the event
of a termination pursuant to Section 4.4, the year in which the Executive was
last entitled to receive any payments of Base Salary, in an amount equal to
(x) the percentage of Base Salary otherwise payable as a performance bonus
with respect to such year multiplied by (y) a fraction, the numerator of which
is the number of whole months elapsed from the beginning of such year to the
date as of which the Term or this Agreement terminated or the last day as of
which the Executive is entitled to receive payments of Base Salary, as
applicable and the denominator of which is 12. A performance bonus or other
bonus, if either or both are earned in accordance with this Agreement, shall
be paid no later than March 31st of the
3
<PAGE>
year next following the year with respect to which such bonus was earned. The
maximum bonus payable pursuant to this Section 3.2 shall be $1,000,000 with
respect to any calendar year. The bonus payable hereunder on account of
calendar years commencing after December 31, 1996 shall be subject to approval
by the shareholders of the Company of the bonus plan described herein.
3.3 Business Expenses. The Company shall
pay or reimburse the Executive for all reasonable expenses actually incurred
or paid by the Executive during the Term in the performance of the Executive's
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company customarily may
require of its officers provided, however, that the maximum amount available
for such expenses during any period may be fixed in advance by the Chairman,
the Vice Chairman or the Chief Executive Officer of the Company.
3.4 Vacation. During the Term, the Executive
shall be entitled to a vacation period or periods of four (4) weeks taken in
accordance with the vacation policy of the Company during each year of the
Term. Vacation time not used by the end of a year shall be forfeited, except
that one week of vacation pay may be "banked" in accordance with Company
policy.
3.5 Fringe Benefits. During the Term, the
Executive shall be entitled to all benefits for which the Executive shall be
eligible under any qualified pension plan, 401(k) plan, non-qualified benefit
restoration plan, group insurance or other so-called "fringe" benefit plan
which the Company provides to its executive employees generally. Such benefits
include the right to the use of an automobile as is currently available to the
Company's executive employees. In addition, the Company shall "gross up" the
income imputed to the Executive under federal and any applicable state income
tax laws for his personal use of the Company-furnished automobile and for any
life insurance furnished to the Executive, such that the Executive effectively
will suffer no personal cost for such fringe benefits.
4. Termination.
-----------
4
<PAGE>
4.1 Death. If the Executive dies during the
Term, the Term shall terminate forthwith upon the Executive's death and the
Company shall have no obligation hereunder to make any payments to the
Executive's beneficiaries on account of any period of time after such
termination. After such termination, the Executive's beneficiaries shall
receive any benefits to which the Executive or such beneficiaries may be
entitled under any fringe benefit program that may have been provided by the
Company pursuant to Section 3.5.
4.2 Disability. If, during the Term the
Executive becomes disabled or incapacitated to the extent he is unable to
perform his duties hereunder ("Totally Disabled") for a period of six (6)
consecutive months, the Company shall have the right at any time thereafter,
so long as the Executive is then still Totally Disabled, to terminate the Term
upon sending written notice of termination to the Executive. If the Company
elects to terminate the Term by reason of the Executive becoming Totally
Disabled, the Company shall have no obligation hereunder to make any payments
to the Executive on account of any period of time after such termination.
After such termination, the Executive shall receive any benefits to which he
may be entitled under any fringe benefit program that may have been provided
by the Company pursuant to Section 3.5. While the Executive is Totally
Disabled prior to the Term being terminated, Base Salary payable pursuant to
Section 3.1 shall be reduced by any other benefits payable to the Executive
under any disability plan provided for hereunder or otherwise furnished to the
Executive by the Company.
4.3 Cause. In the event of gross neglect
by the Executive of the Executive's duties hereunder, conviction of the
Executive of any felony, conviction of the Executive of any lesser crime or
offense involving the property of the Company or any of its subsidiaries or
affiliates, willful misconduct by the Executive in connection with the
performance of any material portion of the Executive's duties hereunder,
breach by the Executive of any material provision of this Agreement or any
other conduct on the part of the Executive which would make the Executive's
continued employment by the Company materially prejudicial to the best
interests of the Company, the Company may at any time by written notice to
the Executive terminate the Term and, upon such termination, this Agree-
5
<PAGE>
ment shall terminate and the Executive shall be entitled to receive no further
amounts or benefits hereunder, except any as shall have been earned to the
date of such termination.
4.4 Company Breach. In the event of the
breach of any material provision of this Agreement by the Company, the
Executive shall be entitled to terminate the Term upon 60 days' prior written
notice to the Company. Upon such termination, or in the event the Company
terminates the Term or this Agreement other than pursuant to the provisions
of Section 4.2 or 4.3, the Company shall continue to provide the Executive
(i) payments of Base Salary, in the manner and amount specified in Section
3.1, (ii) performance bonuses, in the manner and amount specified in Section
3.2 and (iii) fringe benefits and additional benefits in the manner and
amounts specified in Section 3.5 until the end of the Term (as in effect
immediately prior to such termination) or, if the Company has not then given
written notice of non-renewal pursuant to Section 2.2, for a period of twelve
months after the last day of the month in which termination described in this
Section 4.4 occurred, whichever is longer (the "Damage Period"). The Company's
obligations pursuant to this Section 4.4 are subject to the Executive's duty
to mitigate damages by seeking other employment provided, however, that the
Executive shall not be required to accept a position of lesser importance or
of substantially different character than the position held with the Company
immediately prior to the effective date of termination or in a location
outside of the Philadelphia, Pennsylvania metropolitan area. To the extent
that the Executive shall earn compensation during the Damage Period (without
regard to when such compensation is paid), the Base Salary and bonus payments
to be made by the Company pursuant to this Section 4.4 shall be corre-
spondingly reduced.
4.5 Litigation Expenses. Except as provided for
in Section 5.7, if the Company and the Executive become involved in any
action, suit or proceeding relating to the alleged breach of this Agreement by
the Company or the Executive, and if a judgment in such action, suit or
proceeding is rendered in favor of the Executive, the Company shall reimburse
the Executive for all expenses (including reasonable attorneys' fees) incurred
by the Executive in connection with such action, suit or proceeding. Such
costs shall be paid to the Executive promptly
6
<PAGE>
upon presentation of expense statements or other supporting information
evidencing the incurrence of such expenses.
5. Protection of Confidential Information;
---------------------------------------
Non-Competition.
----------------
5.1 In view of the fact that the
Executive's work for the Company will bring the Executive into close contact
with many confidential affairs of the Company not readily available to the
public, and plans for future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest
confidence all confidential matters of the Company, including, without
limitation, "know how", trade secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions and research
projects, and other business affairs of the Company, learned by the Executive
heretofore or hereafter, and not to disclose them to anyone outside of the
Company, either during or after the Executive's employment with the Company,
except in the course of performing the Executive's duties hereunder or with
the Company's express written consent. The foregoing prohibitions shall
include, without limitation, directly or indirectly publishing (or causing,
participating in, assisting or providing any statement, opinion or information
in connection with the publication of) any diary, memoir, letter, story,
photograph, interview, article, essay, account or description (whether
fictionalized or not) concerning any of the foregoing, publication being
deemed to include any presentation or reproduction of any written, verbal or
visual material in any communication medium, including any book, magazine,
newspaper, theatrical production or movie, or television or radio programming
or commercial; and
5.1.2 To deliver promptly to the Company on
termination of the Executive's employment by the Company, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints and other documents (and all copies thereof) relating to
the Company's business and all property associated therewith, which the
Executive may then possess or have under the Executive's control.
7
<PAGE>
5.2 During the Term, the Executive shall
not, directly or indirectly, enter the employ of, or render any services to,
any person, firm or corporation engaged in any business competitive with the
business of the Company or of any of its subsidiaries or affiliates; the
Executive shall not engage in such business on the Executive's own account;
and the Executive shall not become interested in any such business, directly
or indirectly, as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or in any other relationship
or capacity provided, however, that nothing contained in this Section 5.2
shall be deemed to prohibit the Executive from acquiring, solely as an
investment, up to five percent (5%) of the outstanding shares of capital stock
of any public corporation.
5.3 If the Executive commits a breach, or
threatens to commit a breach, of any of the provisions of Sections 5.1 or 5.2
hereof, the Company shall have the following rights and remedies:
5.3.1 The right and remedy to have the
provisions of this Agreement specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
5.3.2 The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits (collectively
"Benefits") derived or received by the Executive as the result of any
transactions constituting a breach of any of the provisions of the preceding
paragraph, and the Executive hereby agrees to account for and pay over such
Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity.
5.4 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, hereafter are construed to be
invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants,
8
<PAGE>
which shall be given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, are held to be unenforceable because
of the duration of such provision or the area covered thereby, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or area of such provision and, in its reduced form, said
provision shall then be enforceable.
5.6 The parties hereto intend to and hereby
confer jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2
upon the courts of any state within the geographical scope of such covenants.
In the event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect the Company's right to the relief provided above
in the courts of any other states within the geographical scope of such
covenants as to breaches of such covenants in such other respective
jurisdictions, the above covenants as they relate to each state being for this
purpose severable into diverse and independent covenants.
5.7 In the event that any action, suit or
other proceeding in law or in equity is brought to enforce the covenants
contained in Sections 5.1 and 5.2 or to obtain money damages for the breach
thereof, and such action results in the award of a judgment for money damages
or in the granting of any injunction in favor of the Company, all expenses
(including reasonable attorneys' fees) of the Company in such action, suit or
other proceeding shall (on demand of the Company) be paid by the Executive. In
the event the Company fails to obtain a judgment for money damages or an
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Executive in such action, suit or other proceeding
shall (on demand of the Executive) be paid by the Company.
6. Inventions and Patents.
----------------------
6.1 The Executive agrees that all processes,
technologies and inventions (collectively, "Inventions"), including new
contributions, improvements, ideas
9
<PAGE>
and discoveries, whether patentable or not, conceived, developed, invented or
made by him during the Term shall belong to the Company, provided that such
Inventions grew out of the Executive's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials. The Executive shall further: (a)
promptly disclose such Inventions to the Company; (b) assign to the Company,
without additional compensation, all patent and other rights to such
Inventions for the United States and foreign countries; (c) sign all papers
necessary to carry out the foregoing; and (d) give testimony in support of the
Executive's inventorship.
6.2 If any Invention is described in a
patent application or is disclosed to third parties, di rectly or indirectly,
by the Executive within two years after the termination of the Executive's
employment by the Company, it is to be presumed that the Invention was con
ceived or made during the Term.
6.3 The Executive agrees that the Executive
will not assert any rights to any Invention as having been made or acquired by
the Executive prior to the date of this Agreement, except for Inventions, if
any, disclosed to the Company in writing prior to the date hereof.
