<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
July 31, 1995 0-12862
DEP CORPORATION
A DELAWARE CORPORATION 95-2040819
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2101 EAST VIA ARADO
RANCHO DOMINGUEZ, CALIFORNIA 90220
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, (310) 604-0777
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock ($.01 par value)
Class B Common Stock ($.01 par value)
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 requirements for the past 90 days.
Yes X 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 the 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. / /
At October 13, 1995, the aggregate market value of common stock held by
non-affiliates of the registrant was approximately $3,539,945 for non-voting
Class A Common Stock and $4,069,017 for voting Class B Common Stock.
At October 13, 1995, the number of shares of common stock of the registrant
issued and outstanding were 3,117,059 of Class A Common Stock and 3,134,081 of
Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement, which the Registrant
anticipates mailing in November 1995, are incorporated by reference in Part III
of this Report.
Index to Exhibits appears on page 20.
1
<PAGE> 2
PART I
ITEM 1 BUSINESS
Dep Corporation together with its subsidiaries (collectively, the
"Company"), is a personal care products company engaged in developing,
manufacturing, and marketing a wide range of trademarked hair, skin and oral
care products. Hair care includes Dep and L.A. Looks hair styling products,
Lilt home perm products and Agree and Halsa shampoos and conditioners. Skin
care includes Cuticura, Porcelana and Natures Family specialty skin care
products. Topol toothpaste, Lavoris mouthwash, as well as Jordan Magic
toothbrushes, for which the Company is the exclusive U.S. distributor, comprise
oral care. Such products, together with the Company's other trademarked
products, are hereinafter collectively referred to as the "Consumer Products."
The Company also formulates and manufactures a large variety of hair
and skin care products for sale by retailers, distributors and manufacturers
under their own brands. Such products are hereinafter collectively referred to
as the "Private Label" products.
The Consumer Products are generally targeted toward specialty markets
and several of them are among the brand leaders in such markets. The Consumer
Products are sold principally through food, drug and mass merchandise stores.
The following table sets forth the dollar volume and percentage of net
sales attributable to Consumer Products and Private Label during the past three
fiscal years:
<TABLE>
<CAPTION>
Years Ended July 31,
---------------------------------------------------------------------------
(Dollars in thousands)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Consumer Products:
Hair care $ 94,769 74% $100,782 73% $ 80,476 65%
Skin care 16,353 13 13,974 10 15,680 12
Oral care 12,211 10 19,832 15 21,910 18
Other (51) - 343 - 856 1
------- --- ------- --- ------- ---
Total consumer 123,282 97% 134,931 98% 118,922 96%
Private label 4,407 3 3,400 2 4,791 4
------- --- ------- --- ------- ---
Consolidated net sales $127,689 100% $138,331 100% $123,713 100%
======= === ======= === ======= ===
</TABLE>
2
<PAGE> 3
INTERNATIONAL
Consumer Products are marketed and sold internationally principally
through agents, distributors and licensees in over 40 countries, including
Canada, the United Kingdom, Japan, Australia, Mexico, Venezuela, Panama, and
through a joint venture in China.
In fiscal 1995, approximately $19,673,000 or 15.4% of the Company's
consolidated net sales were international, as compared with approximately
$15,275,000 or 11.0%, and $5,860,000 or 4.7%, in 1994 and 1993, respectively.
(See "Note 13 of the Notes to the Consolidated Financial Statements.") The
Company's foreign operations are subject to risks inherent in transactions
involving foreign currencies and fluctuating exchange rates.
From August 6, 1993, until December 31, 1993, Agree products in
Australia and Japan were distributed by licensees and the Company recognized
royalty income equal to a percentage of the licensees' net sales. During the
last seven months of fiscal 1994 and all twelve months of 1995, the Company
sold the Agree products through a distributor and agent, and recognized sales
and cost of sales on these products. In addition, the Company entered into a
joint venture in China, effective November 1993.
MARKETING
The Company markets most of its Consumer Products as high quality,
value-priced products. Its marketing strategies are defined on a
brand-by-brand basis to appeal to the particular consumers being targeted. As
part of this individualized, flexible approach, the Company works directly with
its network of U.S. retailers and international distributors to implement
promotional calendars tailored to the particular needs of each retailer. The
Company schedules such promotions up to twelve months in advance. Management
refers to this flexible, brand-by-brand marketing approach as "guerrilla
marketing," because it aims to maximize the impact of the Company's limited
advertising and marketing resources.
To encourage retailer support for the Consumer Products, the Company
utilizes a variety of marketing techniques, including cooperative advertising,
temporary price reductions, promotional allowances, in-store displays, special
promotional events and free goods. Management believes that a substantial
portion of its promotional allowances are passed on to consumers in the form of
every day low prices ("EDLP"). Management further believes that EDLP has
contributed to the long-term success of L.A. Looks, Dep styling products, and
certain of the Company's other product lines.
To encourage retail sales, the Company utilizes various consumer
marketing techniques at the point of sale. These include providing bonus and
trial sizes, distributing coupons and utilizing packaging intended to
heighten consumer recognition and retail shelf presence. The Company also
utilizes consumer media advertising on selected brands of the Consumer
Products. In recent years the Company has allocated the majority of media
dollars to print advertising which has allowed it to portray a brand image and
teach the consumer as to the benefits of specific products.
3
<PAGE> 4
The Company employs 9 managers who are each responsible for the
marketing of specific product lines. In addition, the Company has created
brand teams comprised of individuals who represent a cross section of the
Company's other departments, including research and development, manufacturing,
purchasing, planning, customer service and finance. These brand teams work
jointly on a product from its inception and are responsible for the product's
development, timely delivery, cost, management and growth. This system is
intended to enhance the Company's ability to meet consumer demand for low cost,
high quality products.
DISTRIBUTION
The Company employs 15 regional sales managers who are primarily
responsible for the Company's 200 largest customers which, as a group,
represent over 75% of the Company's Consumer Products volume. These managers,
in turn, utilize the sales services of more than 40 independent broker
organizations which are paid on a commission basis. These broker organizations
assist the Company's managers in selling the Consumer Products and carrying out
trade promotions.
MANUFACTURING
During fiscal 1995, the Company's facility in Rancho Dominguez,
California performed approximately 85% of the manufacturing and packaging for
Consumer Products sold within the United States or exported, with the remainder
performed by contract manufacturers. (See "Item 2 Property.") This percentage
was 64% in 1994 as the Company did not produce the Agree and Halsa products in
its facility until January 1994. In Australia, the Agree shampoo and
conditioner products continue to be provided by a contract manufacturer, and
products are manufactured in China by the Company's joint venture.
To monitor the quality of its domestic and international products, the
Company maintains a strict internal quality control system supported by a
modern, on-site analytical chemistry and microbiology laboratory. Outside
consultants are also employed from time to time to monitor the effectiveness of
the Company's operations. The Company also maintains product liability
insurance at levels which it believes to be adequate.
All principal raw materials and components used by the Company to
manufacture and package its Consumer Products are generally available from
several suppliers. Over the past five fiscal years, there has been no
substantial increase in the cost of such raw materials and components, taken as
a whole, and the Company does not anticipate any significant shortages of, or
difficulty in obtaining, such materials and components. Backlog orders for the
Company's Consumer Products are generally not significant to its business, as
the Company sells from its inventory and goods are generally shipped promptly
after receipt of orders.
Although industry practice permits retailers to return to
manufacturers non-defective merchandise which the retailers have been unable to
sell, over the past five fiscal years, taken as a whole, the Company has
experienced no significant volume of returns of its products. The Company
generally does not provide any extended payment terms to its customers.
4
<PAGE> 5
RESEARCH AND DEVELOPMENT
The Company engages in a continuous research and development program
for all of the Consumer Products. The Company has developed and manufactured
several hundreds of products in the personal care products field for its
Consumer Products business and its Private Label business. In this process, it
has accumulated a file of more than 800 different formulations of such
products. In management's view, the Company's research and development
experience enhances its ability to respond rapidly to market trends and
introduce new products.
The Company's Scientific Advisory Board consists of industry experts
in dermatology, cosmetic science and oral health who assist the Company with
new product development concepts, as well as assistance with governmental and
regulatory matters. The Company also uses the services of outside consultants,
including privately funded research by major universities, from time to time as
it deems appropriate.
TRADEMARKS
The Company considers the L.A. Looks, Dep, Agree, Halsa, Lilt, Topol,
Lavoris, Natures Family, Porcelana and Cuticura trademarks among its most
important assets. The Company has registered, or has made application for
registration of, these trademarks in the United States and certain other
countries. Formulas for personal care products are typically not patentable.
CUSTOMERS AND COMPETITION
During fiscal 1995, sales to Wal-Mart Stores, Inc. were 16% of
consolidated net sales. Although the Company believes it is unlikely that it
will lose all of such customer's business, the loss of such customer's business
could have a material adverse effect on the Company. No other customer
accounted for more than 10% of consolidated net sales for fiscal 1995. None of
the Company's customers has any contractual obligation to make any purchase
from the Company.
The market for Consumer Products is highly competitive and is
dominated by large multi-national corporations with greater financial and other
resources than the Company. The Company competes with hair, skin and oral care
manufacturers with respect to quality, packaging, marketing and price. (See
"Marketing" above.)
PRIVATE LABEL
The Company also conducts private label and contract packaging
businesses, which consist of formulating and manufacturing a large variety of
hair and skin care products for sale by retailers, distributors and other
manufacturers under their own trademarks. These two businesses are highly
competitive and volume is subject to fluctuation. Private label and contract
packaging net sales averaged less than 5% of consolidated net sales for the
Company's three most recent fiscal years. The Company currently plans to
increase its efforts to increase the volume of such businesses.
5
<PAGE> 6
EMPLOYEES
At July 31, 1995, the Company employed approximately 370 full-time
persons. None of such employees were covered by a collective bargaining
agreement. The Company has never experienced a work stoppage or interruption
due to a labor dispute and believes that its employee relations are
satisfactory.
In February 1995, the Company initiated a plan to reduce operating
expenses. As part of that plan, the Company laid-off approximately 9% of its
non-production work force, reduced the annual base salary of four top executive
officers by 10%, and reduced the salary of its Chairman and President by 15%.
The estimated effect of these actions will be to reduce costs by approximately
$1,200,000 annually. The benefit of such work force and salary reductions in
1995, net of severance costs, approximated $360,000.
The Board of Directors recognized that, as is the case with many
publicly held corporations, the possibility of a change in control of the
Company may exist and that such possibility, and the uncertainty and questions
that it may raise among management, could result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders. The Board decided to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction arising from the possibility of a change in
control by adopting a retention and severance plan for the Company, effective
August 15, 1995.
The Dep Corporation Retention and Severance Plan ("RSP") provides
severance benefits and/or retention bonuses to employees of the Company to
encourage them to remain in the employ of the Company and to assist them in
their transition to subsequent employment. The RSP consists of a Layoff and
Recall Policy for Plant Employees, a Layoff and Recall Policy for Office
Employees, a Change in Control Severance Policy for Non-Exempt Employees and a
Change in Control Severance Policy for Exempt Employees. The RSP is intended
to be and shall be administered as an employee welfare benefit plan under the
Employee Retirement Income Security Act of 1974, as amended.
All full-time employees of the Company are eligible to participate
under the change in control severance policies. In addition, as provided by
the RSP, the Company has entered into individual agreements with certain exempt
employees and other key executives providing them with Change in Control
Executive Severance Agreements and Change in Control Retention Bonus
Agreements. These agreements were approved by the independent, non-management
members of the Company's Board of Directors.
GOVERNMENT REGULATION
The Company is subject to the health and safety, cosmetic and labeling
requirements of the federal Food, Drug and Cosmetic Act and to the labeling
provisions of the federal Fair Packaging and Labeling Act. The Company is also
under the jurisdiction of the Federal Trade Commission with respect to content
of advertising, trade practices and certain other matters. Present government
regulation does not materially restrict or impede the Company's operations.
6
<PAGE> 7
The U.S. Consumer Product Safety Commission has promulgated a final
rule which requires all companies with mouthwash products containing alcohol to
use child-resistant packaging. The Company expects to be in full compliance by
January 24, 1996. The Company has been granted a six-month stay of enforcement
by such agency until such date in order to conduct appropriate protocol
testing.
ITEM 2 PROPERTY
The Company owns its headquarters in Rancho Dominguez, California,
which consist of approximately 180,000 square feet of manufacturing,
warehousing, laboratory and office space. (See "Note 6 of the Notes to
Consolidated Financial Statements.") The Company also warehouses its products
in approximately 145,000 square feet of leased warehouse space in Rancho
Dominguez, as well as in public warehouses situated in Tennessee, New Jersey,
and Toronto, Canada.
ITEM 3 LEGAL PROCEEDINGS
On March 2, 1994, the Company filed a complaint against S.C. Johnson
alleging, among other things, that, in violation of its Purchase Agreement with
the Company, S.C. Johnson wrongfully altered its North American marketing and
sales practices prior to the closing of its sale of the Agree and Halsa
trademarks and certain related assets to the Company in August 1993. The
complaint was filed in the United States District Court in Los Angeles County
and seeks rescission of the transaction, monetary damages in an amount to be
determined, and other relief. The case is currently scheduled to go to trial
on February 23, 1996. In April 1994, S.C. Johnson and a subsidiary filed
related lawsuits in Wisconsin and Ontario, Canada, respectively.