7. Intellectual Property.
---------------------
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited
to, all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend its
right, title or interest in or to any such properties.
10
<PAGE>
8. Indemnification.
---------------
The Company will indemnify the Executive, to the maximum
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.
9. Notices.
-------
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified
mail (notices mailed shall be deemed to have been given on the date mailed),
as follows (or to such other address as either party shall designate by notice
in writing to the other in accordance herewith):
If to the Company, to:
Mafco Worldwide Corporation
5900 North Andrews Avenue
Suite 700
Fort Lauderdale, FL 33309-2367
Attn: Chief Executive Officer
If to the Executive, to:
Peter W. Grace
440 Fairfax Road
Drexel Hill, PA 19026
10. General.
-------
10.1 This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely in New York.
10.2 The section headings contained herein
are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
11
<PAGE>
10.3 This Agreement sets forth the entire
agreement and understanding of the parties relating to the Executive's
employment by the Company, and supersedes all prior agreements, arrangements
and understandings, written or oral, relating to the Executive's employment by
the Company, including, without limitation, the Employment Agreement dated as
of January 1, 1991, as amended (the "Prior Agreement") between the Company and
the Executive, which Prior Agreement is deemed terminated hereby and of no
further force or effect. No representation, promise or inducement has been
made by either party that is not embodied in this Agreement, and neither party
shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
10.4 This Agreement, and the Executive's
rights and obligations hereunder, may not be assigned by the Executive. The
Company may assign its rights, together with its obligations, hereunder (i) to
any affiliate or (ii) to third parties in connection with any sale, transfer
or other disposition of all or substantially all of the business or assets of
the Company; in any event the obligations of the Company hereunder shall be
binding on its successors or assigns, whether by merger, consolidation or
acquisition of all or substantially all of its business or assets.
10.5 This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants
hereof may be waived, only by a written instrument executed by both of the
parties hereto, or in the case of a waiver, by the party waiving compliance.
The failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
---------------------------
11.1 As used herein, the term "subsidiary" shall
mean any corporation or other business entity controlled
12
<PAGE>
directly or indirectly by the corporation or other business entity in
question, and the term "affiliate" shall mean and include any corporation or
other business entity directly or indirectly controlling, controlled by or
under common control with the corporation or other business entity in
question.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MAFCO WORLDWIDE CORPORATION
By: /s/ Theo W. Folz
--------------------------
Theo W. Folz
Chief Executive Officer
/s/ Peter W. Grace
---------------------------
Peter W. Grace
14
<PAGE>
Employment Agreement
--------------------
EMPLOYMENT AGREEMENT, dated as of September 1, 1996, between
Mafco Worldwide Corporation, a Delaware corporation (the "Company") and
Pramathesh S. Vora (the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the
Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement;
Accordingly, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
---------------------------------
1.1 Employment, Duties. The Company hereby
employs the Executive for the Term (as defined in Section 2.1), to render
exclusive and full-time services to the Company as Senior Vice President and
or in such other executive position as may be mutually agreed upon by the
Company and the Executive, and to perform such other duties consistent with
such position as may be assigned to the Executive by the Board of Directors or
any officer of the Company senior to the Executive.
1.2 Acceptance. The Executive hereby
accepts such employment and agrees to render the services described above.
During the Term, the Executive agrees to serve the Company faithfully and to
the best of the Executive's ability, to devote the Executive's entire
business time, energy and skill to such employment, and to use the Executive's
best efforts, skill and ability to promote the Company's interests. The
Executive further agrees to accept election, and to serve during all or any
part of the Term, as an officer or director of the Company and of any
subsidiary or affiliate of the Company, without any compensation therefor
other than that specified in this Agreement, if elected to any such position
by the shareholders or by the Board of Directors of the Company or of any
subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed
by the Executive hereunder shall be performed primarily at
<PAGE>
the office of the Company in Camden, New Jersey, subject to reasonable travel
requirements on behalf of the Company.
2. Term of Employment; Certain Post-Term Benefits.
----------------------------------------------
2.1 The Term. The term of the Executive's
employment under this Agreement (the "Term") shall commence on September 1,
1996 and shall end on December 31, 1999 or such later date to which the Term
is extended pursuant to Section 2.2.
2.2 End-of-Term Provisions. At any time on
or after December 31, 1998 the Company shall have the right to give written
notice of non-renewal of the Term. In the event the Company gives such notice
of non-renewal, the Term automatically shall be extended so that it ends
twelve months after the last day of the month in which the Company gives such
notice. From and after January 1, 2000, unless and until the Company gives
written notice of non-renewal as provided in this Section 2.2, the Term
automatically shall be extended day-by-day; upon the giving of such notice by
the Company, the Term automatically shall be extended so that it ends twelve
months after the last day of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall
end earlier than the original December 31, 1999 termination date provided in
Section 2.1 or any extended termination date provided in Section 2.2, in
either case if sooner terminated pursuant to Section 4. Non-extension of the
Term shall not be deemed to be a wrongful termination of the Term or this
Agreement by the Company pursuant to Section 4.4.
3. Compensation; Benefits.
----------------------
3.1 Salary. As compensation for all ser-
vices to be rendered pursuant to this Agreement, the Company agrees to pay
the Executive during the Term a base salary, payable semi-monthly in arrears,
at the annual rate of not less than $180,000, less such deductions or amounts
to be withheld as required by applicable law and regulations (the "Base
Salary"). In the event that the Company, in its sole discretion, from time to
time deter-
2
<PAGE>
mines to increase the Base Salary, such increased amount shall, from and after
the effective date of the increase, constitute "Base Salary" for purposes of
this Agreement.
3.2 Bonus. In addition to the amounts to
be paid to the Executive pursuant to Section 3.1, the Executive will be
eligible to receive a bonus with respect to each calendar year included within
the Term computed in accordance with the provisions of the next two succeeding
sentences. If, with respect to any calendar year, the Company achieves EBITDA
of at least the percentage set forth in the table below of its business plan
for such year, such bonus shall be the percentage set forth in the table below
of Base Salary with respect to the year for which the bonus (any such bonus, a
"performance bonus") was earned:
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -----------
80% 60%
85 75
90 90
95 100
100 105
105 110
110 125
115 150
In the event that the Term or this Agreement is terminated other than pursuant
to Section 4.3, the Executive shall be entitled to receive a prorated
performance bonus (if such a bonus is otherwise payable) with respect to (A)
the year in which the Term or this Agreement terminated or, (B) in the event
of a termination pursuant to Section 4.4, the year in which the Executive was
last entitled to receive any payments of Base Salary, in an amount equal to
(x) the percentage of Base Salary otherwise payable as a performance bonus
with respect to such year multiplied by (y) a fraction, the numerator of which
is the number of whole months elapsed from the beginning of such year to the
date as of which the Term or this Agreement terminated or the last day as of
which the Executive is entitled to receive payments of Base Salary, as
applicable and the denominator of which is 12. A performance bonus or other
bonus, if either or both are earned in accordance with this Agreement, shall
be paid no later than March 31st of the
3
<PAGE>
year next following the year with respect to which such bonus was earned. The
maximum bonus payable pursuant to this Section 3.2 shall be $1,000,000 with
respect to any calendar year. The bonus payable hereunder on account of
calendar years commencing after December 31, 1996 shall be subject to approval
by the shareholders of the Company of the bonus plan described herein.
3.3 Business Expenses. The Company shall
pay or reimburse the Executive for all reasonable expenses actually incurred
or paid by the Executive during the Term in the performance of the Executive's
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company customarily may
require of its officers provided, however, that the maximum amount available
for such expenses during any period may be fixed in advance by the Chairman,
the Vice Chairman or the Chief Executive Officer of the Company.
3.4 Vacation. During the Term, the Exec-
utive shall be entitled to a vacation period or periods of four (4) weeks
taken in accordance with the vacation policy of the Company during each year
of the Term. Vacation time not used by the end of a year shall be forfeited,
except that one week of vacation pay may be "banked" in accordance with
Company policy.
3.5 Fringe Benefits. During the Term, the
Executive shall be entitled to all benefits for which the Executive shall be
eligible under any qualified pension plan, 401(k) plan, non-qualified benefit
restoration plan, group insurance or other so-called "fringe" benefit plan
which the Company provides to its executive employees generally. Such benefits
include the right to the use of an automobile as is currently available to the
Company's executive employees. In addition, the Company shall "gross up" the
income imputed to the Executive under federal and any applicable state income
tax laws for his personal use of the Company-furnished automobile and for any
life insurance furnished to the Executive, such that the Executive effectively
will suffer no personal cost for such fringe benefits.
4. Termination.
-----------
4
<PAGE>
4.1 Death. If the Executive dies during the
Term, the Term shall terminate forthwith upon the Executive's death and the
Company shall have no obligation hereunder to make any payments to the
Executive's beneficiaries on account of any period of time after such
termination. After such termination, the Executive's beneficiaries shall
receive any benefits to which the Executive or such beneficiaries may be
entitled under any fringe benefit program that may have been provided by the
Company pursuant to Section 3.5.
4.2 Disability. If, during the Term the
Executive becomes disabled or incapacitated to the extent he is unable to
perform his duties hereunder ("Totally Disabled") for a period of six (6)
consecutive months, the Company shall have the right at any time thereafter,
so long as the Executive is then still Totally Disabled, to terminate the Term
upon sending written notice of termination to the Executive. If the Company
elects to terminate the Term by reason of the Executive becoming Totally
Disabled, the Company shall have no obligation hereunder to make any payments
to the Executive on account of any period of time after such termination.
After such termination, the Executive shall receive any benefits to which he
may be entitled under any fringe benefit program that may have been provided
by the Company pursuant to Section 3.5. While the Executive is Totally
Disabled prior to the Term being terminated, Base Salary payable pursuant to
Section 3.1 shall be reduced by any other benefits payable to the Executive
under any disability plan provided for hereunder or otherwise furnished to the
Executive by the Company.
4.3 Cause. In the event of gross neglect
by the Executive of the Executive's duties hereunder, conviction of the
Executive of any felony, conviction of the Executive of any lesser crime or
offense involving the property of the Company or any of its subsidiaries or
affiliates, willful misconduct by the Executive in connection with the
performance of any material portion of the Executive's duties hereunder,
breach by the Executive of any material provision of this Agreement or any
other conduct on the part of the Executive which would make the Executive's
continued employment by the Company materially prejudicial to the best
interests of the Company, the Company may at any time by written notice to
the Executive terminate the Term and, upon such termination, this Agree-
5
<PAGE>
ment shall terminate and the Executive shall be entitled to receive no further
amounts or benefits hereunder, except any as shall have been earned to the
date of such termination.
4.4 Company Breach. In the event of the
breach of any material provision of this Agreement by the Company, the
Executive shall be entitled to terminate the Term upon 60 days' prior written
notice to the Company. Upon such termination, or in the event the Company
terminates the Term or this Agreement other than pursuant to the provisions
of Section 4.2 or 4.3, the Company shall continue to provide the Executive
(i) payments of Base Salary, in the manner and amount specified in Section
3.1, (ii) performance bonuses, in the manner and amount specified in Section
3.2 and (iii) fringe benefits and additional benefits in the manner and
amounts specified in Section 3.5 until the end of the Term (as in effect
immediately prior to such termination) or, if the Company has not then given
written notice of non-renewal pursuant to Section 2.2, for a period of twelve
months after the last day of the month in which termination described in this
Section 4.4 occurred, whichever is longer (the "Damage Period"). The Company's
obligations pursuant to this Section 4.4 are subject to the Executive's duty
to mitigate damages by seeking other employment provided, however, that the
Executive shall not be required to accept a position of lesser importance or
of substantially different character than the position held with the Company
immediately prior to the effective date of termination or in a location
outside of the Philadelphia, Pennsylvania metropolitan area. To the extent
that the Executive shall earn compensation during the Damage Period (without
regard to when such compensation is paid), the Base Salary and bonus payments
to be made by the Company pursuant to this Section 4.4 shall be corre-
spondingly reduced.
4.5 Litigation Expenses. Except as provided
for in Section 5.7, if the Company and the Executive become involved in any
action, suit or proceeding relating to the alleged breach of this Agreement by
the Company or the Executive, and if a judgment in such action, suit or
proceeding is rendered in favor of the Executive, the Company shall reimburse
the Executive for all expenses (including reasonable attorneys' fees) incurred
by the Executive in connection with such action, suit or proceeding. Such
costs shall be paid to the Executive promptly
6
<PAGE>
upon presentation of expense statements or other supporting information
evidencing the incurrence of such expenses.
5. Protection of Confidential Information;
--------------------------------------
Non-Competition.
---------------
5.1 In view of the fact that the
Executive's work for the Company will bring the Executive into close contact
with many confidential affairs of the Company not readily available to the
public, and plans for future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest
confidence all confidential matters of the Company, including, without
limitation, "know how", trade secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions and research
projects, and other business affairs of the Company, learned by the Executive
heretofore or hereafter, and not to disclose them to anyone outside of the
Company, either during or after the Executive's employment with the Company,
except in the course of performing the Executive's duties hereunder or with
the Company's express written consent. The foregoing prohibitions shall
include, without limitation, directly or indirectly publishing (or causing,
participating in, assisting or providing any statement, opinion or information
in connection with the publication of) any diary, memoir, letter, story,
photograph, interview, article, essay, account or description (whether
fictionalized or not) concerning any of the foregoing, publication being
deemed to include any presentation or reproduction of any written, verbal or
visual material in any communication medium, including any book, magazine,
newspaper, theatrical production or movie, or television or radio programming
or commercial; and
5.1.2 To deliver promptly to the Company on
termination of the Executive's employment by the Company, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints and other documents (and all copies thereof) relating to
the Company's business and all property associated therewith, which the
Executive may then possess or have under the Executive's control.
7
<PAGE>
5.2 During the Term, the Executive shall
not, directly or indirectly, enter the employ of, or render any services to,
any person, firm or corporation engaged in any business competitive with the
business of the Company or of any of its subsidiaries or affiliates; the
Executive shall not engage in such business on the Executive's own account;
and the Executive shall not become interested in any such business, directly
or indirectly, as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or in any other relationship
or capacity provided, however, that nothing contained in this Section 5.2
shall be deemed to prohibit the Executive from acquiring, solely as an
investment, up to five percent (5%) of the outstanding shares of capital stock
of any public corporation.
5.3 If the Executive commits a breach, or
threatens to commit a breach, of any of the provisions of Sections 5.1 or 5.2
hereof, the Company shall have the following rights and remedies:
5.3.1 The right and remedy to have the
provisions of this Agreement specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
5.3.2 The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits (collectively
"Benefits") derived or re ceived by the Executive as the result of any
transactions constituting a breach of any of the provisions of the preceding
paragraph, and the Executive hereby agrees to account for and pay over such
Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity.
5.4 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, hereafter are construed to be
invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants,
8
<PAGE>
which shall be given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, are held to be unenforceable because
of the duration of such provision or the area covered thereby, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or area of such provision and, in its reduced form, said
provision shall then be enforceable.
5.6 The parties hereto intend to and hereby
confer jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2
upon the courts of any state within the geographical scope of such covenants.
In the event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect the Company's right to the relief provided above
in the courts of any other states within the geographical scope of such
covenants as to breaches of such covenants in such other respective
jurisdictions, the above covenants as they relate to each state being for this
purpose severable into diverse and independent covenants.
5.7 In the event that any action, suit or
other proceeding in law or in equity is brought to enforce the covenants
contained in Sections 5.1 and 5.2 or to obtain money damages for the breach
thereof, and such action results in the award of a judgment for money damages
or in the granting of any injunction in favor of the Company, all expenses
(including reasonable attorneys' fees) of the Company in such action, suit or
other proceeding shall (on demand of the Company) be paid by the Executive. In
the event the Company fails to obtain a judgment for money damages or an
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Executive in such action, suit or other proceeding
shall (on demand of the Executive) be paid by the Company.
6. Inventions and Patents.
----------------------
6.1 The Executive agrees that all process-
es, technologies and inventions (collectively, "Inventions"), including new
contributions, improvements, ideas
9
<PAGE>
and discoveries, whether patentable or not, conceived, developed, invented or
made by him during the Term shall belong to the Company, provided that such
Inventions grew out of the Executive's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials. The Executive shall further: (a)
promptly disclose such Inventions to the Company; (b) assign to the Company,
without additional compensation, all patent and other rights to such
Inventions for the United States and foreign countries; (c) sign all papers
necessary to carry out the foregoing; and (d) give testimony in support of the
Executive's inventorship.
6.2 If any Invention is described in a
patent application or is disclosed to third parties, directly or indirectly,
by the Executive within two years after the termination of the Executive's
employment by the Company, it is to be presumed that the Invention was con-
ceived or made during the Term.
6.3 The Executive agrees that the Executive
will not assert any rights to any Invention as having been made or acquired by
the Executive prior to the date of this Agreement, except for Inventions, if
any, disclosed to the Company in writing prior to the date hereof.
7. Intellectual Property.
---------------------
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited
to, all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend its
right, title or interest in or to any such properties.
10
<PAGE>
8. Indemnification.
---------------
The Company will indemnify the Executive, to the maximum
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.
9. Notices.
-------
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified
mail (notices mailed shall be deemed to have been given on the date mailed),
as follows (or to such other address as either party shall designate by notice
in writing to the other in accordance herewith):
If to the Company, to:
Mafco Worldwide Corporation
5900 North Andrews Avenue
Suite 700
Fort Lauderdale, FL 33309-2367
Attn: Chief Executive Officer
If to the Executive, to:
Pramathesh S. Vora
12 Bunker Hill Road
Sewell, NJ 08080
10. General.
-------
10.1 This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely in New York.
10.2 The section headings contained herein
are for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement.
11
<PAGE>
10.3 This Agreement sets forth the entire
agreement and understanding of the parties relating to the Executive's
employment by the Company, and supersedes all prior agreements, arrangements
and understandings, written or oral, relating to the Executive's employment by
the Company, including, without limitation, the Employment Agreement dated as
of January 1, 1991, as amended (the "Prior Agreement") between the Company and
the Executive, which Prior Agreement is deemed terminated hereby and of no
further force or effect. No representation, promise or inducement has been
made by either party that is not embodied in this Agreement, and neither party
shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
10.4 This Agreement, and the Executive's
rights and obligations hereunder, may not be assigned by the Executive. The
Company may assign its rights, together with its obligations, hereunder (i) to
any affiliate or (ii) to third parties in connection with any sale, transfer
or other disposition of all or substantially all of the business or assets of
the Company; in any event the obligations of the Company hereunder shall be
binding on its successors or assigns, whether by merger, consolidation or
acquisition of all or substantially all of its business or assets.
10.5 This Agreement may be amended, modi-
fied, superseded, canceled, renewed or extended and the terms or covenants
hereof may be waived, only by a written instrument executed by both of the
parties hereto, or in the case of a waiver, by the party waiving compliance.
The failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by either party of the breach of any term or cove-
nant contained in this Agreement, whether by conduct or otherwise, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
---------------------------
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business
12
<PAGE>
entity in question, and the term "affiliate" shall mean and include any
corporation or other business entity directly or indirectly controlling,
controlled by or under common control with the corporation or other business
entity in question.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MAFCO WORLDWIDE CORPORATION
By: /s/ Theo W. Folz
----------------------------
Theo W. Folz
Chief Executive Officer
/s/ Pramathesh S. Vora
-----------------------------
Pramathesh S. Vora
14
<PAGE>
Employment Agreement
--------------------
EMPLOYMENT AGREEMENT, dated as of September 1, 1996, between
Mafco Worldwide Corporation, a Delaware corporation (the "Company") and
Stephen G. Taub (the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the
Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement;
Accordingly, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
---------------------------------
1.1 Employment, Duties. The Company hereby
employs the Executive for the Term (as defined in Section 2.1), to render
exclusive and full-time services to the Company as President and Chief
Operating Officer or in such other executive position as may be mutually
agreed upon by the Company and the Executive, and to perform such other duties
consistent with such position as may be assigned to the Executive by the Board
of Directors or any officer of the Company senior to the Executive.
1.2 Acceptance. The Executive hereby
accepts such employment and agrees to render the services described above.
During the Term, the Executive agrees to serve the Company faithfully and to
the best of the Executive's ability, to devote the Executive's entire
business time, energy and skill to such employment, and to use the Executive's
best efforts, skill and ability to promote the Company's interests. The
Executive further agrees to accept election, and to serve during all or any
part of the Term, as an officer or director of the Company and of any
subsidiary or affiliate of the Company, without any compensation therefor
other than that specified in this Agreement, if elected to any such position
by the shareholders or by the Board of Directors of the Company or of any
subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed
by the Executive hereunder shall be performed primarily at
<PAGE>
the office of the Company in Camden, New Jersey, subject to reasonable travel
requirements on behalf of the Company.
2. Term of Employment; Certain Post-Term Benefits.
----------------------------------------------
2.1 The Term. The term of the Executive's
employment under this Agreement (the "Term") shall commence on September 1,
1996 and shall end on December 31, 2000 or such later date to which the Term
is extended pursuant to Section 2.2.