In the opinion of management there are no pending legal proceedings,
including the S.C. Johnson matter discussed above, which will have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
<PAGE> 8
PART II
ITEM 5 MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Class A and Class B Common Stock of the Company is traded on the
Nasdaq Stock Market under the symbols DEPCA and DEPCB, respectively. The
following table sets forth the high and low closing sale prices of the Class A
Common Stock and Class B Common Stock:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CLASS A First Quarter 3 7/8 2 5/8 7 1/2 5 1/4
Second Quarter 3 3/8 2 1/4 6 3/4 5
Third Quarter 2 3/8 1 1/2 5 3/4 2 1/4
Fourth Quarter 3 15/16 4 1/2 2 1/2
CLASS B First Quarter 4 1/4 2 3/4 7 1/4 5 1/2
Second Quarter 3 3/4 2 3/8 6 1/2 5 1/4
Third Quarter 2 7/8 1 5/8 5 3/4 2 9/16
Fourth Quarter 3 1/4 1 1/8 4 3/8 2 1/2
</TABLE>
The closing sales prices per share for the Class A Common Stock and
Class B Common Stock on October 13, 1995, were $1 3/4 and $1 7/8, respectively.
On October 13, 1995, there were a total of 140 and 161 record holders of Class
A Common Stock and Class B Common Stock, respectively.
Since its formation the Company has not paid cash dividends on its
common stock and it does not currently anticipate paying such dividends. The
Company's current policy is to retain earnings to provide funds for the
operation and expansion of the Company's business. In addition, the Company's
Bank Facility presently prohibits, among other things, the payment of any
dividend or other distribution of assets, properties or cash in respect of any
class of capital stock. (See "Note 6 of the Notes to Consolidated Financial
Statements.")
In January 1995 the Nasdaq Stock Market, Inc. ("NASDAQ") granted the
Company an exception, until October 31, 1995, to the requirement that an issuer
have minimum net tangible assets of $1,000,000 for continued inclusion on the
National Market System ("NMS"). The NMS definition of net tangible assets
excludes the values assigned to goodwill. In granting the exception, NASDAQ
noted that the Company's situation is not unlike accounting treatments afforded
other public companies in its industry in which goodwill and depreciation
methods cause technical noncompliance with listing standards.
8
<PAGE> 9
As of July 31, 1995, the Company's net tangible assets, as defined by
NASDAQ, were a negative $6,067,000. The Company requested an extension of the
NASDAQ exception, but on October 25, 1995, the Company was advised by NASDAQ's
Listing Qualifications Committee that its request for an extension of the
exception was denied. Since the Company will not be in compliance with all
criteria necessary for continued NMS listing on or before October 31, 1995, the
Company's securities will be eligible to be moved to the NASDAQ Small Cap
Market, effective November 2, 1995.
On November 15, 1994, Continental Stock Transfer & Trust Company
became the Company's Registrar and Transfer Agent.
9
<PAGE> 10
ITEM 6 SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales............................................. $127,689 $138,331 $123,713 $120,273 $106,041
Gross profit.......................................... 80,194 87,646 78,666 76,870 66,906
Operating expenses ................................... 78,728 88,525 74,388 64,613 57,222
Income (loss) from operations before write-downs...... 1,466 (879) 4,278 12,257 9,684
Write-down in assets.................................. 25,166 - 1,003 - -
Income (loss) from operations ........................ (23,700) (879) 3,275 12,257 9,684
Other expense, primarily interest..................... 6,123 4,494 1,706 2,184 2,723
Income (loss) before income taxes (credit) and
extraordinary item ................................. (29,823) (5,373) 1,569 10,073 6,961
Extraordinary item (1)................................ - - - - 752
Net income (loss)..................................... $(26,958) $ (3,583) $ 1,170 $ 5,963 $ 4,832
Fully diluted net income (loss) per share:
Income (loss) before extraordinary item .............. $ (4.32) $ (0.57) $ 0.18 $ 0.95 $ 0.68
Extraordinary item (1)................................ - - - - 0.12
Net income (loss) .................................... $ (4.32) $ (0.57) $ 0.18 $ 0.95 $ 0.80
</TABLE>
<TABLE>
<CAPTION>
July 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficiency).......................... $(35,682) $ 20,416 $ 23,587 $ 20,090 $ 13,297
Total assets.......................................... 93,904 122,095 78,629 76,176 74,229
Long-term debt, net of current portion................ 3,744 60,974 19,557 18,198 26,698
Stockholders' equity.................................. 11,227 38,155 41,640 40,654 28,962
Shares outstanding ................................... 6,245 6,231 6,223 6,221 5,686
</TABLE>
(1) 1991 includes gains from retirement of debt.
10
<PAGE> 11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Consolidated net sales for 1995 were $127,689,000 compared to
$138,331,000 in 1994. Consumer Products net sales in 1995 decreased by 9%
compared to 1994. Consumer Products accounted for 97% and 98% of the
consolidated net sales for 1995 and 1994, respectively.
Hair care net sales decreased 6% in 1995, principally due to lower
sales of Agree and Halsa. Aggregate net sales of Agree and Halsa were
approximately $26,800,000 in 1995, or 25% lower than the prior year. Hair care
net sales, excluding Agree and Halsa, increased 4% in 1995, compared to 1994,
primarily as a result of double digit domestic unit volume growth in both the
L.A. Looks styling and Dep gel product lines, offset in part by declines in
Lilt and hair care products which were discontinued in 1994.
Skin care net sales increased 17% in 1995 over the prior year
primarily as a result of unit growth in the Natures Family brand.
Oral care net sales for 1995 decreased by 38% compared to 1994.
Although net sales of all oral care brands declined, Lavoris mouthwash and
Jordan toothbrushes accounted for approximately 80% of such decline. Oral care
brands were adversely impacted by intense competition and new product
introductions by competitors. Crystal Fresh Lavoris and Jordan toothbrushes
are selling at minimal levels compared to the prior year and no longer
represent a significant component of oral care sales.
Domestic net sales of Consumer Products decreased 13% in 1995, again,
primarily as a result of the decline in the net sales of Agree and Halsa. In
1995, domestic net sales of Agree and Halsa were approximately $15,600,000, or
42% lower than 1994. Such decline was offset, in part, by sales growth of the
L.A. Looks styling and Dep gel products. Domestic net sales of hair care
products, excluding Agree and Halsa, increased 2% in 1995, compared to the
prior year. Also contributing to the decrease in domestic net sales of Consumer
Products was a 41% decline in oral care in 1995 as compared to 1994, for the
same reasons described in the preceding paragraph.
International net sales of Consumer Products in 1995 increased 29%
compared to 1994 primarily due to an increase in Agree sales in Japan and
Australia. From August 6, 1993 until December 31, 1993, Agree products in Japan
and Australia were distributed by licensees and the Company received only
royalty payments equal to a percentage of the licensees' net sales. During the
last seven months of fiscal 1994 and all twelve months of 1995, the Company
sold the Agree products through a distributor and agent, and recognized sales
and cost of sales on those products. In addition, the Company entered into a
joint venture in China, effective November 1993.
11
<PAGE> 12
Gross profits for 1995 were $80,194,000, compared to $87,646,000 in
1994. As a percentage of net sales, gross profit for both 1995 and 1994 was
63%. The gross profit percentage in the current period was somewhat lower than
historic rates due to a lower proportion of sales of higher margin products,
while in 1994 gross profit was adversely impacted by a provision for packaging
changeover costs. In dollar terms gross profit in 1995 declined as a result of
lower sales volume.
In 1995, selling, general and administrative expenses ("SG&A")
decreased to $78,728,000 or 62% of net sales from $88,525,000 or 64% in the
prior year. The decrease in SG&A, as a percentage of sales, was primarily due
to a decrease in advertising and consumer promotion expense. The dollar
decrease in SG&A relates to the impact of lower net sales on variable expenses
and lower advertising and consumer promotional expense.
For 1995, SG&A was also favorably impacted by the higher proportion of
international sales, as such sales typically incur lower SG&A expense than
domestic sales. International operations include export sales, where third
party distributors generally incur the advertising and promotional
expenditures, and royalty income where there are no related selling costs
recorded by the Company.
In February 1995, the Company initiated a plan to reduce operating
expenses. As part of that plan, the Company laid-off approximately 9% of its
non-production work force, reduced the annual base salary of four top executive
officers by 10%, and reduced the salary of its Chairman and President by 15%.
The estimated effect of these actions will be to reduce costs by approximately
$1,200,000 annually. The benefit of such work force and salary reductions in
1995, net of severance costs, approximated $360,000.
During the third quarter of fiscal 1995, the Company determined that
in light of the significant declines in the sales volume and profit
contribution of the Agree and Halsa products since their acquisition in August
1993, there had been an impairment in the carrying value of the Agree and Halsa
intangible assets. Based on the results of an independent valuation, the
Company concluded that the fair value of the intangible assets of Agree and
Halsa was approximately $12,500,000, requiring a write-down in the carrying
value of the intangibles of $24,718,000. Such write-down was included in
operations for 1995. In addition, due to the repackaging and restaging of such
products, the Company also wrote-off tools and molds of $448,000.
For 1995, net other expenses were $6,123,000 as compared to $4,494,000
in 1994. The increased expense was due to higher interest expense which
resulted from a higher effective interest rate during the current year.
The Company recorded a tax benefit of $2,865,000 for 1995 and
$1,790,000 for 1994. In accordance with generally accepted accounting
principles, the tax benefit of the write-down of the Agree and Halsa
intangibles in 1995 was limited to that currently realizable. The tax benefit
for 1994 was offset in part by the effect of intangible amortization expense
included in financial income, but not deductible for tax purposes. (See "Note
7 of the Notes to Consolidated Financial Statements.")
12
<PAGE> 13
For 1995, the Company recorded a net loss of $26,958,000 or $4.32 per
share, compared to a net loss of $3,583,000 or $.57 per share in 1994. The
loss in 1995 was primarily due to the $24,072,000 after-tax write-down of the
Agree and Halsa assets, lower net sales, higher interest expense and a lower
tax benefit. Excluding the write-down of the Agree and Halsa assets, the
Company's operations for 1995 resulted in a net loss of $2,886,000 or $.47 per
share.
FISCAL 1994 COMPARED TO FISCAL 1993
Consolidated net sales for 1994 increased to $138,331,000, compared to
$123,713,000 in 1993. In 1994 the Company's Consumer Products net sales grew
13% over 1993, entirely as a result of unit volume growth resulting from the
acquisition of the Agree and Halsa trademarks in August 1993, but this growth
was slightly offset by a decrease in net sales of Private Label products.
Consumer Products accounted for 98% and 96% of the consolidated net sales for
1994 and 1993, respectively.
In 1994, net sales of domestic Consumer Products increased 6% and net
sales of international Consumer Products increased 161%. The increase in
international net sales arose primarily from sales of Agree products in
Australia and Japan. From the acquisition date until December 31, 1993, such
products were distributed by licensees and the Company received royalty
payments equal to a percentage of the licensees' net sales. Thereafter, the
Company sold such products through a distributor and agent, and recognized the
related revenues. In addition, international net sales also benefitted from
sales in Canada of Agree and Halsa, and the commencement of a joint venture in
China, effective November 1993. International net sales for 1994 represented
approximately 11% of total consolidated net sales, compared to 5% for 1993.
In 1994, hair care represented 75% of total Consumer Products net
sales compared to 68% in 1993. Hair care sales in 1994 increased 25% to
$100,782,000 compared to $80,476,000 in 1993. The increase in hair care sales
was the result of unit volume growth arising from the acquisition of the Agree
and Halsa shampoo and conditioner trademarks, with such sales approximating $36
million. This increase was offset in part by declines of the Company's other
hair care brands, including approximately $7,500,000 of sales primarily
relating to the discontinuance of the Dep brand of shampoos and conditioners
and the domestic non-gel Dep styling products. Fiscal 1994 sales were further
adversely impacted due to the continued effects of stringent domestic retailer
inventory reductions, the highly competitive business environment, and the
substantial efforts devoted to integrating Agree and Halsa into the Company's
operations.
Net sales of oral care products in 1994 were $19,832,000, or 9% lower
than the $21,910,000 of 1993. The lower volume primarily resulted from the
absence in 1994 of the non-recurring sales of Crystal Fresh Lavoris introduced
in 1993. The oral care sales decrease was offset in part by sales of Jordan
Magic toothbrushes and TopolPLUS whitening toothpaste. In 1994, skin care net
sales were $13,974,000 compared to $15,680,000 for 1993. The lower skin care
sales in 1994 were the result of lower unit sales of the Company's three skin
care brands.
13
<PAGE> 14
Gross profits for 1994 were $87,646,000 as compared to $78,666,000 for
the prior year. As a percentage of net sales, gross profits were 63% and 64%
for the current and prior years, respectively. The decrease in gross profit
percentage in 1994 was principally the result of a provision for packaging
inventory obsolescence. Such additional cost was offset, in part, by sales of
new products, principally, Agree, Jordan Magic toothbrushes, and TopolPLUS,
whose individual gross profit margins were greater than the Company's average.
In 1994, SG&A expenses increased to $88,525,000 or 64% of net sales,
compared to $74,388,000 or 60% in 1993. The higher SG&A percentage in the
current year was primarily due to increased advertising and promotional
expenses in response to the highly competitive business environment, and
increased amortization expenses due to the Agree and Halsa intangibles acquired
in 1994.