2.2 End-of-Term Provisions. At any time on
or after December 31, 1999 the Company shall have the right to give written
notice of non-renewal of the Term. In the event the Company gives such notice
of non-renewal, the Term automatically shall be extended so that it ends
twelve months after the last day of the month in which the Company gives such
notice. From and after January 1, 2001, unless and until the Company gives
written notice of non-renewal as provided in this Section 2.2, the Term
automatically shall be extended day-by-day; upon the giving of such notice by
the Company, the Term automatically shall be extended so that it ends twelve
months after the last day of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall
end earlier than the original December 31, 2000 termination date provided in
Section 2.1 or any extended termination date provided in Section 2.2, in
either case if sooner terminated pursuant to Section 4. Non-extension of the
Term shall not be deemed to be a wrongful termination of the Term or this
Agreement by the Company pursuant to Section 4.4.
3. Compensation; Benefits.
----------------------
3.1 Salary. As compensation for all services
to be rendered pursuant to this Agreement, the Company agrees to pay the
Executive during that portion of the Term ending on December 31, 1996 a base
salary, payable semi-monthly in arrears, at the annual rate of not less than
$400,000 and, thereafter during the Term, at an annual rate of not less than
$500,000, less such deductions or amounts to be withheld as required by
applicable law and
2
<PAGE>
regulations (the "Base Salary"). In the event that the Company, in its sole
discretion, from time to time determines to increase the Base Salary, such
increased amount shall, from and after the effective date of the increase,
constitute "Base Salary" for purposes of this Agreement.
3.2 Bonus. In addition to the amounts to
be paid to the Executive pursuant to Section 3.1, the Executive will be
eligible to receive a bonus with respect to each calendar year included within
the Term computed in accordance with the provisions of the next two succeeding
sentences. If, with respect to any calendar year, the Company achieves EBITDA
of at least the percentage set forth in the table below of its business plan
for such year, such bonus shall be the percentage set forth in the table below
of Base Salary with respect to the year for which the bonus (any such bonus, a
"performance bonus") was earned:
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -------------
80% 60%
85 75
90 90
95 100
100 105
105 110
110 125
115 150
In the event that the Term or this Agreement is terminated other than pursuant
to Section 4.3, the Executive shall be entitled to receive a prorated
performance bonus (if such a bonus is otherwise payable) with respect to (A)
the year in which the Term or this Agreement terminated or, (B) in the event
of a termination pursuant to Section 4.4, the year in which the Executive was
last entitled to receive any payments of Base Salary, in an amount equal to
(x) the percentage of Base Salary otherwise payable as a performance bonus
with respect to such year multiplied by (y) a fraction, the numerator of which
is the number of whole months elapsed from the beginning of such year to the
date as of which the Term or this Agreement terminated or the last day as of
which the Executive is entitled to receive payments of Base Salary, as
applicable and the
3
<PAGE>
denominator of which is 12. A performance bonus or other bonus, if either or
both are earned in accordance with this Agreement, shall be paid no later than
March 31st of the year next following the year with respect to which such
bonus was earned. The maximum bonus payable pursuant to this Section 3.2 shall
be $1,000,000 with respect to any calendar year. The bonus payable hereunder
on account of calendar years commencing after December 31, 1996 shall be
subject to approval by the shareholders of the Company of the bonus plan
described herein.
3.3 Business Expenses. The Company shall
pay or reimburse the Executive for all reasonable expenses actually incurred
or paid by the Executive during the Term in the performance of the Executive's
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company customarily may
require of its officers provided, however, that the maximum amount available
for such expenses during any period may be fixed in advance by the Chairman,
the Vice Chairman or the Chief Executive Officer of the Company.
3.4 Vacation. During the Term, the Executive
shall be entitled to a vacation period or periods of four (4) weeks taken in
accordance with the vacation policy of the Company during each year of the
Term. Vacation time not used by the end of a year shall be forfeited, except
that one week of vacation pay may be "banked" in accordance with Company
policy.
3.5 Fringe Benefits. During the Term, the
Executive shall be entitled to all benefits for which the Executive shall be
eligible under any qualified pension plan, 401(k) plan, non-qualified benefit
restoration plan, group insurance or other so-called "fringe" benefit plan
which the Company provides to its executive employees generally. Such benefits
include the right to the use of an automobile as is currently available to the
Company's executive employees. In addition, the Company shall "gross up" the
income imputed to the Executive under federal and any applicable state income
tax laws for his personal use of the Company-furnished automobile and for any
life insurance furnished to the Executive, such that the Executive effectively
will suffer no personal cost for such fringe benefits.
4
<PAGE>
4. Termination.
-----------
4.1 Death. If the Executive dies during the
Term, the Term shall terminate forthwith upon the Executive's death and the
Company shall have no obligation hereunder to make any payments to the
Executive's beneficiaries on account of any period of time after such
termination. After such termination, the Executive's beneficiaries shall
receive any benefits to which the Executive or such beneficiaries may be
entitled under any fringe benefit program that may have been provided by the
Company pursuant to Section 3.5.
4.2 Disability. If, during the Term the
Executive becomes disabled or incapacitated to the extent he is unable to
perform his duties hereunder ("Totally Disabled") for a period of six (6)
consecutive months, the Company shall have the right at any time thereafter,
so long as the Executive is then still Totally Disabled, to terminate the Term
upon sending written notice of termination to the Executive. If the Company
elects to terminate the Term by reason of the Executive becoming Totally
Disabled, the Company shall have no obligation hereunder to make any payments
to the Executive on account of any period of time after such termination.
After such termination, the Executive shall receive any benefits to which he
may be entitled under any fringe benefit program that may have been provided
by the Company pursuant to Section 3.5. While the Executive is Totally
Disabled prior to the Term being terminated, Base Salary payable pursuant to
Section 3.1 shall be reduced by any other benefits payable to the Executive
under any disability plan provided for hereunder or otherwise furnished to the
Executive by the Company.
4.3 Cause. In the event of gross neglect
by the Executive of the Executive's duties hereunder, conviction of the
Executive of any felony, conviction of the Executive of any lesser crime or
offense involving the property of the Company or any of its subsidiaries or
affiliates, willful misconduct by the Executive in connection with the
performance of any material portion of the Executive's duties hereunder,
breach by the Executive of any material provision of this Agreement or any
other conduct on the part of the Executive which would make the Executive's
continued employment by the Company materially prejudicial to the best
interests of the Company, the Com-
5
<PAGE>
pany may at any time by written notice to the Executive terminate the Term
and, upon such termination, this Agreement shall terminate and the Executive
shall be entitled to receive no further amounts or benefits hereunder, except
any as shall have been earned to the date of such termination.
4.4 Company Breach. In the event of the
breach of any material provision of this Agreement by the Company, the
Executive shall be entitled to terminate the Term upon 60 days' prior written
notice to the Company. Upon such termination, or in the event the Company
terminates the Term or this Agreement other than pursuant to the provisions
of Section 4.2 or 4.3, the Company shall continue to provide the Executive
(i) payments of Base Salary, in the manner and amount specified in Section
3.1, (ii) performance bonuses, in the manner and amount specified in Section
3.2 and (iii) fringe benefits and additional benefits in the manner and
amounts specified in Section 3.5 until the end of the Term (as in effect
immediately prior to such termination) or, if the Company has not then given
written notice of non-renewal pursuant to Section 2.2, for a period of twelve
months after the last day of the month in which termination described in this
Section 4.4 occurred, whichever is longer (the "Damage Period"). The Company's
obligations pursuant to this Section 4.4 are subject to the Executive's duty
to mitigate damages by seeking other employment provided, however, that the
Executive shall not be required to accept a position of lesser importance or
of substantially different character than the position held with the Company
immediately prior to the effective date of termination or in a location
outside of the Philadelphia, Pennsylvania metropolitan area. To the extent
that the Executive shall earn compensation during the Damage Period (without
regard to when such compensation is paid), the Base Salary and bonus payments
to be made by the Company pursuant to this Section 4.4 shall be correspondingly
reduced.
4.5 Litigation Expenses. Except as provid-
ed for in Section 5.7, if the Company and the Executive become involved in any
action, suit or proceeding relating to the alleged breach of this Agreement by
the Company or the Executive, and if a judgment in such action, suit or
proceeding is rendered in favor of the Executive, the Company shall reimburse
the Executive for all expenses (including reasonable attorneys' fees) incurred
by the
6
<PAGE>
Executive in connection with such action, suit or proceeding. Such costs
shall be paid to the Executive promptly upon presentation of expense
statements or other supporting information evidencing the incurrence of such
expenses.
5. Protection of Confidential Information;
--------------------------------------
Non-Competition.
---------------
5.1 In view of the fact that the Executive's
work for the Company will bring the Executive into close contact with many
confidential affairs of the Company not readily available to the public, and
plans for future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest
confidence all confidential matters of the Company, including, without
limitation, "know how", trade secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions and research
projects, and other business affairs of the Company, learned by the Executive
heretofore or hereafter, and not to disclose them to anyone outside of the
Company, either during or after the Executive's employment with the Company,
except in the course of performing the Executive's duties hereunder or with
the Company's express written consent. The foregoing prohibitions shall
include, without limitation, directly or indirectly publishing (or causing,
participating in, assisting or providing any statement, opinion or information
in connection with the publication of) any diary, memoir, letter, story,
photograph, interview, article, essay, account or description (whether
fictionalized or not) concerning any of the foregoing, publication being
deemed to include any presentation or reproduction of any written, verbal or
visual material in any communication medium, including any book, magazine,
newspaper, theatrical production or movie, or television or radio programming
or commercial; and
5.1.2 To deliver promptly to the Company on
termination of the Executive's employment by the Company, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints and other documents (and all copies thereof) relating to
the Company's business and all property associated therewith, which the
Executive may then possess or have under the Executive's control.
7
<PAGE>
5.2 During the Term, the Executive shall
not, directly or indirectly, enter the employ of, or render any services to,
any person, firm or corporation engaged in any business competitive with the
business of the Company or of any of its subsidiaries or affiliates; the
Executive shall not engage in such business on the Executive's own account;
and the Executive shall not become interested in any such business, directly
or indirectly, as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or in any other relationship
or capacity provided, however, that nothing contained in this Section 5.2
shall be deemed to prohibit the Executive from acquiring, solely as an
investment, up to five percent (5%) of the outstanding shares of capital stock
of any public corporation.
5.3 If the Executive commits a breach, or
threatens to commit a breach, of any of the provisions of Sections 5.1 or 5.2
hereof, the Company shall have the following rights and remedies:
5.3.1 The right and remedy to have the
provisions of this Agreement specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
5.3.2 The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits (collectively
"Benefits") derived or received by the Executive as the result of any
transactions constituting a breach of any of the provisions of the preceding
paragraph, and the Executive hereby agrees to account for and pay over such
Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity.
5.4 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, hereafter are construed to be
invalid or unenforceable, the same shall
8
<PAGE>
not affect the remainder of the covenant or covenants, which shall be given
full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, are held to be unenforceable because
of the duration of such provision or the area covered thereby, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or area of such provision and, in its reduced form, said
provision shall then be enforceable.
5.6 The parties hereto intend to and hereby
confer jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2
upon the courts of any state within the geographical scope of such covenants.
In the event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect the Company's right to the relief provided above
in the courts of any other states within the geographical scope of such
covenants as to breaches of such covenants in such other respective
jurisdictions, the above covenants as they relate to each state being for this
purpose severable into diverse and independent covenants.
5.7 In the event that any action, suit or
other proceeding in law or in equity is brought to enforce the covenants
contained in Sections 5.1 and 5.2 or to obtain money damages for the breach
thereof, and such action results in the award of a judgment for money damages
or in the granting of any injunction in favor of the Company, all expenses
(including reasonable attorneys' fees) of the Company in such action, suit or
other proceeding shall (on demand of the Company) be paid by the Executive. In
the event the Company fails to obtain a judgment for money damages or an
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Executive in such action, suit or other proceeding
shall (on demand of the Executive) be paid by the Company.
6. Inventions and Patents.
----------------------
6.1 The Executive agrees that all process-
es, technologies and inventions (collectively, "Inven-
9
<PAGE>
tions"), including new contributions, improvements, ideas and discoveries,
whether patentable or not, conceived, developed, invented or made by him
during the Term shall belong to the Company, provided that such Inventions
grew out of the Executive's work with the Company or any of its subsidiaries
or affiliates, are related in any manner to the business (commercial or
experimental) of the Company or any of its subsidiaries or affiliates or are
conceived or made on the Company's time or with the use of the Company's
facilities or materials. The Executive shall further: (a) promptly disclose
such Inventions to the Company; (b) assign to the Company, without additional
compensation, all patent and other rights to such Inventions for the United
States and foreign countries; (c) sign all papers necessary to carry out the
foregoing; and (d) give testimony in support of the Executive's inventorship.
6.2 If any Invention is described in a
patent application or is disclosed to third parties, directly or indirectly,
by the Executive within two years after the termination of the Executive's
employment by the Company, it is to be presumed that the Invention was con-
ceived or made during the Term.
6.3 The Executive agrees that the Executive
will not assert any rights to any Invention as having been made or acquired by
the Executive prior to the date of this Agreement, except for Inventions, if
any, disclosed to the Company in writing prior to the date hereof.
7. Intellectual Property.
---------------------
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited
to, all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend its
right, title or interest in or to any such properties.
10
<PAGE>
8. Indemnification.
---------------
The Company will indemnify the Executive, to the maximum
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.
9. Notices.
-------
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified
mail (notices mailed shall be deemed to have been given on the date mailed),
as follows (or to such other address as either party shall designate by notice
in writing to the other in accordance herewith):
If to the Company, to:
Mafco Worldwide Corporation
5900 North Andrews Avenue
Suite 700
Fort Lauderdale, FL 33309-2367
Attn: Chief Executive Officer
If to the Executive, to:
Stephen G. Taub
3031 Simpson Avenue
P.O. Box 930
Ocean City, NJ 08226
10. General.
-------
10.1 This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely in New York.
11
<PAGE>
10.2 The section headings contained herein
are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
10.3 This Agreement sets forth the entire
agreement and understanding of the parties relating to the Executive's
employment by the Company, and supersedes all prior agreements, arrangements
and understandings, written or oral, relating to the Executive's employment by
the Company, including, without limitation, the Employment Agreement dated as
of January 1, 1990, as amended (the "Prior Agreement") between the Company and
the Executive, which Prior Agreement is deemed terminated hereby and of no
further force or effect. No representation, promise or inducement has been
made by either party that is not embodied in this Agreement, and neither party
shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
10.4 This Agreement, and the Executive's
rights and obligations hereunder, may not be assigned by the Executive. The
Company may assign its rights, together with its obligations, hereunder (i) to
any affiliate or (ii) to third parties in connection with any sale, transfer
or other disposition of all or substantially all of the business or assets of
the Company; in any event the obligations of the Company hereunder shall be
binding on its successors or assigns, whether by merger, consolidation or
acquisition of all or substantially all of its business or assets.
10.5 This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof
may be waived, only by a written instrument executed by both of the
parties hereto, or in the case of a waiver, by the party waiving compliance.
The failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by either party of the breach of any term or cove-
nant contained in this Agreement, whether by conduct or otherwise, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
---------------------------
12
<PAGE>
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate"
shall mean and include any corporation or other business entity directly or
indirectly controlling, controlled by or under common control with the
corporation or other business entity in question.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MAFCO WORLDWIDE CORPORATION
By: /s/ Theo W. Folz
-----------------------------
Theo W. Folz
Chief Executive Officer
/s/ Stephen G. Taub
-----------------------------
Stephen G. Taub
14
<PAGE>
Exhibit 11.00
- -------------
TAX ALLOCATION AGREEMENT
------------------------
This Tax Allocation Agreement entered into as of November 14, 1996 by
and among POWER CONTROL TECHNOLOGIES INC., a Delaware corporation ("Parent"),
MAFCO WORLDWIDE CORPORATION, a Delaware corporation ("Worldwide"), its
Subsidiaries (as hereinafter defined) and any entities which become parties
hereto pursuant to Paragraph 20 hereof. Parent and its Subsidiaries are
hereinafter sometimes referred to as the "Group." Worldwide and its
Subsidiaries are hereinafter sometimes referred to as the "Worldwide Group."
WHEREAS, PCT International Holdings Inc. ("PCTIH'), a wholly-owned
subsidiary of Parent purchased all of the stock of Flavor Holdings Inc.
("FHI"), the Parent of Worldwide;
WHEREAS, it is expected that PCTIH will contribute the stock of its
wholly-owned subsidiary, Pneumo Abex Corporation ("Pneumo") to FHI, which will
contribute such stock to Worldwide;
WHEREAS, it is expected that Worldwide Corporation will be merged
with and into Pneumo, the surviving corporation being Pneumo (the "Merger");
WHEREAS, the Worldwide Group desires, to the extent permitted by the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder (the "Treasury Regulations"), to continue to be
included in the filing of consolidated Federal income tax returns on behalf of
the Group;
WHEREAS, Parent and the Worldwide Group wish to allocate and settle
among themselves in an equitable manner the consolidated Federal and combined
state or local income tax liability of the Worldwide Group for Taxable Periods
(as hereinafter defined) governed by this Agreement;
<PAGE>
2
WHEREAS, Worldwide and its Subsidiaries desire to be indemnified by
Parent with respect to certain tax liabilities, and Parent is willing to so
indemnify Worldwide and each of the Subsidiaries of Worldwide; and
WHEREAS, Parent the Worldwide Group and Pneumo desire to provide for
the continuation herein, the parties agree as follows:
1. Definitions.
-----------
For purposes of this Agreement, the following terms shall be defined
as follows:
(a) "Taxable Period" shall mean any taxable year or portion
thereof, beginning on or after the date hereof, with respect to which a
consolidated Federal income tax return is properly filed on behalf of the
Group or (in the case of any combined state or local return) any such taxable
year with respect to which a combined state or local income tax return is
filed by Parent or any Subsidiary of Parent (other than Worldwide or any
Subsidiary of Worldwide) that includes Worldwide or any Subsidiary of Worldwide.
(b) "Worldwide Group's Federal Taxable Income" for a Taxable
Period shall mean the consolidated Federal taxable income (including, for all
purposes of this Agreement, alternative minimum taxable income) for such
Taxable Period that the Worldwide Group would have reported if it had not been
included in the consolidated Federal income tax return filed for the Group
with respect to such Taxable Period but instead had filed its own consolidated
Federal income tax return for such Taxable Period; provided, however, that in
computing such taxable income, the Worldwide Group shall not take into account
any amounts paid or payable by Worldwide to Parent under Paragraph 2 or 6
hereof with respect to Federal taxes or by Parent to Worldwide or any
Subsidiary of Worldwide under Paragraphs 2, 6 or 8 hereof with respect to
Federal taxes. In computing such taxable income, the Worldwide Group shall be
entitled to take into account deductions and credits attributable to the
carryover or
<PAGE>
3
carryback of any losses or credits of Worldwide or any Subsidiary of
Worldwide arising in any taxable year, but only after taking into account any
limitations on the use of such losses and credits imposed pursuant to Sections
172, 382, 383, 904 or 1212 of the Code or by Treasury Regulations Sections
1.1502-15, 1.1502-20, 1.1502- 21, 1.1502-22, 1.1502-91 (proposed), 1.1502-92
(proposed), 1.1502-93 (proposed) or 1.1502- 94 (proposed).
(c) "Worldwide Group's Federal Tax" for a Taxable Period
shall mean the consolidated Federal income tax liability or, if applicable,
the consolidated Federal alternative minimum tax liability for such Taxable
Period that the Worldwide Group would have incurred if it had not been
included in the consolidated Federal income tax return filed for the Group
with respect to such Taxable Period, but had instead filed its own
consolidated Federal income tax return for such Taxable Period; provided, that
in computing such tax liability for any Taxable Period, the Worldwide Group
shall not take into account any amounts paid or payable by Worldwide to Parent
or under Paragraphs 2 or 6 hereof with respect to Federal taxes or by Parent
to Worldwide or any Subsidiary of Worldwide under Paragraphs 2, 6 or 9 hereof
with respect to Federal taxes. In computing such tax liability, the Worldwide
Group shall be entitled to take into account deductions and credits
attributable to the carryover or carryback of any losses or credits of
Worldwide or any Subsidiary of Worldwide arising in any taxable year, but only
after taking into account any limitations on the use of such losses and
credits imposed pursuant to Sections 172, 382, 383, 384, 904 or 1212 of the
Code or by Treasury Regulations Sections 1.1502-15, 1.1502-20, 1.1502-21,
1.1502.22, 1.1502-91 (proposed), 1.1502-92 (proposed), 1.1502-93 (proposed) or
1.1502-94 (proposed). If the computation of the Worldwide Group's Federal Tax
does not result in a positive number, the Worldwide Group's Federal Tax shall
be deemed to be zero.