Fiscal 1993 also included a $1,003,000 charge against income relating
to the discontinuance and write-down of the DietAyds and Bantron intangibles,
the Company's two smallest brands. No similar charge occurred in 1994.
Net other expenses increased to $4,494,000 compared to $1,706,000 in
the prior year. The increase was primarily due to higher interest expense
resulting from the Agree and Halsa acquisition. In addition, 1993 included a
non-recurring charge of $365,000 related to the Company's reclassification of
its common stock.
In 1994, due to the loss before income taxes, the Company recorded a
tax credit utilizing an effective tax rate of 33%, compared to a tax expense in
1993 at an effective tax rate of 25%. The tax benefit for the current period
was offset in part by the effect of intangible amortization expense included in
financial income, but not deductible for tax purposes. The low effective tax
rate of 1993 resulted from the tax benefit arising from the write-down of the
DietAyds and Bantron trademarks and goodwill.
The Company recorded a net loss of $3,583,000 or $.57 per share in
1994, compared to net income of $1,170,000 or $.18 per share in the prior year.
The net loss was principally due to lower than anticipated sales of the Agree
and Halsa brands, higher interest and amortization expense related to the
acquisition and higher advertising and promotional expenses.
LIQUIDITY AND CAPITAL RESOURCES
By its terms, the Company's Revolving Credit and Term Loan Agreement
dated as of August 6, 1993, as amended (the "Bank Facility"), between the
Company and a group of seven banks (the "Bank Group") obliges the Company to
comply with certain financial covenants. As a result of the 1995 operating
loss, the Company would not have been in compliance with certain of such
covenants had the Bank Group not granted waivers of such technical defaults
through October 31, 1995.
The Company and the Bank Group have reached an agreement in principle
for a fifth amendment to the Bank Facility effective as of October 30, 1995,
(the "Agreement in Principle") which provides, among other things, for the
termination of the Bank Facility on December 30,
14
<PAGE> 15
1996, a decrease in the working capital commitment to $25,000,000 from
$28,000,000, an increase in interest rates and lower quarterly scheduled term
loan payments through April 1, 1996. The $9,567,000 payment originally due on
December 29, 1995, has been reduced to $500,000 and a principal payment of
$8,300,000 will now be due on April 15, 1996. (See "Note 6 of the Notes to
Consolidated Financial Statements.") The interest rate under the Agreement in
Principle for the period October 1, 1995 through June 30, 1996 will be base
rate plus 3%; July 1, 1996 through September 30, 1996, base rate plus 4%; and
thereafter base rate plus 5%. As of July 31, 1995, the base rate was 8 3/4%.
Since the inception of the Bank Facility in August 1993, the Company
has consistently made timely payment to the Bank Group of all principal and
interest due under the Bank Facility. In light of the Company's current
projected earnings and cash flow, management believes the Company has the
financial resources to maintain its current level of operations until the April
15, 1996 principal payment is due under the Agreement in Principle. However,
cash generated from operations alone will not be sufficient to pay the
$8,300,000 on April 15, 1996, or the balance due on December 30, 1996. As a
result, the Company is evaluating alternatives which, if successful, would
result in the payment, the refinancing, or the restructuring of the Bank
Facility. The Company has retained legal counsel specializing in
restructurings to render advice regarding alternatives available to the
Company. In addition, the Company has retained Donaldson, Lufkin & Jenrette
Securities Corporation to assist it in exploring strategic alternatives which
include, among other things, a business combination, sale of assets, strategic
investment in the Company or a refinancing of the Bank Facility. There can be
no assurance that the Company will be successful in its attempt to consummate
any of the strategic alternatives or a refinancing of the Bank Facility.
All amounts due under the Bank Facility, including the
balance due on December 30, 1996, have been classified as current debt. Due to
the reclassification of $48,919,000 of the outstanding balance of the Bank
Facility as current debt, as of July 31, 1995, the Company had a working
capital deficiency of $35,682,000. Working capital was also impacted by
decreases in income taxes receivable and other assets offset, in part, by an
increase in accounts receivable. The decrease in income taxes receivable
relates to a lower pre-tax loss, excluding the write-off of assets in 1995,
while the decrease in other assets primarily relates to a reduction in prepaid
advertising and promotion costs at July 31, 1995. The increase in accounts
receivable primarily relates to the increased proportion of international
sales, which sales have longer payment terms than the domestic business.
Substantially all of the Company's assets not otherwise pledged as
collateral on existing mortgages are pledged as collateral under the Bank
Facility. Furthermore, the Company's ability to borrow additional funds from
third parties is significantly limited by the terms of the Bank Facility.
As of October 20, 1995, the Company had cash and cash equivalents
totalling approximately $5,300,000.
In 1995, purchases of property and equipment totalled $716,000
compared to $1,643,000 in 1994.
15
<PAGE> 16
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORTS
Independent Auditors' report with respect to financial statements and
schedule.
FINANCIAL STATEMENTS
Consolidated Balance Sheets at July 31, 1995 and 1994
Consolidated Statements of Income for Years Ended
July 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for Years
Ended July 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for Years Ended
July 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
SCHEDULE
Schedule II - Valuation and Qualifying Accounts and Reserves
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
16
<PAGE> 17
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the Company's current executive officers, based
on data furnished by them, is set forth below:
<TABLE>
<CAPTION>
Name Age Position
- ------------------ --- --------------------------------------
<S> <C> <C>
Robert Berglass 57 Chairman of the Board;
President; Director
Grant W. Johnson 51 Senior Vice President; Chief Financial
Officer; Director
Jerome P. Alpin 58 Senior Vice President,
and General Manager,
International Sales and Marketing
R. Eugene Biber 47 Senior Vice President, Operations
Judith R. Berglass 43 Senior Vice President, Corporate
Secretary; Director
Steve Berry 48 Vice President, Sales
D. Lee Johnson 47 Vice President, Administration and
Investor Relations
John G. Petersen 37 Vice President and Controller
</TABLE>
Robert Berglass has served as President of the Company since 1969 and
has been Chairman of the Board of Directors since 1971. Immediately prior to
joining the Company, he was a Vice President of Faberge, Inc. He has more than
35 years of experience in the personal care products industry.
Grant W. Johnson, the Company's Senior Vice President, Finance, since
July 1995 has served as the Company's Chief Financial Officer since 1985 and as
a director since 1986. For approximately eight years preceding his joining the
Company, he was Vice President, Finance, of Vidal Sassoon, Inc. Mr. Johnson, a
certified public accountant, also has seven years of experience with Deloitte &
Touche.
17
<PAGE> 18
Jerome P. Alpin is the Company's Senior Vice President, General
Manager for International, Sales and Marketing. From June 1982 through July
1993, he was its Senior Vice President, Sales and Marketing. He has more than
27 years of experience in sales and marketing of consumer products, including
positions with Bristol-Meyers Co., Faberge, Inc., and Revlon, Inc., prior to
joining the Company.
R. Eugene Biber, Senior Vice President, Operations since July 1995,
has served as the Company's Vice President, Operations since 1988. Prior
thereto, he has thirteen years of operations experience with The Procter &
Gamble Company, Vidal Sassoon, Inc. and Richardson Vicks, Inc.
Judith R. Berglass, the Company's Senior Vice President since July
1995, has served as its Vice President since 1983, and has served as its Vice
President, Corporate Development since 1984. She has been a director since
1985 and since 1986 has also served as Secretary. For the three years prior to
joining the Company, she was Vice President of CLF Associates, a management
consulting firm. She is the wife of the President.
Steve Berry, the Company's Vice President of Sales for domestic
consumer products since July 1995, was its Director of Sales from November 1993
through June 1995. He also held various managerial positions within the
domestic sales department from September 1983. Mr. Berry has over fourteen
years of experience in the sales and marketing of consumer products.
D. Lee Johnson is the Company's Vice President of Administration and
Investor Relations since October 1994. Prior thereto he was with Gibson, Dunn
& Crutcher for four years where his last capacity was Chief Financial Officer.
Mr. Johnson, a certified public accountant, also has 18 years with The Dial
Corporation, and last served as Vice President Planning and Development.
John G. Petersen, the Company's Vice President and Controller since
July 1995, was its Controller from February 1990 through June 1995. For
approximately seven years preceding his joining the Company, he held various
managerial positions and last served as Corporate Controller of L.H. Research,
Inc. Mr. Petersen is a certified public accountant with three years experience
with Deloitte & Touche.
All officers serve at the discretion of the Board of Directors.
Information pertaining to the Company's directors is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 11 EXECUTIVE COMPENSATION
Information pertaining to executive compensation is incorporated
herein by reference to the Proxy Statement.
18
<PAGE> 19
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information pertaining to security ownership is incorporated herein by
reference to the Proxy Statement.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information pertaining to certain relationships and related
transactions is incorporated herein by reference to the Proxy Statement.
19
<PAGE> 20
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Schedules and Exhibits.
1. The financial statements listed in Item 8 above are
incorporated herein by this reference.
2. The financial schedule listed in Item 8 above is incorporated
herein by this reference. Schedule I is not listed because it
is not required.
<TABLE>
<CAPTION>
3. Exhibit Sequential
Number Title Page Number
------- ----- -----------
<S> <C> <C>
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment (2)
3.3 Bylaws (9)
3.4 Certificate of Amendment to the Certificate
of Incorporation (10)
3.5 Bylaws (10)
4.1 Form of Common Stock Certificates (6)
10.1 Profit Sharing Plan for Employees of
Dep Corporation as of August 1, 1989 (4)
10.2 1983 Stock Option Plan, as amended (3) *
10.3 1988 Director and Officer Stock Option
Plan, as amended (3) *
10.4 1992 Stock Option Plan (6) *
10.5 Stock Target Ownership Plan (9) *
10.6 Fiscal Year 1995 Bonus Arrangement for 45
Certain Executive Officers *
10.7 Lease Agreement relating to the Company's
California warehouse (3)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit Sequential
Number Title Page Number
------- ----- -----------
<S> <C> <C>
10.8 Dep Corporation Executive Deferral Plan (3) *
10.9 401(k) Plan for Employees of Dep Corporation (6) *
10.10 Asset Purchase Agreement, dated as of July 9,
1993, between S.C. Johnson & Son, Inc.
and the Company (5)
10.11 Revolving Credit and Term Loan Agreement, dated
as of August 6, 1993, among the Company as
borrower, The First National Bank of Boston
and City National Bank, as co-agents and
Citicorp USA, Inc. as agent. (5)
10.12 Waiver and Amendment, dated as of March 17,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (7)
10.13 Waiver and Amendment, dated as of May 27,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (7)
10.14 Waiver and Amendment, dated as of August 26,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (8)
10.15 Fourth Amendment, dated as of September 9,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (8)
10.16 Form of Officers and Directors Indemnification
Agreement. (10)
10.17 Waiver, dated as of September 29, 1995, of the 46-53
Revolving Credit and Term Loan Agreement,
dated as of August 6, 1993.
10.18 Dep Corporation Retention and Severance Plan * 54-68
10.19 Form Change in Control Executive Severance Agreement * 69-80
10.20 Form Change in Control Executive Retention 81-83
Bonus Agreement *
11 Computation of Per Share Earnings 84
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Sequential
Number Title Page Number
------- ----- -----------
<S> <C> <C>
21.1 Subsidiaries (9)
23.1 Consent of Independent Auditors' 85
27 Financial Data Schedule 86-88
</TABLE>
(1) Incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1988.
(2) Incorporated by reference to Exhibit 4 to the Company's
Current Report on Form 8-K filed on December 15, 1992.
(3) Incorporated by reference to Exhibits 10.2, 10.3, 10.7 and
10.8 to the Company's Annual Report on Form 10-K for the year
ended July 31, 1992.
(4) Incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1990.
(5) Incorporated by reference to Exhibits 2.1 and 10.9 to the
Company's Current Report on Form 8-K filed on August 6, 1993.
(6) Incorporated by reference to Exhibits 4.1, 10.4 and 10.9 to
the Company's Annual Report on Form 10-K for the year ended
July 31, 1993.
(7) Incorporated by reference to Exhibits to the Company's Current
Report on Form 8-K filed on May 27, 1994.
(8) Incorporated by reference to Exhibits to the Company's Current
Report on Form 8-K filed on September 14, 1994.
(9) Incorporated by reference to Exhibits 3.3, 10.5 and 21.1 to
the Company's Annual Report on Form 10-K for the year ended
July 31, 1994.
(10) Incorporated by reference to Exhibits to the Company's Current
Report on Form 8-K filed on January 16, 1995.
* Management contract or compensatory plan.
(b) Reports on Form 8-K.
None.
22
<PAGE> 23
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, thereunto duly authorized.