<PAGE>
4
(d) "Worldwide Group's State or Local Taxable Income" shall
mean the state or local taxable income, computed in a manner consistent with
the computation of the Worldwide Group's Federal Taxable Income, as defined
above, that Worldwide and/or any of its Subsidiaries would have reported with
respect to each state or local taxing jurisdiction for any Taxable Period for
which Worldwide and/or any such Subsidiary of Worldwide participates, with
Parent or any Subsidiary of Parent (other than Worldwide or any of its
Subsidiaries), in the filing of a combined state or local income tax return
with such jurisdiction if Worldwide had filed with each such jurisdiction
either a separate return (in a case where only one member of the Worldwide
Group joins in the filing of such combined return) or a combined return
including only those members of the Worldwide Group actually joining in such
combined return (in a case where more than one member of the Worldwide Group
joins in the filing of such combined return).
(e) "Worldwide Group's State or Local Tax" shall mean
the aggregate state and local income tax, computed in a manner consistent with
the computation of the Worldwide Group's Federal Tax, as defined above, that
Worldwide and/or any of its Subsidiaries would have incurred with respect to
each relevant state and local taxing jurisdiction for any Taxable Period for
which Worldwide and/or any such Subsidiary participates with Parent or any
Subsidiary of Parent (other than Worldwide or any of its Subsidiaries) in the
filing of a combined state or local income tax return with such jurisdiction
if Mafco and/or any such Subsidiary had filed with such jurisdiction either a
separate return (in a case where only one member of the Worldwide Group joins
in the filing of such combined return) or a combined return including only
those members of the Worldwide Group actually joining in such combined return
(in a case where more than one member or the Worldwide Group joins in the
filing of such return).
<PAGE>
5
(f) "Estimated Tax Payment" shall mean for a Taxable Period
the aggregate payments by Worldwide to Parent or, as the case may be, for such
Taxable Period provided in Paragraph 3.
(g) "Final Determination" shall mean a closing agreement
with the Internal Revenue Service or the relevant state or local taxing
authorities, an agreement contained on Internal Revenue Service Form 870-AD or
other comparable form, an agreement that constitutes a determination under
Section 1313(a)(4) of the Code, a claim for refund which has been allowed, a
deficiency notice with respect to which the period for filing a petition with
the Tax Court or the relevant state or local tribunal has expired or a
decision of any court of competent jurisdiction that is not subject to appeal
or as to which the time for appeal has expired.
(h) "Subsidiary" as to any entity (the parent corporation)
shall mean a corporation that would be an includible corporation that is a
member of an affiliated group of corporations of which the parent corporation
would be the common parent, all within the meaning attributable to such terms
in Section 1504 of the Code and Treasury Regulations thereunder.
2. Payments Between Parent and Worldwide.
-------------------------------------
(a) For each Taxable Period, Worldwide shall pay to Parent,
an amount equal to the excess, if any, of the Worldwide Group's Federal Tax
for such Taxable Period over the aggregate amount of the Estimated Tax
Payments actually made by Worldwide to Parent with respect to Federal income
taxes for such Taxable Period. If the aggregate amount of the Estimated Tax
Payments actually made to Parent with respect to Federal income taxes for such
Taxable Period exceeds the Worldwide Group's Federal Tax for such Taxable
Period, Parent shall pay to Worldwide an amount equal to such excess.
<PAGE>
6
(b) For each Taxable Period with respect to which Worldwide
or any of its Subsidiaries participates in the filing of any combined state or
local income tax return with Parent or any Subsidiary of Parent (other than
Worldwide or any Subsidiary of Worldwide), Worldwide shall pay to Parent an
amount equal to the excess, if any, of the Worldwide Group's State and Local
Tax for such Taxable Period over the aggregate amount of the Estimated Tax
Payments actually made to Parent, with respect to such state or local income
tax for such Taxable Period exceeds the Worldwide Group's State or Local Tax
for such Taxable Period, Parent shall pay to Worldwide an amount equal to such
excess.
3. Estimated Tax Payments.
----------------------
(a) Worldwide shall pay to Parent no later than the tenth
day of each of the fourth, sixth, ninth and twelfth months of such Taxable
Period, the amount of estimated Federal income taxes that the Worldwide Group
would have been required to pay on or before the fifteenth day of each such
month if Worldwide were filing a consolidated Federal income tax return for
such Taxable Period for an affiliated group or corporations of which Worldwide
was the common parent and that consisted only of the members of the Worldwide
Group. Such estimated Federal income tax liability shall be determined
consistent with the calculation of the Worldwide Group's Federal Tax and shall
reflect the estimated taxable income of the Worldwide Group projected for
three, six, nine and twelve months, respectively.
(b) For every Taxable Period with respect to which one or
more members of the Worldwide Group participates in the filing of a combined
state or local income tax return with Parent or any Subsidiary of Parent (other
than Worldwide or any member of the Worldwide Group), Worldwide shall pay to
Parent no later than the fifth day prior to the date an estimated state or
local income tax payment is due, the amount of estimated taxes that Worldwide
or any such Subsidiary of Worldwide would have been required to pay if
<PAGE>
7
Worldwide or any such Subsidiary of Worldwide had filed for such period
either a separate return (in a case where only one member of the Worldwide
Group joins in the filing of such combined return) or a combined return (in a
case where more than one member of the Worldwide Group joins in the filing of
such combined return). Such estimated state or local income tax liability
shall be determined consistent with the calculation of the Worldwide Group's
State and Local Tax.
4. Restricted Payments.
-------------------
Notwithstanding any other provisions of this Agreement, in no event
shall any payment be made by Worldwide or any Subsidiary of Worldwide to
Parent or any other member of the Group (other than Worldwide or any
Subsidiary of Worldwide), or to any assignee of Parent's right to payments
hereunder, pursuant to this Agreement to the extent that and for so long as
such payment is prohibited under or is inconsistent with the terms of that
certain Credit Agreement dated as of June 29, 1994 between Worldwide, the
lenders that are or may become parties thereto (the "Banks"), and The Chase
Manhattan Bank (as successor to The Chase Manhattan Bank (National
Association)), as agent for the Banks (the "Agent") (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement").
5. Time and Form of Payment.
------------------------
(a) Payments by Worldwide or Parent pursuant to Paragraph 2
hereof shall be made no later than the fifth day prior to the due date of the
Group's consolidated Federal income tax return or any relevant combined state
or local income tax return for the period for which such a payment is due. If
the due date for any such return is extended, any amounts due at the time of
filing a request for extension of time to file shall be paid on an estimated
basis. No later than five (5) days prior to the extended due date for such
return, Worldwide's payment shall be recalculated, and any difference between
(i) the tax liability of the Worldwide
<PAGE>
8
Group to be reflected on such return and (ii) all prior Estimated Tax Payments
with respect to the such Taxable Period shall be paid by such fifth day to the
party entitled thereto, with interest from the original due date at the
relevant statutory rate.
(b) Each Subsidiary of Worldwide agrees to pay to Worldwide
its share of each of the items of Worldwide Group's Federal Tax and Worldwide
Group's State and Local Tax and of Estimated Tax Payments, each such share to
be determined in accordance with the principles of Paragraph 1(c), 1(e), 3(a)
and 3(b) hereof, no later than one (1) business day prior to the date upon
which the relevant payment by Worldwide is required to be made under the terms
hereof. Worldwide agrees to pay to each Subsidiary of Worldwide its share of
any payment received by Worldwide from Parent pursuant to this Agreement, each
such share to be determined in accordance with the principle of Paragraphs
1(c), 1(e), 3(a) and 3(b) hereof, as promptly as practicable following the
receipt of any such payment and the determination of such share.
6. Adjustments.
-----------
(a) Redetermination of Tax Liability. In the event of any
redetermination of the consolidated Federal income tax liability of the Group
for any Taxable Period (or of the combined state or local income tax liability
for any Taxable Period for which a combined state or local income tax return
is filed) as a result of an audit by the Internal Revenue Service (or the
relevant state or local taxing authorities), a claim for refund or otherwise,
the Worldwide Group's Federal Tax (or the Worldwide Group's State and Local
Tax) shall be recomputed for such Taxable Period and any prior and subsequent
Taxable Periods to take into account such redetermination, and payments due
pursuant to Paragraph 2 hereof shall be appropriately adjusted. Any payment by
Worldwide to Parent or by Parent to Worldwide required by such adjustment
shall be paid within seven (7) days after the date of a Final Determination
with
<PAGE>
9
respect to such redetermination or as soon as such adjustment can
practicably be calculated, if later, together with interest for the period at
the rate provided for in the relevant statute.
(b) Refund of Tax Sharing Payment. In the event that the
calculation of the Worldwide Group's Federal Taxable Income (or the Worldwide
Group's State and Local Taxable Income) for any Taxable Period results in a
loss, such loss may be carried back and deducted in calculating the Worldwide
Group's Federal Tax (or the Worldwide Group's State and Local Tax) for prior
Taxable Periods in the same manner as it would have been so carried back and
deducted had it constituted a net operating loss deduction under Section 172
of the Code or a net capital loss deduction under Section 1212 of the Code (or
in the case of state and local tax, under applicable state or local
provisions), as such provisions would have been applied to a consolidated (or
combined) return filed with respect to the Worldwide Group (or one or more
members thereof), but after taking into account any limitation on the use of
such loss imposed pursuant to Sections 382, 383, 384 or 904 of the Code or
Treasury Regulation Sections 1.1502-15, 1.1502-20, 1.1502-21, 1.1502-22,
1.1502-91 (proposed), 1.1502.92 (proposed), 1.1502-93 (proposed) or 1.1502-94
(proposed) (or with respect to state and local tax, applicable state or local
provisions). In such case the Worldwide Group's Federal Tax (or the Worldwide
Group's State and Local Tax) shall be recomputed for the Taxable Period or
Periods to which such loss is carried and for any subsequent Taxable Periods
to take into account the deduction of such loss, and payments made pursuant to
Paragraph 2 hereof shall be appropriately adjusted. In the case of any
carryback of a loss pursuant to this Paragraph 6(b), any payment by Parent to
Worldwide required by such adjustment shall be paid within seven (7) days
after the date of filing the consolidated Federal income tax return of the
Group (or relevant combined state or local income tax return) for the year in
which such loss arises.
<PAGE>
10
Excess credits for any Taxable Period shall be carried back and otherwise
treated in a manner consistent with the provision of this Paragraph 6.
(c) In the event PCTIH is required to make any payments (any
such payment, a "Relevant Payment") pursuant to Section 4.11(j) of the Stock
and VSR Purchase Agreement, dated as of October 23, 1996 (the "Purchase
Agreement"), by and among Parent, PCTIH and Mafco Consolidated Group Inc., as
a result of Worldwide or any of its Subsidiaries having received a refund or
having utilized the benefit of any overpayment of Taxes (as defined in the
Purchase Agreement), Worldwide shall, promptly following its receipt of notice
thereof, pay, or cause to be paid, to Parent or its designee an amount equal
to the Relevant Payment.