October 25, 1995 DEP CORPORATION
By /s/Robert Berglass
---------------------------------
Robert Berglass, President
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, in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Robert Berglass Chairman of the Board and President October 25, 1995
- --------------------- (Principal Executive Officer)
Robert Berglass
/s/Grant W. Johnson Senior Vice President and October 25, 1995
- --------------------- Chief Financial Officer and
Grant W. Johnson Director, (Principal Financial
and Accounting Officer)
/s/Judith R. Berglass Senior Vice President October 25, 1995
- --------------------- Corporate Development
Judith R. Berglass Secretary and Director
/s/Alexander L. Kyman Director October 25, 1995
- ---------------------
Alexander L. Kyman
/s/Michael Leiner Director October 25, 1995
- ---------------------
Michael Leiner
/s/Philip I. Wilber Director October 25, 1995
- ---------------------
Philip I. Wilber
</TABLE>
23
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dep Corporation
Rancho Dominguez, California
We have audited the accompanying consolidated balance sheets of Dep Corporation
and subsidiaries as of July 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended July 31, 1995. In connection with our audits of
the consolidated financial statements, we have also audited the financial
statement schedule listed in Item 8. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement 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 financial position of Dep Corporation and
subsidiaries as of July 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended July
31, 1995, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 6 to
the consolidated financial statements, the Company was in technical default of
certain financial covenants in connection with its bank facility which have
been waived by the lenders through October 31, 1995. As more fully discussed
in Note 6 to the consolidated financial statements, the Company and the lenders
who are a party to the bank facility have reached an agreement in principle to
amend the maturity dates of amounts outstanding under the bank facility and to
modify the financial covenants. In addition, as revised by the recent
agreement in principle, the Company has a mandatory payment of $8,300,000 due
on April 15, 1996. Based on current estimates of available cash flow,
management does not believe it will have sufficient cash to make the mandatory
payment. Accordingly, the entire amount outstanding under the bank facility of
$60,969,000 has been classified as a current liability in the accompanying
consolidated financial statements. Management's plans in regard to these
matters are described in Note 16 to the consolidated financial statements.
These matters raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Long Beach, California
September 21, 1995, except for Notes 6
and 16, which date is October 30, 1995
24
<PAGE> 25
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31,
----------------------------
Assets 1995 1994
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 4,611,000 $ 947,000
Accounts receivable, less allowance for doubtful accounts
of $478,000 in 1995 and $262,000 in 1994...................... 18,811,000 16,769,000
Inventories ....................................................... 13,071,000 13,956,000
Income taxes receivable............................................ 1,779,000 3,180,000
Deferred income taxes.............................................. 188,000 539,000
Other current assets .............................................. 2,275,000 3,606,000
----------- ------------
Total current assets............................................. 40,735,000 38,997,000
Property and equipment, net.......................................... 15,423,000 17,211,000
Intangibles, net..................................................... 34,156,000 62,015,000
Other assets......................................................... 3,590,000 3,872,000
----------- ------------
$93,904,000 $122,095,000
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt.................................. $61,100,000 $ 3,828,000
Accrued expenses................................................... 7,920,000 7,719,000
Accounts payable .................................................. 7,397,000 7,034,000
----------- ------------
Total current liabilities........................................ 76,417,000 18,581,000
Long-term debt, net of current portion............................... 3,744,000 60,974,000
Deferred income taxes................................................ - 1,252,000
Other non-current liabilities........................................ 2,516,000 3,133,000
----------- ------------
Total liabilities................................................ 82,677,000 83,940,000
Stockholders' equity:
Preferred stock, par value $.01; authorized
3,000,000 shares; none outstanding............................ - -
Class A common stock, par value $.01; authorized 14,000,000
shares; issued and outstanding 3,232,559 at July 31, 1995
and 3,231,203 at July 31, 1994............................... 32,000 32,000
Class B common stock, par value $.01; authorized 7,000,000
shares; issued and outstanding 3,243,340 at July 31, 1995
and 3,231,201 at July 31, 1994............................... 32,000 32,000
Additional paid-in capital......................................... 12,126,000 12,137,000
Retained earnings.................................................. 215,000 27,173,000
Foreign currency translation adjustment............................ (173,000) (214,000)
----------- ------------
12,232,000 39,160,000
Less treasury stock, at cost, 115,500 shares each of Class A
and Class B common stock......................................... (1,005,000) (1,005,000)
----------- ------------
Total stockholders' equity....................................... 11,227,000 38,155,000
----------- ------------
$93,904,000 $122,095,000
=========== ============
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
25
<PAGE> 26
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales..................................... $127,689,000 $138,331,000 $123,713,000
Cost of sales................................. 47,495,000 50,685,000 45,047,000
------------ ------------ ------------
Gross profit.................................. 80,194,000 87,646,000 78,666,000
Selling, general and administrative........... 78,728,000 88,525,000 74,388,000
Write-down in value of assets................. 25,166,000 - 1,003,000
------------ ------------ ------------
Income (loss) from operations................. (23,700,000) (879,000) 3,275,000
Other expenses (income):
Interest expense, net....................... 6,177,000 4,578,000 1,268,000
Other....................................... (54,000) (84,000) 438,000
------------ ------------ ------------
6,123,000 4,494,000 1,706,000
------------ ------------ ------------
Income (loss) before income taxes (credit).... (29,823,000) (5,373,000) 1,569,000
Income taxes (credit)......................... (2,865,000) (1,790,000) 399,000
------------ ------------ ------------
Net income (loss) ............................ $(26,958,000) $ (3,583,000) $ 1,170,000
============ ============ ============
Net income (loss) per share.................. $ (4.32) $ (.57) $ .18
============ ============ ============
Weighted average shares outstanding.......... 6,244,106 6,250,239 6,367,082
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
26
<PAGE> 27
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
FOREIGN
CLASS A CLASS B ADDITIONAL CURRENCY TREASURY
COMMON COMMON COMMON PAID-IN RETAINED TRANSLATION STOCK, AT COST
STOCK STOCK STOCK CAPITAL EARNINGS ADJUSTMENT (CLASS A &B)
-------- ------- ------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1992 $ 65,000 $ - $ - $12,046,000 $ 29,586,000 $ (38,000) $(1,005,000)
Cumulative translation adjustment (184,000)
Reclassification (65,000) 32,000 32,000 1,000
Net income for the year 1,170,000
-------- ------- ------- ----------- ------------ --------- -----------
Balance at July 31, 1993 - 32,000 32,000 12,047,000 30,756,000 $(260,000) (1,005,000)
Cumulative translation adjustment 8,000
Issuance of stock 90,000
Net loss for the year (3,583,000)
-------- ------- ------- ----------- ------------ --------- -----------
Balance at July 31, 1994 - 32,000 32,000 12,137,000 27,173,000 (214,000) (1,005,000)
Cumulative translation adjustment 41,000
Adjustment to stock issuance (11,000)
Net loss for the year (26,958,000)
-------- ------- ------- ----------- ------------ --------- -----------
Balance at July 31, 1995 $ - $32,000 $32,000 $12,126,000 $ 215,000 $(173,000) $(1,005,000)
-------- ------- ------- ----------- ------------ --------- -----------
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
27
<PAGE> 28
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)........................................... $(26,958,000) $ (3,583,000) $ 1,170,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization........................... 5,507,000 5,571,000 3,216,000
Write-down in value of assets........................... 25,166,000 - 1,003,000
Provision for losses on accounts receivable............. 504,000 31,000 75,000
Deferred income taxes .................................. (1,783,000) 342,000 1,025,000
Loss on sale of assets.................................. 90,000 89,000 205,000
Changes in operating assets and liabilities, net of
effects from the acquisition:
Accounts receivable .................................... (2,540,000) 395,000 (2,345,000)
Inventories ............................................ 894,000 521,000 2,153,000
Income taxes receivable................................. 1,401,000 (818,000) (2,364,000)
Other assets............................................ 1,331,000 (1,523,000) (680,000)
Accrued expenses........................................ 701,000 (1,260,000) (943,000)
Accounts payable........................................ 370,000 1,397,000 378,000
Income taxes payable.................................... - - (334,000)
------------ ------------ -----------
Net cash provided by operating activities................... 4,683,000 1,162,000 2,559,000
Investing Activities:
Purchases of property and equipment..................... (716,000) (1,643,000) (3,643,000)
Acquisition of trademarks............................... (200,000) (45,746,000) -
Proceeds from sale of property and equipment............ - 21,000 62,000
Proceeds from sale of trademarks........................ 435,000 1,642,000 -
Other .................................................. (112,000) (658,000) (740,000)
------------ ------------ -----------
Net cash used in investing activities....................... (593,000) (46,384,000) (4,321,000)
Financing Activities:
Proceeds from lines of credit and long-term debt........ 42,000 45,120,000 1,326,000
Other................................................... (487,000) - -
------------ ------------ -----------
Net cash provided by (used in) financing activities......... (445,000) 45,120,000 1,326,000
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents............ 3,645,000 (102,000) (436,000)
Effect of exchange rate changes on cash..................... 19,000 (13,000) (56,000)
Cash and cash equivalents at beginning of year.............. 947,000 1,062,000 1,554,000
------------ ------------ -----------
Cash and cash equivalents at end of year.................... $ 4,611,000 $ 947,000 $ 1,062,000
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net........................................... $ 6,357,000 $ 4,446,000 $ 1,226,000
============ ============ ===========
Income taxes (refunds).................................. $ (2,546,000) $(1,189,000) $ 1,996,000
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
28
<PAGE> 29
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Company
The Company develops, manufactures, distributes and markets hair,
skin, oral and other personal care products. The Company's
products are primarily sold by drug, food and mass merchandise
stores.
Principles of consolidation
The consolidated financial statements include the accounts of Dep
Corporation, its wholly-owned subsidiaries and joint venture. All
significant intercompany balances and transactions have been
eliminated.
Foreign currency translation
All assets and liabilities in the balance sheets of foreign
subsidiaries whose functional currency is other than the U.S.
dollar are translated at year-end exchange rates. Translation
gains and losses are not included in determining net income but
are accumulated in a separate component of stockholders' equity.
Foreign currency transaction gains and losses generally are
included in determining net income.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
Property and equipment
Property and equipment is stated at cost. Depreciation is
provided by the use of the straight-line method for financial
accounting purposes, while accelerated methods are used for income
tax purposes.
Recognition of revenues and expenses
Revenues from the sale of the Company's products are recognized at
the time of shipment. Related promotional allowances granted to
retailers are recognized at the time of sale. Certain trade and
consumer promotion costs included in selling, general and
administrative expenses in the consolidated statements of income
are accrued monthly.
29
<PAGE> 30
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
Impairment Accounting
In fiscal 1995 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be
Disposed Of" ("FASB 121"). The adoption of FASB 121 had no
material impact on the impairment write-down of the Agree and
Halsa assets described herein.
Intangibles
Intangible assets consist primarily of goodwill, trademarks,
non-compete agreements and customer lists and are carried at cost
less accumulated amortization. The Company assesses the
recoverability of these intangible assets by determining whether
the amortization of the balance over their remaining life can be
recovered through undiscounted future operating cash flows of the
acquired assets. Costs are amortized over the estimated useful
lives of the related assets (5 - 40 years). Amortization expense
charged to operations for fiscal years ended July 31, 1995, 1994
and 1993 was $2,430,000, $2,669,000, and $1,275,000, respectively.
Since the acquisition of the Agree and Halsa product lines in
August 1993 from S.C. Johnson & Son, Inc., there has been a
significant decline in the sales volume and profit contribution of
such products. Accordingly in fiscal 1995, the Company revised
its future forecasts which resulted in a significant reduction in
projected future cash flows of the product lines. The Company
determined that its projected results for Agree and Halsa would
not support the future amortization of the remaining intangible
assets related to Agree and Halsa. As part of its analysis, the
Company engaged the services of an independent valuation
consultant to assist the Company in the determination of the fair
market value of the Agree and Halsa intangible assets. Based on
the results of the valuation, management concluded that the fair
value of the intangible assets of Agree and Halsa was
approximately $12,500,000, and wrote down the carrying value of
such intangibles in April 1995 by $24,718,000. (See "Note 15 of
the Notes to Consolidated Financial Statements.")
In 1993 the Company wrote-off the DietAyds and Bantron trademarks
and goodwill, which resulted in a charge against income of
$1,003,000. Bantron, the larger of the two, was discontinued due
to the action of the United States Food & Drug Administration in
1993 declaring that its active ingredient was ineffective and
accordingly, after December 1993, could no longer be sold in its
current form. DietAyds was discontinued in 1993 due to the
Company's inability to obtain future product manufactured at
economical terms.
30
<PAGE> 31
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
Research and development costs
Research and development costs are charged to operations when
incurred. The amounts charged for years ended July 31, 1995, 1994
and 1993 were $750,000, $935,000, and $899,000, respectively.
Net income (loss) per share
Net income (loss) per share amounts are computed based on the
weighted average number of shares outstanding plus the shares that
would be outstanding assuming exercise of stock options, when
dilutive, which are considered common stock equivalents. The
number of shares that would be issued upon exercise of stock
options has been reduced by the number of shares that could have
been purchased from the proceeds using the average of the market
price of the Company's common stock.
Cash equivalents
Cash equivalents consist of highly liquid investments with a
maturity of three months or less when purchased.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993
amounts to conform to the 1995 presentation.
NOTE 2. INVENTORIES:
The components of inventories were:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 4,233,000 $ 3,688,000
Finished goods 8,838,000 10,268,000
----------- -----------
$13,071,000 $13,956,000
=========== ===========
</TABLE>
31
<PAGE> 32
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 1,290,000 $ 1,290,000
Building and improvements 7,908,000 7,906,000
Machinery and equipment 13,558,000 13,775,000
Office furniture and equipment 7,091,000 6,612,000
Construction in process 88,000 118,000
Other 248,000 237,000
----------- -----------
30,183,000 29,938,000
Less accumulated depreciation 14,760,000 12,727,000
----------- -----------
$15,423,000 $17,211,000
=========== ===========
</TABLE>
NOTE 4. INTANGIBLES:
Intangibles consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Goodwill $23,365,000 $47,058,000
Trademarks 16,593,000 18,164,000
Other 5,067,000 5,314,000
----------- -----------
45,025,000 70,536,000
Less accumulated amortization 10,869,000 8,521,000
----------- -----------
$34,156,000 $62,015,000
=========== ===========
</TABLE>
NOTE 5. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Advertising and promotional expenses $3,377,000 $3,629,000
Compensation related 1,019,000 977,000
Freight 604,000 588,000
Other 2,920,000 2,525,000
---------- ----------
$7,920,000 $7,719,000
========== ==========
</TABLE>
32
<PAGE> 33
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Term loan $35,969,000 $39,778,000
Working capital advances 25,000,000 21,019,000
Mortgages, 9 1/4%, due in monthly
installments of $36,635 including interest
due through 2012, collateralized by first
trust deeds on land and building 3,780,000 3,867,000
Other 95,000 138,000
----------- -----------
64,844,000 64,802,000
Less current portion 61,100,000 3,828,000
----------- -----------
$ 3,744,000 $60,974,000
=========== ===========
</TABLE>
The bank loans relate to the Revolving Credit and Term Loan Agreement,
as amended, (the "Bank Facility") that the Company entered into on
August 6, 1993, with a group of seven banks (the "Bank Group"), in
conjunction with the acquisition of the Agree and Halsa brands.
Pursuant to the terms of the Bank Facility, the Term Loan is payable
in quarterly installments through June 30, 1998, and the Working
Capital Advances are repayable in full on August 6,1998, the Bank
Facility's termination date.
During 1995, borrowings under the Bank Facility were subject to
interest at the Agent bank's base rate (8 3/4% at July 31, 1995) plus
1 5/8% payable monthly.
The terms of the Bank Facility provide for the maintenance of
consolidated net worth and certain other financial covenants,
including interest coverage, fixed charge coverage, leverage, and debt
to EBITDA ratios. Because of the operating loss reported by the
Company for the year ended July 31, 1995, the Company would not have
been in compliance with such covenants had the Bank Group not granted
waivers of such technical defaults extending through October 31, 1995.
Subsequent to July 31, 1995, the Company and the Bank Group have
reached an agreement in principle for a fifth amendment to the Bank
Facility effective as of October 30, 1995 (the "Agreement in
Principle") which provides, among other things, for the termination of
the Bank Facility on December 30, 1996, a decrease in working capital
commitment to $25,000,000 from $28,000,000, an increase in interest
rates, and lower quarterly scheduled term loan payments through April
1, 1996. The $9,567,000 payment originally due on December 29, 1995,
has been reduced to $500,000 and a principal payment of $8,300,000
will now be due April 15, 1996. However, based on current estimates
of cash flow, management does not believe it will have sufficient cash
33
<PAGE> 34
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
to pay the $8,300,000 due on April 15, 1996. Accordingly, the entire
amount outstanding under the Bank Facility has been classified as a
current liability. The interest rate under the Agreement in Principle
for the period October 1, 1995 through June 30, 1996 will be base rate
plus 3%; July 1, 1996 through September 30, 1996, base rate plus 4%;
and thereafter base rate plus 5%. In addition, the financial
covenants have been revised with the first reporting period of January
31, 1995. (See "Note 16 of the Notes to Consolidated Financial
Statements.")
Substantially all of the Company's assets not otherwise pledged as
collateral on existing mortgages are pledged as collateral under the
Bank Facility. The terms of the Bank Facility limit the Company from
borrowing funds from sources other than the Bank Facility.
Interest expense charged to operations for fiscal years ended July 31,
1995, 1994 and 1993 was $6,255,000, $4,622,000, and $1,295,000,
respectively.
Maturities of long-term debt for years ended July 31, are as follows:
<TABLE>
<S> <C>
1996 $61,100,000
1997 145,000
1998 129,000
1999 123,000
2000 135,000
Thereafter 3,212,000
-----------
$64,844,000
===========
</TABLE>
NOTE 7. INCOME TAXES:
The summary of the provision (credit) for federal and state income
taxes follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ --------
<S> <C> <C> <C>
Current
Federal $(1,807,000) $(2,027,000) $101,000
State 31,000 (67,000) 114,000
----------- ------------ --------
(1,776,000) (2,094,000) 215,000
------------ ----------- --------
Deferred
Federal (1,209,000) 406,000 185,000
State 120,000 (102,000) (1,000)
----------- ----------- ----------
(1,089,000) 304,000 184,000
------------ ----------- --------
Income taxes (credit) $(2,865,000) $(1,790,000) $399,000
============ ============ ========
</TABLE>
34
<PAGE> 35
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
The following is a reconciliation of the statutory U.S. federal income
tax rate to the effective tax rate based upon income (loss) before
income taxes (credit) as reported in the financial statements:
<TABLE>
<CAPTION>
1995 1994 1993
------ ----- ------
<S> <C> <C> <C>
U.S. federal statutory tax rate (35.0)% (35.0)% 34.0%
U.S. federal rate reduction 1.0 1.0 -
State taxes, net of federal
income tax benefit (4.5) (3.1) 4.7
Earnings of foreign sales
corporation not taxable (.5) (1.6) (6.2)
Intangibles amortization .7 4.1 36.6
Write-down of intangibles - - (43.3)
Increase in valuation
allowance 28.6 - -
Other .1 1.3 (0.4)
----- ----- -----
Effective tax rate (9.6)% (33.3)% 25.4%
===== ===== =====
</TABLE>
The components of the deferred tax provision (credit) resulting from
temporary differences between the recognition of income for financial
and tax reporting purposes were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Depreciation and amortization $(9,344,000) $ 786,000 $ 145,000
Valuation allowance 8,517,000 - -
California franchise tax 10,000 11,000 185,000
Charitable contributions (156,000) (130,000) (77,000)
Coupon redemption 127,000 (67,000) 46,000
Deferred charges 351,000 (102,000) (155,000)
Net operating loss, capital loss
and tax credit carryforwards (379,000) - -
Inventory valuation 113,000 (165,000) 29,000
Other (328,000) (29,000) 11,000
------------ --------- ---------
$(1,089,000) $ 304,000 $ 184,000
============ ========= =========
</TABLE>
35
<PAGE> 36
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
July 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 118,000 $ 108,000
Inventory 308,000 401,000
Intangibles 9,310,000 54,000
Contribution carryforwards 422,000 270,000
Net operating loss, capital loss and
tax credit carryforwards 823,000 -
Accrued liabilities 437,000 880,000
----------- -----------
Total gross deferred tax assets 11,418,000 1,713,000
Valuation allowance (8,517,000) -
----------- -----------
2,901,000 1,713,000
Deferred tax liabilities:
Property and equipment, net (2,447,000) (2,426,000)
----------- -----------
Net deferred tax asset (liability) $ 454,000 $ (713,000)
=========== ===========
</TABLE>
The net operating loss, capital loss and tax credit carryforwards
expire between 1998 and 2010.
NOTE 8. INCENTIVE PLANS:
Stock option plans
The 1992 Stock Option Plan (the "1992 Plan") was adopted by the
Board of Directors in October 1992, and approved by the
stockholders in December 1992. The 1992 Plan, which expires in
October 2002, provides for the grant of options to purchase the
Company's common stock to officers, directors, consultants and
other key employees. The maximum number of shares issuable under
the 1992 Plan will be the lesser of ten percent (10%) of the total
number of shares of common stock outstanding at the date of grant
or 2,000,000 shares. The Company also has a 1983 Stock Option Plan
(the "1983 Plan"); however, no further options may be issued under
such plan.
36
<PAGE> 37
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
As of July 31, 1995, there were 572,300 and 264,430 stock options
outstanding under the 1992 Plan and 1983 Plan, respectively. The
options outstanding entitle the holders to purchase 619,018 shares
of Class A Common Stock and 217,712 shares of Class B Common
Stock. Substantially all of the options outstanding are
exercisable in full three years after the date of grant.
A summary of activity in the Company's stock option plans is
presented below:
<TABLE>
<CAPTION>
Shares Price
------- -------------
<S> <C> <C>
Outstanding at July 31, 1992 335,477 $2.75 - 12.38
Granted 271,100 4.00 - 9.90
Canceled or expired (8,731) 2.75 - 9.88
------- -------------
Outstanding at July 31, 1993 597,846 2.75 - 12.38
Granted 130,100 2.75 - 5.50
Exercised (8,275) 2.75
Canceled or expired (43,250) 2.75 - 9.88
------- -------------
Outstanding at July 31, 1994 676,421 2.75 - 12.38
Granted 233,500 1.13 - 2.23
Canceled or expired (73,191) 2.75 - 12.38
------- -------------
Outstanding at July 31, 1995 836,730 $2.75 - 12.38
======= =============
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Exercisable 249,430 200,471
======= =======
Available to be granted 52,190 268,540
======= =======
</TABLE>
The options exercisable at July 31, 1995 and 1994 were exercisable
at price ranges per share of $2.75 to $12.38 and $2.75 to $9.88,
respectively.
Management incentive plans
In January 1988, the stockholders approved the 1988 Directors and
Officers Stock Option Plan which allows directors and officers to
elect to receive stock options in
37
<PAGE> 38
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
lieu of compensation. Directors may elect to defer all of their
compensation whereas officers may defer a maximum of 15% of their
compensation. The number of shares subject to options has been
determined with reference to the fair market value of the
Company's common stock at least six months after date of election
to defer. At July 31, 1995 and 1994, there were outstanding
options to acquire 3,286 and 6,000 shares of common stock,
respectively.
In December 1993, stockholders approved the Stock Target Ownership
Plan (the "1993 Plan") under which the Company makes common stock
performance awards to certain employees in lieu of a percentage of
their cash bonuses and may provide other incentives to encourage
participants in the 1993 Plan to accumulate ownership of the
Company's common stock. The maximum number of shares issuable
under the 1993 Plan will be the lesser of ten percent (10%) of the
total number of shares of common stock outstanding at the date of
grant or 2,000,000 shares. The 1993 Plan expires October 27,
2003. At July 31, 1995 and 1994, three and four executives,
respectively, were entitled to receive an aggregate of 6,241 and
10,783 shares of Class B Common Stock under the 1993 Plan.
Deferred compensation plan
The Company provides its officers and directors with the
opportunity to participate in an unfunded, deferred compensation
program, which also provides for death and disability benefits.
At July 31, 1995 and 1994, there were four and six participants,
respectively, in the program. Under the program, participants may
defer up to 75% of their yearly total cash compensation. The
amounts deferred remain the sole property of the Company, which
uses them, together with additional corporate funds, to purchase
either insurance policies on the lives of the participants or
other investments. The insurance policies, which remain the sole
property of the Company, are payable to the Company upon the death
or permanent disability of the participant. The Company
separately contracts with the participant to pay stated benefits
substantially equivalent to those received or available under the
insurance policies or other investments upon the earlier of 10
years after date of first participation, retirement, death, or
permanent disability. The program is not qualified under Section
401 of the Internal Revenue Code. At July 31, 1995 and 1994, the
amounts payable under the plan approximated the value of the
assets owned by the Company.
NOTE 9. STOCKHOLDERS' EQUITY:
38
<PAGE> 39
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
At the December 1992 annual meeting, stockholders approved a
reclassification whereby each share of the Company's outstanding
common stock was reclassified into one-half share of non-voting Class
A Common Stock and one-half share of voting Class B Common Stock.
Costs associated with the reclassification were charged against income
for the year ended July 31, 1993.
NOTE 10. RETIREMENT PLAN:
The Company maintains a profit sharing plan which covers employees who
are twenty and one-half years of age or older and have completed six
months of employment. The Company's Board of Directors approves the
amount of each year's contribution to such plan. The Company made no
contribution to the plan for the year ended July 31, 1995. The
Company's contributions for the years ended July 31, 1994 and 1993
were $100,000 and $135,000, respectively.
In June 1993, the Company's Board of Directors adopted a 401(k) plan
which became effective on August 1, 1993. The 401(k) plan covers
substantially all employees and gives them the option to make
contributions up to 15% of their annual compensation, subject to
certain statutory limitations, and permits the Company, in its
discretion, to match such contributions. The Company's contributions
for the years ended July 31, 1995 and 1994 were $53,000 and $61,000,
respectively.
NOTE 11. COMMITMENTS:
At July 31, 1995, future minimum lease payments that have noncancelable
lease terms in excess of one year were as follows:
<TABLE>
<CAPTION>
Operating
Years ending July 31, Leases
--------------------- ----------
<S> <C>
1996 $ 837,000
1997 783,000
1998 697,000
1999 677,000
2000 52,000
Thereafter 166,000
----------
Total minimum lease payments $3,212,000
==========
</TABLE>
Rent expense for the years ended July 31, 1995, 1994 and 1993 was
$919,000, $880,000, and $875,000 respectively.
39
<PAGE> 40
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 12. RELATED-PARTY TRANSACTIONS:
Selling, general and administrative expenses for the years ended July
31, 1994 and 1993 included $476,000, and $357,000, respectively, paid
or accrued to a legal firm affiliated with an individual who served as
a director of the Company. For the year ended July 31, 1995, such
individual was no longer a member of the Board of Directors.