7. Interest on Unpaid Amounts.
In the event that any party fails to pay any amount owed pursuant to
this Agreement within ten (10) days after the date when due, interest shall
accrue on any unpaid amount at the "designated rate" from the due date until
such amounts are fully paid. For purposes of this Agreement, the "designated
rate" shall mean ten percent (10%).
8. Indemnification.
---------------
Parent shall indemnify Worldwide and each Subsidiary of Worldwide on
an after-tax basis (taking into account, when realized, any tax detriment or
tax benefit to Worldwide or any Subsidiary of Worldwide of (x) a payment
hereunder or (y) the liability to the Internal Revenue Service or state, local
or foreign taxing authority giving rise to such a payment), with respect to
and in the amount of:
(a) any liability to the Internal Revenue Service for
Federal income tax incurred by Worldwide or any Subsidiary of Worldwide for
any Taxable Period with respect to
<PAGE>
which Worldwide or any Subsidiary of Worldwide is included in a consolidated
Federal income tax return filed on behalf of the Group;
(b) any liability for state and local income tax to a state
or local taxing authority incurred by Worldwide or any Subsidiary of Worldwide
with respect to any jurisdiction for any Taxable Period with respect to which
Worldwide or any such Subsidiary of Worldwide participates in the filing of a
combined state or local income tax return with Parent or any Subsidiary of
Parent (other than Worldwide or any Subsidiary of Worldwide);
(c) any liability for Federal, state or local income tax to
the Internal Revenue Service or a state or local taxing authority, as the case
may be, incurred by Worldwide or any Subsidiary of Worldwide, to the extent
attributable to any member of the Group (other than Worldwide or any
Subsidiary of Worldwide) and for which Worldwide or such Subsidiary is liable
as a result of participating in the filing of a combined state or local income
tax return of the Group or as a result of being included in a consolidated
Federal income tax return of the Group or as a result of participating in the
filing of a combined state or local income tax return with Parent or any
Subsidiary of Parent (other than Worldwide or any Subsidiary of Worldwide);
and
(d) interest, penalties and additions to tax, and costs
and expenses in connection with any liabilities described in Paragraphs 8(a),
(b) or (c) above. Parent shall pay to Worldwide amounts due under Paragraphs
8(a), (b), and (c) and Paragraph 8(d) (to the extent such amounts are related
to amounts under Paragraphs 8(a), (b) or (c)) no later than seven (7) days
after the date of a Final Determination with respect thereto.
9. Filing of Returns, Payments of Tax, Etc.
----------------------------------------
(a) Agent. Worldwide and each Subsidiary of Worldwide hereby
appoint Parent as their agent, as long as Worldwide or such Subsidiary, as the
case may be, is a
<PAGE>
12
member of the Group, for the purpose of filing consolidated Federal income tax
returns and for making any election or application or taking any action in
connection therewith on behalf of Worldwide or such Subsidiary consistent with
the terms of this Agreement. Parent agrees that it shall file consolidated
Federal income tax returns for each Taxable Period of the Group. Worldwide and
each Subsidiary of Worldwide hereby appoint Parent as their agent, as long as
Worldwide or such Subsidiary, as the case may be, is a member of the Group,
for the purpose of filing any combined state or local income tax returns that
Parent may elect to file or cause to be filed, and for making any election or
application or taking any action in connection therewith on behalf of
Worldwide or such Subsidiary of Worldwide hereby consent to the filing of such
returns, and to the making of such elections and applications. Parent agrees
that to the extent the filing of any combined state or local income tax return
by Parent or any Subsidiary of Parent with Worldwide or any Subsidiary of
Worldwide for any period will reduce the state or local tax liability of
Worldwide or any Subsidiary of Worldwide, without causing an increase in the
state or local tax liability of Parent or any Subsidiary of Parent (other than
Worldwide or any Subsidiary of Worldwide) in such period, Parent will file or
cause to be filed for such Taxable Period a combined state or local income tax
return with Worldwide and/or its Subsidiaries; provided, however, that such
filing is permitted by applicable state or local law. Except as provided in
this Paragraph 9, nothing herein shall be construed as requiring Parent or any
Subsidiary of Parent to file combined state or local income tax returns on
behalf of any members of the Group (including the Worldwide Group) for any
Taxable Period.
(b) Cooperation. Worldwide Group shall cooperate with Parent
in the filing, to the extent permitted by law, of a consolidated Federal
income tax return and such combined state or local income tax returns for
members of the Group (including the Worldwide
<PAGE>
13
Group) as Parent elects to file or cause to be filed, by maintaining such
books and records and providing such information as may be necessary or useful
in the filing of such returns and executing any documents and taking any
actions that Parent may reasonably request in connection therewith. Parent,
and Worldwide shall provide one another with such information concerning such
returns and the applications of payments made under this Agreement as any of
such corporations may reasonably request of one another.
(c) Payment of Tax. For each Taxable Period, Parent shall
timely pay or discharge, or cause to be timely paid or discharged, the
consolidated Federal income tax liability of the Group for such Taxable Period
and the combined state or local income tax liability shown on any combined
state or local income tax return that Parent or any Subsidiary of Parent
elects or is required to file that includes Worldwide or any Subsidiary of
Worldwide.
10. Resolution of Disputes.
----------------------
Any dispute concerning the calculation or basis of determination of
any payment provided for hereunder shall be resolved by the independent
certified public accountants for Parent, whose judgment shall be conclusive
and binding upon the parties, in the absence of manifest error.
11. Adjudications.
-------------
In any audit, conference, or other proceeding with the Internal
Revenue Service or the relevant state or local authorities, or in any judicial
proceedings concerning the determination of the Federal income tax liabilities
of the Group or Worldwide (or any Subsidiary of Worldwide) or the state or
local income tax liability of any combined group including Parent or any
Subsidiary of Parent (other than Worldwide or any Subsidiary of Worldwide) and
Worldwide or any Subsidiary of Worldwide shall be represented by persons
selected by Parent. The settlement of terms of settlement of any issues
relating to such proceeding shall be in the
<PAGE>
14
sole discretion of Parent, absent manifest error, and Worldwide and each
Subsidiary of Worldwide hereby appoint Parent as their agent for the purpose
of proposing and concluding any such settlement.
12. Binding Effect; Successors.
--------------------------
This Agreement shall be binding upon Parent, Worldwide and each
Subsidiary of Parent that is a signatory hereto and the Subsidiaries of Parent
that become parties hereto pursuant to Paragraph 20 hereof. Worldwide agrees
to cause all of its Subsidiaries to follow this Agreement. This Agreement
shall inure to the benefit of, and be binding upon, any successors or assigns
of the parties hereto, including, without limitation, any Subsidiary of
Worldwide that becomes a party hereto pursuant to Paragraph 20 and including
Pneumo, as successor to Worldwide pursuant to the Merger. Worldwide and each
other party hereto may assign their right to receive payments under this
Agreement but may not assign or delegate their obligations hereunder.
13. Interpretation.
--------------
This Agreement is intended to calculate and allocate certain Federal
and state and local income tax liabilities of Parent and the Worldwide Group,
and any situation or circumstance concerning such calculation and allocation
that is not specifically contemplated hereby or provided for herein shall be
dealt with in a manner consistent with the underlying principles of
calculation and allocation in this Agreement.
14. Legal and Accounting Fees.
-------------------------
Any fees or expense for legal, accounting or other professional
services rendered in connection with (i) the preparation of a consolidated
Federal or combined state or local income tax return for the Group, members of
the Group (to the extent that such services reasonably pertain to the tax
liability of members of the Worldwide Group rather than any other members
<PAGE>
15
of the Group) or the Worldwide Group, (ii) the application of the provisions of
this Agreement or (iii) the conduct of any audit, conference or proceeding of
the Internal Revenue Service or relevant state or local authorities or
judicial proceedings relevant to any determination required to be made
hereunder shall be allocated between Parent and Worldwide in a manner
resulting in Worldwide bearing a reasonable approximation of the actual amount
of such fees or expenses hereunder reasonably related to, and for the benefit
of, Worldwide and its Subsidiaries, rather than to or for other members of the
Group.
15. Limitation On Additional Tax Agreements; Effect of the
------------------------------------------------------
Agreement.
---------
This Agreement shall determine the liability of Parent, and the
members of the Worldwide Group to each other as to the matters provided for
herein, whether or not such determination is effective for purposes of the
Code or the Treasury Regulations promulgated thereunder or state or local
revenue laws and regulations, financial reporting purposes or other purposes.
Subject to Paragraph 16, nothing contained herein shall preclude Parent from
entering into any agreement with any other Subsidiary of Parent concerning
allocation of tax liabilities or Worldwide from entering into any agreement
with any Subsidiary of Worldwide concerning allocation of tax liabilities.
16. Entire Agreement; Assignment.
----------------------------
This Agreement embodies the entire understanding among the parties
relating to its subject matter and supersedes and terminates all prior
agreements and understandings among the parties with respect to such subject
matter. Any and all prior correspondence, conversations and memoranda are
merged herein and shall be without effect hereon. No promises, covenants or
representations of any kind, other than those expressly stated herein, have
been made to induce any party to enter into this Agreement. This Agreement,
including this provision against oral modification, shall not be modified or
terminated except by a
<PAGE>
16
writing duly signed by each of the parties hereto (but, in the case of each
Subsidiary of Worldwide, for only so long as it remains a Subsidiary of
Worldwide), and no waiver of any provisions of this Agreement shall be
effective unless in writing duly signed by the party sought to be bound.
Worldwide and each Subsidiary (and their successors and assigns) may assign
all of their respective rights under and interest in this Agreement to the
Lenders under the Credit Agreement as collateral security for their respective
obligations (and those of any of its successors and assigns) to such Lenders.
17. Code References.
---------------
Any references to the Code or Treasury Regulations shall be deemed to
refer to the relevant provisions of any such successor statute or regulation
and shall refer to such provisions as in effect from time to time.
18. Notices.
-------
Any payment, notice or communication required or permitted to be
given under this Agreement shall be in writing (including telecopy
communication) and mailed, telecopied or delivered:
If to Parent, to it at:
35 East 62nd Street
New York, New York 10021
Attention: General Counsel
Facsimile: (212) 572-5184
If to Worldwide, to it at:
Jefferson Avenue and Third Street
Camden, New Jersey 08104
Attention: Vice President -- Finance
or to such other address as a party shall furnish in writing to the other
parties. All such notices and communications shall be effective when received.