NOTE 13. REPORTING BY GEOGRAPHICAL AREAS OF THE BUSINESS:
The Company operates in two principal geographical areas: (l) U.S.,
excluding Puerto Rico, and (2) all other countries (including export
sales and royalties).
In computing income before taxes, certain administrative and general
expenses and other income and expense have been allocated to the
geographical areas based on their relative sales ratios, which varies
from year to year. Identifiable assets used jointly by the two areas
have also been allocated to the geographical areas based on relative
sales ratios.
The following is a summary of information by area:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales:
U.S. $108,016,000 $123,056,000 $117,853,000
Foreign 19,673,000 15,275,000 5,860,000
------------ ------------ ------------
Total $127,689,000 $138,331,000 $123,713,000
============ ============ ============
Income (loss) before income taxes (credit):
U.S. $(19,908,000) $(7,531,000) $ 485,000
Foreign (9,915,000) 2,158,000 1,084,000
------------ ----------- ----------
Total $(29,823,000) $(5,373,000) $1,569,000
============ =========== ==========
Identifiable assets:
U.S. $78,740,000 $ 97,417,000 $72,915,000
Foreign 15,164,000 24,678,000 5,714,000
----------- ------------ -----------
Total $93,904,000 $122,095,000 78,629,000
=========== ============ ===========
</TABLE>
During 1995 and 1994, sales to Wal-Mart Stores, Inc. were 16% and 19%,
respectively, of consolidated net sales. No other customer accounted
for more than 10% of consolidated net sales for the periods presented.
40
<PAGE> 41
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 14. ACQUISITION:
On August 6, 1993, the Company acquired the Agree and Halsa shampoo
and conditioner trademarks for $45,000,000 in cash. As part of the
transaction the Company acquired certain related assets, primarily
inventories, machinery and equipment and a covenant not to compete.
At the time of the acquisition, the excess of the purchase price over
what the Company believed was the fair value of the assets acquired
(goodwill) was approximately $34,000,000. The acquisition was
accounted for as a purchase. (See "Note 1 - Intangibles of the Notes
to Consolidated Financial Statements.") The acquisition was financed
with borrowings from the Bank Facility. (See "Note 6 of the Notes to
Consolidated Financial Statements.")
NOTE 15. LEGAL:
On March 2, 1994, the Company filed a complaint against S.C. Johnson &
Son, Inc. ("S.C. Johnson") alleging, among other things, that, in
violation of its Purchase Agreement with the Company, S.C. Johnson
wrongfully altered its North American marketing and sales practices
prior to the closing of its sale of the Agree and Halsa trademarks and
certain related assets to the Company in August 1993. The complaint
was filed in the United States District Court in Los Angeles County
and seeks rescission of the transaction, monetary damages in an amount
to be determined, and other relief. The case is currently scheduled
to go to trial on February 23, 1996. In April 1994, S.C. Johnson and
a subsidiary filed related lawsuits in Wisconsin and Ontario, Canada,
respectively.
In the opinion of management there are no pending legal proceedings,
including the S.C. Johnson matter discussed above, which will have a
material adverse effect on the Company's financial position or results
of operations.
NOTE 16 LIQUIDITY:
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed
in "Note 6 of the Notes to Consolidated Financial Statements," the
Company and the Bank Group have reached an Agreement in Principle
which provides, among other things, for an $8,300,000 principal
payment on April 15, 1996. In light of the Company's current
projected earnings and cash flow, management believes the Company has
the financial resources to maintain its current level of operations
until the April 15, 1996 principal payment is due. However, cash
generated from operations alone will not be sufficient to pay the
$8,300,000 on April 15, 1996, without proceeds from the sale of
assets or a refinancing or restructuring of the Bank Facility prior
to such date. As a result, the Company has retained legal
41
<PAGE> 42
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
counsel specializing in restructurings to render advice regarding
various alternatives available to the Company. In addition, the
Company has retained Donaldson, Lufkin & Jenrette Securities
Corporation to assist it in exploring strategic alternatives which
include, among other things, a business combination, sale of assets,
strategic investment in the Company or a refinancing of the Bank
Facility. There can be no assurance that the Company will be
successful in its attempt to consummate one of the strategic
alternatives or a refinancing of the Bank Facility.
If the Company does not make either the April 15, 1996 principal
payment or the balance due December 31, 1996, it may be unable to
continue its normal operations, except to the extent permitted by the
Bank Group. Substantially all of the Company's assets not otherwise
pledged as collateral on existing mortgages are pledged as collateral
under the Bank Facility. As of October 20, 1995, the Company has
cash and cash equivalents totalling approximately $5,300,000
(unaudited).
42
<PAGE> 43
DEP CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II (1 OF 2)
<TABLE>
<CAPTION>
===============================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------
(2)
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER ACCOUNTS - DEDUCTIONS - BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR END JULY 31, 1995
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 262,000 $504,000 $0 * $(288,000) $ 478,000
ALLOWANCE FOR CUSTOMER CHARGEBACKS 1,765,000 ** 220,000 0 0 1,985,000
YEAR END JULY 31, 1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 266,000 $ 18,000 $0 * $ (22,000) $ 262,000
ALLOWANCE FOR CUSTOMER CHARGEBACKS 1,112,000 ** 653,000 0 0 1,765,000
YEAR END JULY 31, 1993
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 353,000 $115,000 $0 * $(202,000) $ 266,000
ALLOWANCE FOR CUSTOMER CHARGEBACKS 1,533,000 0 0 ** (421,000) 1,112,000
</TABLE>
* AMOUNTS WRITTEN OFF, NET OF RECOVERIES
** NET ACTIVITY
43
<PAGE> 44
DEP CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II (2 OF 2)
<TABLE>
<CAPTION>
===============================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER ACCOUNTS - DEDUCTIONS - BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR END JULY 31, 1995
INVENTORY VALUATION $1,222,000 $ 596,000 0 ** $(887,000) $ 931,000
YEAR END JULY 31, 1994
INVENTORY VALUATION $ 874,000 $1,192,000 0 ** $(844,000) $1,222,000
YEAR END JULY 31, 1993
INVENTORY VALUATION $ 552,000 $ 485,000 0 ** $(163,000) $ 874,000
</TABLE>
** AMOUNTS WRITTEN OFF AGAINST RESERVE
44
<PAGE> 1
Exhibit 10.6
FISCAL YEAR 1995
EXECUTIVE OFFICER BONUS ARRANGEMENT
For the year ended July 31, 1995, Dep Corporation had bonus arrangements with
its executive officers of international, operations and domestic sales.
Pursuant to such arrangements, Jerome P. Alpin, Senior Vice President and
General Manager, International Sales and Marketing, R. Eugene Biber, Senior
Vice President, Operations and Steve Berry, Vice President, Sales, may earn
bonus compensation upon the attainment of corporate and divisional sales and
profit plans and certain measures of operational efficiency and performance, as
determined by the President from time to time.
<PAGE> 1
Exhibit 10.17
WAIVER
Dated as of September 29, 1995
This WAIVER (the "Waiver") is among DEP CORPORATION, a Delaware
corporation (the "Borrower"), the lenders party to the Credit Agreement
referred to below (the "Lenders"), and CITICORP USA, INC., as agent (the
"Agent") for the Lenders thereunder.
PRELIMINARY STATEMENTS;
(1) The Borrower, the Lenders and the Agent and The First National
Bank of Boston and City National Bank, as Co-Agents, have entered into a
Revolving Credit and Term Loan Agreement dated as of August 6, 1993 (as amended
to date, the "Credit Agreement"; the terms defined therein being used therein
defined unless otherwise defined herein).
(2) Pursuant to the Waiver and Amendment dated as of April 14,
1995 among the Borrower, the Lenders and the Agent, the Lenders have waived
certain Defaults of Borrower, including Defaults arising with respect to the
period starting on and including January 31, 1995 and ending on and including
April 30, 1995, under certain financial covenants contained in Section 5.04 of
the Credit Agreement, as a result of non-compliance therewith.
(3) The Borrower has requested that the Lenders waive through
October 31, 1995 certain financial covenant Defaults arising under Section 5.04
of the Credit Agreement with respect to the quarter ended July 31, 1995, for
the purpose of providing the parties with additional time to negotiate the
terms of a possible additional waiver and amendment to the Credit Agreement and
to document the waiver and amendment, if any, which may be mutually agreed to
by the parties.
(4) The Required Lenders are, on the terms and conditions stated
below, willing to grant the request of the Borrower.
NOW, THEREFORE, in consideration of the premises, the parties hereto
hereby agree as follows:
SECTION 1. Waiver under Credit Agreement. Effective as of
the date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 3 hereof, the Lenders hereby waive, during the period starting
on and including May 1, 1995 to and including October 31, 1995 (the "Waiver
Period"), the following Defaults (the "Specified Defaults"):
(i) to the extent such Default arises solely as a
result of the indebtedness under the Credit Agreement being
classified, in accordance with GAAP, as short-term debt (and
only to such extent), any Default arising under subsection (a)
of Section 5.04 of the Credit Agreement; and
<PAGE> 2
(ii) any Defaults arising under subsections (b),
(c), (d), (e) and (f) of Section 5.04 of the Credit Agreement
as a result of noncompliance with such subsections.
Notwithstanding the provisions of this Section, interest will continue to
accrue as provided in Section 2.06(b) of the Credit Agreement as if the waiver
provided in this Section had not been granted.
SECTION 2. Limitation on Aggregate Advances Outstanding under
the Working Capital Facility. The Borrower acknowledges and agrees, and the
Lenders agree, that, during the Waiver Period, (a) the aggregate principal
amount of Working Capital Advances permitted to be outstanding at any one time
be limited to $25,000,000, and (b) the Lenders shall have no obligation to make
any Working Capital Advances to the Borrower which would cause the aggregate
outstanding principal amount of Working Capital Advances to exceed such amount.
SECTION 3. Conditions of Effectiveness. This Waiver shall
become effective when (a) the Agent shall have received counterparts of this
Waiver executed by the Borrower and the Required Lenders, or as to any of the
Lenders, advice satisfactory to the Agent that such Lenders have executed this
Waiver and (b) counterparts of the Consent appended hereto executed by the
Guarantors and Grantors listed therein.
SECTION 4. Reference to and Effect on the Loan Documents.
(a) Upon the effectiveness of this Waiver, on and after the date hereof each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Credit
Agreement and all other Loan Documents, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
Without limiting the generality of the foregoing, the Collateral Documents and
all of the Collateral described therein do and shall continue to secure the
payment of all Secured Obligations under and as defined therein, in each case
as amended hereby.
(c) The execution, delivery and effectiveness of this
Waiver shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
(d) The Agent, each Lender party hereto, the Borrower
and, by execution of the Consent appended hereto, each Guarantor specifically
acknowledges and agrees that (i) none of the Borrower, any Guarantor, the Agent
or any Lender has agreed to any other or future waiver of or amendment to the
Loan Documents, (ii) neither the granting of the waiver described
<PAGE> 3
herein nor the granting of any prior waivers and amendments under the Loan
Documents creates any obligation whatsoever on the part of the Borrower, any
Guarantor, the Agent or any Lender to grant any other or future waiver or
amendment under the Loan Documents, and (iii) except as specifically set forth
herein, each of the Borrower, each Guarantor, the Agent and the Lenders have
reserved all rights and remedies under the Loan documents.
SECTION 5. General Release of Claims. As additional
consideration for the waivers as set forth herein, the Borrower (by its
execution hereof) and each other Loan Party (by its execution of the Consent
appended hereto) and each of their respective agents, employees, directors,
officers, attorneys, affiliates, subsidiaries, successors and assigns
(individually a "Releasing Party", and collectively the "Releasing Parties")
each hereby release and forever discharge the Agent and each Lender and all of
their respective agents, direct and indirect shareholders, employees,
directors, officers, attorneys, branches, affiliates, subsidiaries, successors
and assigns (individually, a "Released Party", and collectively, the "Released
Parties") of and from all damage, loss, claims, demands, liabilities,
obligations (except for any such obligations pursuant to the terms of the Loan
Documents, as amended to date), actions and causes of action whatsoever
(collectively "Claims") the Releasing Parties and each of them may, as of the
date hereof, have or claim to have against each of the Released Parties, in
each case whether presently known or unknown and of every nature and extent
whatsoever on account of or in any way relating to, arising out of or based
upon the First Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Conditional Waiver or this Waiver (collectively, the
"Restructuring Documents") or the negotiation or documentation thereof or the
amendments to and waivers under the Loan Documents effected by the
Restructuring Documents or the transactions contemplated thereby, including,
without limitation, all such loss or damage of any kind heretofore sustained,
or that may arise as a consequence of the dealings between the parties up to
the date hereof in connection with or in any way related to the Restructuring
Documents. Each Releasing Party further covenants and agrees that it has not
assigned heretofore, and will not hereafter sue any Released Party upon, any
Claim released or purported to be released under this Section 5, and the
Borrower will indemnify and hold harmless said Released Parties against any
loss or liability on account of any actions brought by any Releasing Party or
its assigns or prosecuted on behalf of any Releasing Party and relating to any
Claim released or purported to be released under this Section 5. This
agreement and covenant on the part of the Releasing Parties, respectively, is
contractual, and not a mere recital, and the parties hereto acknowledge and
agree that no liability whatsoever is admitted on the part of any party with
respect to any Claim released or purported to be released under this Section 5.
It is further understood and agreed that any and all rights under the
provisions of Section 1542 of the California Civil Code are expressly waived by
each of the Releasing Parties Section 1542 provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF
<PAGE> 4
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
Each of the Releasing Parties acknowledges that the foregoing
release (including the foregoing waiver of the provisions of Section 1542 of
the California Civil Code) was separately bargained for.
Each Released Party acknowledges (without admission as in the
existence of any specific fact) that the foregoing release shall not prevent
any Releasing Party from making evidentiary references, in connection with any
Claim not released or purported to be released hereby, to the negotiation or
documentation of the Restructuring Documents or the amendments to the Loan
Documents effected by the Restructuring Documents or the transactions
contemplated by the Restructuring Documents or the dealings between the parties
in connection with or in any way related to the Restructuring Documents.
The Borrower represents to each Released Party that, as of the
date hereof, neither Robert Berglass nor Grant Johnson has actual knowledge of
facts which would cause the Borrower to prevail on any Claim not released under
this Section 5.
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to
pay on demand all costs and expenses of the Agent in connection with the
preparation, execution, delivery and administration of this Waiver and the
other instruments and documents, if any, to be delivered hereunder, including,
without limitation, the reasonable fees and out of pocket expenses of counsel
for the Agent with respect thereto and with respect to advising the Agent as to
its rights and responsibilities hereunder and thereunder. The Borrower further
agrees to pay on demand all costs and expenses, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Waiver and the other instruments and documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 6.
SECTION 7. Execution in Counterparts. This Waiver may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which taken together shall constitute but one
and the same agreement. Delivery of an executed counterpart of a signature
page to this Waiver or the Consent hereto by telefacsimile shall be effective
as delivery of a manually executed counterpart of this Waiver or such Consent.
SECTION 8. Governing Law. This Waiver shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be executed by their respective officers thereunto duly authorized, as the
date first above written.
DEP CORPORATION
<PAGE> 5
By /s/ Grant Johnson
---------------------------------
Title: Vice President
CITICORP USA, INC., individually and
as Agent
By /s/ Ruth E. Ford
---------------------------------
Title: Vice President
<PAGE> 6
THE FIRST NATIONAL BANK OF BOSTON,
individually and as a Co-Agent
By /s/ Garrett Quinn
---------------------------------
Title: Vice President
CITY NATIONAL BANK,
individually and as a Co-Agent
By /s/ Rick Sawyer
---------------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ Thomas McCool
---------------------------------
Title: Senior Vice President
ABN AMRO BANK N.V.
By /s/ Ronald Drake
---------------------------------
Title: Senior Vice President
By /s/ William J. Fitzgerald
---------------------------------
Title: Authorized Signatory
<PAGE> 7
THE DAIWA BANK, LTD.
By /s/ JUDITH M. BRESNEN
---------------------------------
Title: Vice President
By /s/ DAVID M. LAWRENCE
---------------------------------
Title: Vice President and Manager
BANK HAPOALIM, B.M.
By /s/ LORI LAKE
--------------------------------
Title: Assistant Vice President
By /s/ CRAIG CIEBIERA
--------------------------------
Title: Vice President
<PAGE> 8
CONSENT
Dated as of September 29, 1995
The undersigned, Lavoris-Dep Corporation, Topol-Dep
Corporation and Cuticura-Dep Corporation, as Guarantors under the "Guaranty"
and as Grantors under the "Security Agreements" executed by them, respectively,
as defined in and under the Credit Agreement referred to in the foregoing
Waiver, each hereby consents to the said Waiver and hereby confirms and agrees
that (i) the Guaranty and such Security Agreements are, and shall continue to
be, in full force and effect and are hereby ratified and confirmed in all
respects except that, upon the effectiveness of, and on and after the date of,
the said Waiver, each reference in the Guaranty and such Security Agreements to
the Credit Agreement "thereunder", "thereof" or words of like import shall mean
and be a reference to the Credit Agreement as modified and amended by the said
Waiver and (ii) such Security Agreements and all of the Collateral described
therein do, and shall continue to, secure the payment of all of the Secured
Obligations as defined therein.
LAVORIS-DEP CORPORATION
By /s/ GRANT JOHNSON
--------------------------------
Title: Vice President
TOPOL-DEP CORPORATION
By /s/ GRANT JOHNSON
--------------------------------
Title: Vice President
CUTICURA-DEP CORPORATION
By /s/ GRANT JOHNSON
--------------------------------
Title: Vice President
<PAGE> 1
Exhibit 10.18
DEP CORPORATION RETENTION AND SEVERANCE PLAN
DEP CORPORATION
RETENTION AND SEVERANCE PLAN
AND SUMMARY PLAN DESCRIPTION
I. INTRODUCTION
This Dep Corporation Retention and Severance Plan ("RSP") provides
severance benefits and/or retention bonuses to certain employees ("Employees")
of Dep Corporation, (the "Company") to encourage them to remain in the employ
of the Company and to assist them in their transition to subsequent employment.
The RSP consists of a Layoff and Recall Policy for Plant Employees, a Layoff
and Recall Policy for Office Employees, a Change in Control Severance Policy
for Non-Exempt Employees and a Change in Control Severance Policy for Exempt
Employees. The RSP is intended to be and shall be administered as an employee
welfare benefit plan under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). The RSP supercedes all previous retention, severance,
layoff and recall plans, policies and arrangements.
II. EFFECTIVE DATE; RSP YEAR
The effective date of the RSP is August 15, 1995. The RSP shall be
maintained on a calendar-year basis.
III. DESCRIPTION OF POLICIES WITHIN THE RSP
A. LAYOFF AND RECALL POLICY FOR PLANT EMPLOYEES
1. Decision and Notification
From time to time it may become necessary for the Company to
lay off Plant Employees (those employees who spend most of the work-day in the
plant of the Company and are not exempt from the state wage and hour laws) for
a period of time when there is not enough work available. If possible, the
Company will tell Plant Employees at the time of layoff when they will be
recalled and under what conditions. If not, Plant Employees will be notified
when to return to work by telephone or telegram at the address they gave to the
Personnel Department. The Company will attempt to give as much advance notice
as possible to the Plant Employees affected by the layoff, but there can be no
guarantee of such advance notice as the circumstances may be unpredictable.
If it is necessary to lay off Plant Employees for less than
two days, layoffs may be based on the equipment and shift involved. Layoffs of
Plant Employees for a longer period will be made on the basis of seniority,
provided the skill, ability and performance of the affected Plant Employees are
relatively equal.
<PAGE> 2
The Company may recall Plant Employees for a period of up to
six months from the date of their layoff. Plant Employees may be recalled in
order of seniority, provided the skill, ability and performance of the eligible
Plant Employees are relatively equal.
2. Benefits
The Company will consider severance payments on a case-by-case
basis. A Plant Employee on layoff status will be eligible to apply for
unemployment benefits, in line with the requirements of the state in which the
Plant Employee resides. The Company will not continue to accrue vacation or
holiday pay for Plant Employees on layoff status. Recalled Plant Employees
will not have to serve a ninety (90) day introductory period and will receive
credit for prior service for benefit purposes, as applicable.
Plant Employees affected by a layoff will have the right to
continue health insurance benefits under the federal law known as COBRA. The
Company will provide Plant Employees with information regarding Plant
Employees' rights under COBRA at the time of such layoff.
B. LAYOFF AND RECALL POLICY FOR OFFICE EMPLOYEES
1. Decision and Notification
From time to time it may become necessary for the Company to
lay off Office Employees (those employees who are exempt from the state wage
and hour laws and those employees who spend most of the work-day in the office
of the Company and are not exempt from the state wage and hour laws) when
business issues dictate. In those circumstances, in making decisions regarding
non-supervisory Office Employees affected by a layoff, the business needs of
the Company and Office Employees' length of service in the position and length
of service with the Company will be considered. However, the Company will also
consider other factors, including past performance evaluations. In making
decisions regarding management Office Employees affected by a layoff, the
business needs of the Company and Office Employees' performance will be the
primary criteria. While length of service with the Company in such
circumstances will be considered, seniority will be of lesser importance than
performance.
The Company will attempt to give as much advance notice as
possible to the Office Employees affected by the layoff, but there can be no
guarantee of such advance notice as the circumstances may be unpredictable.
Office Employees on permanent layoff status (where it is not
foreseeable that the Office Employees will be recalled) may be considered for
recall for up to six (6) months. In the event of a temporary layoff (thirty
(30) or fewer days, necessitated by some sudden, unforeseen event) Office
Employees will be notified when to return to work by telephone or registered
letter at the address on file with the Company. If Office Employees on
temporary layoff are not recalled to work within thirty (30) days, such
temporary layoffs will automatically be converted to permanent layoff status.
<PAGE> 3
2. Benefits
The Company will consider severance payments on a case-by-case
basis. An Office Employee on layoff status will be eligible to apply for
unemployment benefits, in line with the requirements of the state in which the
Office Employee resides. The Company will not continue to accrue vacation or
holiday pay for Office Employees on layoff status. Recalled Office Employees
will not have to serve a ninety (90) day introductory period and will receive
credit for prior service for benefit purposes, as applicable.
Office Employees affected by a layoff will have the right to
continue health insurance benefits under the federal law known as COBRA. The
Company will provide Office Employees with information regarding Office
Employees' rights under COBRA at the time of such layoff.
C. CHANGE IN CONTROL SEVERANCE POLICY FOR NON-EXEMPT EMPLOYEES
1. Eligibility
All full-time employees of the Company who are not exempt from
the state wage and hour laws ("Non-Exempt Employees") are eligible to receive
payments under the Change in Control Severance Policy for Non-Exempt Employees
(the "Non-Exempt Employee Policy") if:
(i) a "Change in Control" (as defined in Exhibit
A attached hereto) occurs; and
(ii) the Non-Exempt Employee's employment is
terminated by the Company within 12 months after the
Change in Control, unless (a) such termination is for
"Just Cause" (as defined in Exhibit A) or is due to
the Non-Exempt Employee's "Disability" (as defined in
Exhibit A) or (b) prior to receipt of all severance
payments the Non-Exempt Employee is offered (whether
or not the Non-Exempt Employee accepts) employment
with the Company or an affiliate or successor of the
Company which is "Reasonably Comparable" (as defined
in Exhibit A) to the Non-Exempt Employee's position
immediately prior to the Change in Control; and
(iii) the Non-Exempt Employee executes a Benefits
Acceptance Agreement which (a) releases all claims
the Non-Exempt Employee may have against the Company,
including any claims with respect to the termination
of the Non-Exempt Employee's employment and (b) shall
be in the form of Exhibit B attached hereto.
2. Payments
A Non-Exempt Employee will receive a payment, within five (5)
days after termination, equal to (a) the Non-Exempt Employee's wages for 1 week
(assuming a work week
<PAGE> 4
of 40 hours) multiplied by (b) the number of complete years the Non-Exempt
Employee has been employed by the Company; provided, however, that the minimum
payment will be equal to the Non-Exempt Employee's wages for 2 weeks.
All required federal, state, and local taxes shall be deducted
from severance payments. Any amounts owed to the Company by a Non-Exempt
Employee shall also be deducted from severance payments to the extent permitted
by law.
If the Company receives notification of the death of a
Non-Exempt Employee prior to the distribution of the full amount of payments
due under the RSP, payment shall be made to the Non-Exempt Employee's estate.
3. Continuation of Health Insurance Benefits
A Non-Exempt Employee shall have the right to continue health
insurance benefits under the federal law known as COBRA. The Company will
provide a Non-Exempt Employee, upon termination, with information regarding the
Non-Exempt Employee's rights under COBRA.
4. Individual Agreements
The Company, in its sole discretion, may enter into individual
agreements with certain Non-Exempt Employees pursuant to which the Company may
provide such Non-Exempt Employees with severance benefits (other than those
described above) or retention bonuses under such circumstances as the Company
may designate.
D. CHANGE IN CONTROL SEVERANCE POLICY FOR EXEMPT EMPLOYEES
1. Eligibility
All full-time employees of the Company who are exempt from the
state wage and hour laws ("Exempt Employees") are eligible to receive payments
under the Change in Control Severance Policy for Exempt Employees (the "Exempt
Employee Policy") in lieu of payments under any other Severance Policy of the
Company if:
(i) a "Change in Control" (as defined in Exhibit A
attached hereto) occurs; and
(ii) the Exempt Employee's employment is terminated
by the Company within 12 months after the Change in Control
unless (a) such termination is for "Just Cause" (as defined in
Exhibit A) or is due to the Exempt Employee's "Disability" (as
defined in Exhibit A) or (b) prior to receipt of all severance
payments, the Exempt Employee is offered (whether or not the
Exempt Employee accepts) employment with the Company or an
affiliate or successor of the Company which is "Reasonably
Comparable" (as defined in Exhibit A) to the Exempt Employee's
position immediately prior to the Change in Control; and
<PAGE> 5
(iii) the Exempt Employee executes a Benefits
Acceptance Agreement which (a) releases all claims the Exempt
Employee may have against the Company, including any claims
with respect to the termination of the Exempt Employee's
employment and (b) shall be in the form of Exhibit B attached
hereto.