19. Counterparts.
------------
<PAGE>
17
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
20. New Members.
-----------
Each of the parties to this Agreement recognizes that from time to
time, new Subsidiaries of Worldwide may be added to the Worldwide Group. Each
of the parties agrees that any new Subsidiary of Worldwide shall, without the
express written consent of the other parties, become party to this Agreement
for all purposes of this Agreement with respect to Taxable Periods ending
after such Subsidiary was added to the Worldwide Group.
21. Nature of Parent's Obligations.
------------------------------
Parent acknowledges and agrees that its obligations under this
Agreement shall not be affected by any impossibility, illegality,
impracticability, frustration of purpose, force majeure, act of government,
the bankruptcy or insolvency of Worldwide or any other party to this
Agreement, the failure or refusal of Worldwide or any other party to this
Agreement, to perform its obligations hereunder (other than the obligations to
make payment hereunder to Parent or to the extent that such failure was not
caused by the act or omission of Parent or), any dispute, set-off or
counterclaim (other than disputes, set-offs or counterclaims relating to
Worldwide's payment obligations under this Agreement to the extent that
Worldwide is not prevented from performing its payment obligation by any
restrictions in any of its contractual obligations), any change in the amount,
composition or terms of the assets, liabilities or equity of Worldwide or any
other party to this Agreement, or any other defense or right that Parent has
or may have that might have the effect of releasing Parent from such
obligations (other than performance of such obligations and except as provided
above).
22. Separate Undertaking.
--------------------
<PAGE>
18
Without limiting the generality of any of the foregoing provisions of
this Agreement (but subject to the limitations expressly set forth in
Paragraph 21), Parent irrevocably waives, to the full extent permitted by
applicable law and for the benefit of, and as a separate undertaking with,
Worldwide and its Subsidiaries and their respective assigns, any defense to
the performance of this Agreement which may be available to Parent (i) as a
consequence of this Agreement being rejected or otherwise not assumed by
Worldwide or any Subsidiary of Worldwide or any trustee or other similar
official for any Subsidiary of Worldwide or any trustee or other similar
official for any of them or for any substantial part of their respective
properties, or (ii) as a consequence of this Agreement being otherwise
terminated or modified, in either such clause (i) or clause (ii) in any
proceeding seeking to adjudicate Worldwide a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of Worldwide or the debts of Worldwide under any law
relating to bankruptcy, insolvency or reorganization or relief or debtors,
whether such rejection, non-assumption, termination or modification be by
reason of this Agreement being held to be an executory contract or by reason
of any other circumstance. If this Agreement shall be so rejected or otherwise
not assumed, or so terminated or modified, Parent agrees for the benefit of,
and as a separate undertaking with, Worldwide and its Subsidiaries or their
respective assigns, as the case may be, an amount equal to each payment that
would otherwise be payable by Parent under or in connection with this
Agreement if this Agreement were not so rejected or otherwise not assumed or
were otherwise no so terminated or modified (taking into account any right of
offset or any defenses relating to failures or refusals to perform that Parent
is permitted to assert under Paragraph 21), such amount to be payable to such
person at its office specified in accordance with the instructions of such
person as and when such
<PAGE>
19
payment would otherwise be payable hereunder. Notwithstanding the foregoing,
Parent does not waive any right against Worldwide that it may have in such
proceeding.
23. Liquidated Damages
------------------
If Parent shall at any time and from time to time fail to timely
perform or comply with any of its payment obligations contained in this
Agreement, then in each such case:
(a) it shall be conclusively assumed without necessity of
proof that such failure by Parent was the sole and direct cause of damages
incurred by the payee of such payment irrespective of any other contributing
or intervening cause whatsoever;
(b) Parent agrees that it will be unconditionally liable for
liquidated damages (for loss of a bargain and not as a penalty) for the amount
of such payment not received when so due and payable as well as for all costs
and expenses, if any, including reasonable attorney's fees and expenses,
incurred in enforcing this Agreement; and
(c) Parent further irrevocably waives to the full extent
permitted by applicable law any right or defense Parent may have to cause the
payee to prove the cause of such damages or to mitigate the same, provided
that the party seeking to enforce this Agreement against Parent shall
nevertheless be required to prove that Parent failed to timely perform or
comply with its obligation to make such payment.
24. Covenants of Parent.
-------------------
(a) Reattribution Election. Parent hereby covenants and
agrees that parent will not permit any Subsidiary of Parent to cease to be a
member of the Group unless Parent and such Subsidiary agree that Parent and
such Subsidiary will make any elections required for the Group to retain the
net operating loss carryforwards of such Subsidiary, pursuant to the procedure
set forth in Proposed Treasury Regulation Section 1.1502-20(g)(1) and similar
or successor provision.
<PAGE>
20
(b) Covenant of Parent with Respect to Indemnification.
Parent hereby covenants and agrees that, if Parent is obligated under
Paragraph 8 of this Agreement to indemnify any member of the Worldwide Group,
Parent will cause the Subsidiaries of Parent to pay dividends to it in such
amounts as may be necessary to satisfy such indemnity obligations, provided
that such dividends shall not be required from any Subsidiary of Parent to the
extent that (i) the making of such dividend would cause such Subsidiary to
violate any contractual or governmental restrictions (and Parent agrees to use
reasonable efforts to have any such restrictions waived or otherwise removed,
provided that such efforts shall not cause the imposition on Parent or such
subsidiary of any additional costs or legal or regulatory burdens deemed by
Parent or such Subsidiary to be material), or (ii) such Subsidiary does not
have funds legally available to make such dividend; and
(c) Covenant of Parent with Respect to Subsidiaries of
Parent. Parent hereby covenants and agrees to cause the Subsidiaries of Parent
to enter into agreements with the members of the Worldwide Group under which
any Subsidiary of Parent agrees to pay such member of the Worldwide Group, to
the extent that such payment would not violate any contractual or governmental
restrictions, such Subsidiary's share of the Federal income tax liability of
the Group for which such member of the Worldwide Group becomes liable solely
pursuant to Treasury Regulation Section 1.1502-6. Parent agrees to use
reasonable efforts to have any restrictions on payments by a Subsidiary of
Parent under such agreement waived or otherwise removed, provided that such
efforts shall not cause the imposition on Parent or such Subsidiary of any
additional costs or legal or regulatory burdens deemed by Parent or such
Subsidiary to be material.
25. Governing Law.
-------------
<PAGE>
21
This Agreement shall be governed by the laws applicable to contracts
entered into and to be fully performed within the State of New York by
residents thereof.
26. Termination.
-----------
This Agreement may be terminated at the option of Parent at any time
from and after there has been payment in full in cash of principal of and
interest on all Loans (as defined in the Credit Agreement), all fees and
expenses accrued as of the date of such payment and all other amounts then due
and payable by Worldwide under the Credit Agreement (and none of the
Commitments (as defined in the Credit Agreement) remain in effect).
27. Third Party Beneficiaries.
-------------------------
Parent hereby acknowledges that the Agent and Banks under the Credit
Agreement (or their successors and assigns, as the case may be, for purposes
of this Paragraph 27 the "Lenders") are relying on the provisions hereof in
entering into, and agreeing to extend credit to Worldwide under, the Credit
Agreement, and are intended to be third-party beneficiaries of the provisions
hereof. Each of Parent and Consolidated further acknowledges and agrees that
such Lenders, as third-party beneficiaries hereof, shall have the right and
power to enforce the provisions hereof, in the name and on behalf of Worldwide
and that no amendment to or termination of this Agreement shall be effective
without the written consent of the Majority Banks (as defined in the Credit
Agreement), for so long as any of the Commitments (as defined in the Credit
Agreement) remain in effect and until payment in full in cash of principal of
and interest on all Loans (as defined in the Credit Agreement), all fees and
expenses accrued as of the date of such payment and all other amounts then due
and payable by Worldwide under the Credit Agreement.
<PAGE>
22
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed by its respective duly authorized officer as of the date first set
forth above.
POWER CONTROL TECHNOLOGIES INC.
By: /s/ Glenn Dickes
----------------
MAFCO WORLDWIDE CORPORATION
By: /s/ Glenn Dickes
----------------
Pneumo Abex Corporation hereby agrees that upon consummation of the Merger it
will succeed to Mafco Worldwide Corporation's rights and obligations
hereunder.
PNEUMO ABEX CORPORATION
By: /s/ Glenn Dickes
----------------
<PAGE>
EXHIBIT 22
PNEUMO ABEX CORPORATION
List of Subsidiaries
EVD Holdings Inc. (Delaware)*
Choube Shiren Export Company Ltd. (inactive) (Iran)
Rishmac Produce & Export Co (Iran)
Boam Produce (Europe) Est. (inactive) (Liechtenstein)
Mafco Establishment (Liechtenstein)
Jensen-Kelly Corporation (Delaware)
American Brake Shoe Company (Delaware)
NWL Control Systems, Inc. (Michigan)
Stanray Corporation (Delaware)
NWL Service Corp. (Delaware)
* Subsidiaries of EVD Holdings;
EVD Holdings S.A. (France)
Extraits Vegetaux et Derives S.A. (France)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Peter W. Grace and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the PNEUMO ABEX
CORPORATION (the "Corporation") Annual Report on Form 10-K for the year ended
Decem- ber 31, 1996 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 26th day of March 1997.
/s/ RONALD O. PERELMAN
--------------------------
RONALD O. PERELMAN
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Peter W. Grace and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the PNEUMO ABEX
CORPORATION (the "Corporation") Annual Report on Form 10-K for the year ended
Decem- ber 31, 1996 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 26th day of March 1997.
/s/ THEO W. FOLZ
--------------------------
THEO W. FOLZ
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Peter W. Grace and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the PNEUMO ABEX
CORPORATION (the "Corporation") Annual Report on Form 10-K for the year ended
Decem- ber 31, 1996 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 26th day of March 1997.
/s/ HOWARD GITTIS
--------------------------
HOWARD GITTIS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Pneumo Abex
Corporation's Condensed Consolidated Balance Sheet and Statement of Earnings and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000061113
<NAME> PNEUMO ABEX CORPORATION
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 11
<ALLOWANCES> 0
<INVENTORY> 46
<CURRENT-ASSETS> 63
<PP&E> 29
<DEPRECIATION> 19
<TOTAL-ASSETS> 127
<CURRENT-LIABILITIES> 23
<BONDS> 85
0
0
<COMMON> 0
<OTHER-SE> 58
<TOTAL-LIABILITY-AND-EQUITY> 127
<SALES> 103
<TOTAL-REVENUES> 103
<CGS> 57
<TOTAL-COSTS> 57
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 24
<INCOME-TAX> 9
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> (1)
<CHANGES> 0
<NET-INCOME> 14
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