2. Payments
Exempt Employees will receive the following severance
payments, based upon their length of employment with the Company:
AN EXEMPT EMPLOYEE WHO HAS BEEN EMPLOYED BY THE COMPANY FOR 1
YEAR OR LESS will receive a payment, within five (5) days
after the date of termination, equal to the Exempt Employee's
salary for one half (1/2) month.
AN EXEMPT EMPLOYEE WHO HAS BEEN EMPLOYED FOR MORE THAN 1 YEAR
AND LESS THAN OR EQUAL TO 3 YEARS will receive a payment,
within five (5) days after the date of termination, equal to
the Exempt Employee's salary for 1 month.
AN EXEMPT EMPLOYEE WHO HAS BEEN EMPLOYED FOR MORE THAN 3 YEARS
AND LESS THAN OR EQUAL TO 7 YEARS will receive a payment,
within five (5) days after the date of termination, equal to
the Exempt Employee's salary for 3 months.
AN EXEMPT EMPLOYEE WHO HAS BEEN EMPLOYED FOR MORE THAN 7 YEARS
AND LESS THAN OR EQUAL TO 10 YEARS will receive a payment,
within five (5) days after the date of termination, equal to
the Exempt Employee's salary for 4 months.
AN EXEMPT EMPLOYEE WHO HAS BEEN EMPLOYED FOR MORE THAN 10
YEARS AND LESS THAN OR EQUAL TO 15 YEARS will receive a
payment, within five (5) days after the date of termination,
equal to the Exempt Employee's salary for 5 months.
AN EXEMPT EMPLOYEE WHO HAS BEEN EMPLOYED FOR MORE THAN 15
YEARS will receive a payment, within five (5) days after the
date of termination, equal to the Exempt Employee's salary for
6 months.
The following chart summarizes the severance payments
described above.
<TABLE>
<CAPTION>
Length of Employment Payment
-------------------- -------
<S> <C>
1 year or less 1/2 month
1 year to 3 years 1 month
3 years to 7 years 3 months
7 years to 10 years 4 months
10 years to 15 years 5 months
More than 15 years 6 months
</TABLE>
<PAGE> 6
All required federal, state, and local taxes shall be deducted
from severance payments. Any amounts owed to the Company by an Exempt Employee
shall also be deducted from severance payments to the extent permitted by law.
If the Company receives notification of the death of an Exempt
Employee prior to the distribution of the full amount of payments due under the
RSP, payment shall be made to the Exempt Employee's estate.
3. Continuation of Health Insurance Benefits
An Exempt Employee shall have the right to continue health
insurance benefits under the federal law known as COBRA. The Company will
provide an Exempt Employee, upon termination, with information regarding the
Exempt Employee's rights under COBRA.
4. Individual Agreements
The Company, in its sole discretion, may enter into individual
agreements with certain Exempt Employees pursuant to which the Company may
provide such Exempt Employees with severance benefits (other than those
described above) or retention bonuses under such circumstances as the Company
may designate.
IV. OTHER EMPLOYEE BENEFIT PROGRAMS
The provisions of other employee benefit programs (other than those
included in the RSP) including, but not limited to, the Company's MBO Bonus
Program, the 1983 and 1992 Stock Option Plans, the 1993 Stock Target Ownership
Plan, the Executive Deferred Compensation Plan and vacation and sick pay will
continue to apply. The terms and provisions of such plans and programs shall
determine the benefits, if any, available to Employees.
V. ADMINISTRATION OF THE RSP
(A) The Company shall be the named fiduciary of the RSP and the
RSP administrator for purposes of ERISA. The Company shall be responsible for
the overall operation of the RSP and shall have the fiduciary responsibility
for the general operation of the RSP. As RSP administrator, the Company shall
maintain records of the RSP's provisions, and shall be responsible for the
handling, processing and payment of any claims for benefits under the RSP.
(B) The Company may appoint or employ such persons as it deems
necessary to render advice with respect to any responsibility of the Company
under the RSP. The Company may allocate to any one or more of its employees or
members any responsibility it may have under the RSP and may designate any
other person or persons to carry out any of its responsibilities under the RSP.
Any such person who receives full-time pay from the Company shall receive no
compensation from the RSP for providing services in such capacity (other than
expense reimbursements).
<PAGE> 7
(C) The Company shall have the discretionary authority to decide
all questions concerning the eligibility of any person to participate in the
RSP, the right to and amount of any benefit payable under the RSP to any
individual and the date on which any individual ceases to be an RSP
participant.
VI. AMENDMENTS, TERMINATION AND INTERPRETATION OF THE RSP
Subject to the terms of any written agreement, between the Employee
and the Company, entered into pursuant to the RSP:
(A) the Company reserves the right to modify, change, amend or
terminate the RSP, in whole or in part, at any time, except with respect to
Payments then due under the RSP; provided, however, that the Company or any
successor of the Company shall not have the right to modify, change, amend or
terminate the RSP, for a period of 1 year after a Change in Control, if such
modification, change, amendment or termination would reduce the benefits
payable to any Employee employed by the Company on the day before the Change in
Control;
(B) the Company shall have the authority to interpret the RSP and
determine the payments due under the RSP; and
(C) the determination of the Company on all matters relating to
the RSP shall be conclusive.
VII. CLAIMS PROCEDURE
Except to the extent otherwise provided by a written agreement between
an Employee and the Company, entered into pursuant to the RSP, the following
Claims Procedure shall apply.
(A) Upon an Employee's entitlement to benefits under the RSP, the
Company shall promptly notify the Employee of the Employee's entitlement to
such benefits. Upon such notification, the Employee shall complete and file
with the Company the forms and documents necessary to process the Employee's
claim.
(B) If an Employee disagrees with the Company's determination of
the Employee's ineligibility for or amount of benefits under the RSP, the
Employee may submit a written claim statement describing the basis of his claim
for benefits, together with any necessary forms in connection with application
for such benefits. If the claim of an Employee is wholly or partially denied,
the Employee shall be notified by registered mail within 90 days after the
written claim statement is submitted, or within 90 days after any necessary
application forms are filed, if later. Any denial of an Employee's claim shall
set forth:
(1) the specific reasons for the denial (including reference
to any pertinent RSP provisions on which the denial is based);
<PAGE> 8
(2) if applicable, a description of any additional material
or information necessary for the claimant to perfect the claim, and an
explanation of why such material or information is necessary; and
(3) the claims review procedure.
(C) An Employee whose claim has been wholly or partially denied
may request that the Company review the Employee's claim and that the Employee
be permitted to review the RSP and other pertinent documents, provided such
request is in writing and is made within 60 days after the denial. The request
may include a statement of relevant issues and comments.
(D) Upon a request pursuant to Section VII(C) hereof, the Company
shall provide the pertinent documents for the Employee's review within 30 days
and shall decide upon his claim within 60 days after the Employee's request is
received. The decision shall be in writing and shall state the specific
reasons for any denial (including reference to any pertinent RSP provisions on
which the denial is based).
VIII. ARBITRATION
Except to the extent otherwise provided by a written agreement between
an Employee and the Company, entered into pursuant to the RSP, the following
Arbitration Provision shall apply. Any appeal of a final decision of the
Company with respect to benefits under the RSP, after exhaustion of the Claims
Procedure provided for in Section VII of the RSP, or any other disagreement,
dispute, controversy or claim arising out of or relating to the RSP or the
interpretation of the RSP or any arrangements relating to the RSP or
contemplated in the RSP or the termination or invalidity thereof shall be
settled by arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") in Los
Angeles, California. The arbitral tribunal shall consist of one arbitrator.
In making any decision, the arbitrator shall apply and follow the substantive
law of California without reference to the conflicts of law provisions thereof.
The parties to the arbitration jointly shall directly appoint such arbitrator
within thirty (30) days of initiation of arbitration. If the parties shall
fail to appoint such arbitrator as provided above, such arbitrator shall be
appointed by the AAA as provided in the Arbitration Rules. The arbitral award
may be enforced against the parties to the arbitration proceeding or their
assets wherever they may be found and a judgment upon the arbitral award may be
entered in any court having jurisdiction thereof. The parties shall each bear
an equal portion of the fees and expenses of the Arbitrator and shall bear
their own arbitration expenses and legal fees.
IX. RIGHTS OF EMPLOYEES UNDER EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974 ("ERISA")
A statement of the rights of Employees under the Employee Retirement
Income Security Act of 1974 ("ERISA") is attached hereto as Exhibit C.
<PAGE> 9
X. FUNDING
Benefit payments under the RSP shall be made from the general assets
of the Company. Accordingly, no Employee shall have any claim against specific
assets of the Company and an Employee shall be only a general creditor with
respect to any rights the Employee may have under the RSP.
XI. MISCELLANEOUS
(A) No benefit payable under the RSP shall be taken into account
to increase any benefits provided, or continue coverage, under any other plan,
program, policy or arrangement of the Company or an affiliate, except as
otherwise specifically provided in such other plan, program, policy or
arrangement.
(B) No benefit payable under the RSP may be assigned, transferred,
pledged as a security for indebtedness or otherwise encumbered, or subjected to
any legal process for the payment of any claim against an Employee.
(C) Whenever appropriate in the RSP, words used in the singular
may be read in the plural and words used in the plural may be read in the
singular. The words "include" and "including" are not limiting.
(D) Section titles are provided for convenience only and shall not
serve as a basis for interpretation of the RSP.
(E) Except to the extent preempted by Federal law, the RSP shall
be construed, administered and enforced according to the laws of the State of
California without regard to its conflicts of law principles.
(F) Nothing in the RSP shall confer upon any Employee any right to
continue in the employ of the Company or shall interfere with or restrict in
any way the right of the Company, which is hereby expressly reserved, to
discharge any Employee at any time for any reason whatsoever, with or without
cause.
<PAGE> 10
EXHIBIT A
DEFINED TERMS
The following definitions shall apply only to Section III C and D
(CHANGE IN CONTROL SEVERANCE POLICY FOR NON-EXEMPT EMPLOYEES and the
CHANGE IN CONTROL SEVERANCE POLICY FOR EXEMPT EMPLOYEES) under this
RSP.
A "CHANGE IN CONTROL" will be deemed to have occurred if:
(a) Robert Berglass, Judith Berglass and any controlled
affiliate thereof (collectively, "Berglass") is no longer the
Beneficial Owner of securities of the Company representing 26%
or more of the combined voting power of the Company's then
outstanding securities. For purposes of the RSP, the term
"Beneficial Owner" shall have the meaning given to such term
in Rule 13d-3 under the Exchange Act; provided, however, that
Berglass shall be deemed to be the Beneficial Owner of any
securities of the Company which are owned by Berglass but
subject to call options by third parties unless and until such
options are exercised;
(b) individuals who at the beginning of any period of two
consecutive years constitute the Board, and any new director
(other than a director designated by a Person who has entered
into an agreement with the Company to effect a transaction
described in subsection (a), (c) or (d) of this definition of
Change in Control) whose election by the Board or nomination
for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved (hereinafter referred to as "Continuing
Directors"), cease for any reason to constitute at least a
majority thereof. For purposes of the RSP, the term "Person"
is used as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); provided, however, that the term shall not include the
Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their
ownership of stock of the Company;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation (or
other entity), other than (i) a merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 66-2/3%
of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation or (ii) a merger or consolidation
effected to implement a
<PAGE> 11
recapitalization of the Company (or similar transaction) in
which Berglass remains the Beneficial Owner of securities of
the Company representing at least 26% of the combined voting
power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
of the Company's assets.
TERMINATION WILL BE FOR "JUST CAUSE" in the following circumstances:
gross insubordination; flagrant violation of Company policy;
commission of an illegal act, in connection with employment, under
applicable law; alteration or falsification of Company records;
negligent failure to safeguard Company property; disclosure of
confidential or proprietary business information or trade secrets; any
other act that is intentionally detrimental to the best interests of
the Company; or upon there being substantial evidence that an Employee
is guilty of a crime classified as a felony (or the equivalent
thereof) under applicable law, or that the Employee has been convicted
of such a crime.
THE COMPANY MAY TERMINATE AN EMPLOYEE DUE TO "DISABILITY" if, as a
result of the Employee's incapacity due to physical or mental illness,
the Employee shall have been absent from the full-time performance of
the Employee's duties with the Company for ninety (90) consecutive
days, and within thirty (30) days after a written notice of
termination is given to the Employee, the Employee shall not have
returned to the full-time performance of the Employee's duties.
Termination shall be deemed not due to Disability if the Company or
any successor of the Company shall fail to provide the Employee with
benefits substantially similar to those the Employee would have
received under the Company's Long Term Disability Plan in which the
Employee was participating immediately prior to the Change in Control.
EMPLOYMENT WILL NOT BE "REASONABLY COMPARABLE" to the Employee's
position immediately prior to the Change in Control if:
(a) the location of such employment is more than 25 miles
from the location of the Employee's employment immediately
prior to the Change in Control;
(b) the salary or wages, as applicable, offered in
connection with such employment is less than the salary or
wages the Employee was earning immediately prior to the
Change in Control; or
(c) the benefits offered in connection with such employment
are not reasonably comparable to the benefits the Employee was
receiving immediately prior to the Change in Control.
<PAGE> 12
EXHIBIT B
FORM OF
BENEFITS ACCEPTANCE AGREEMENT AND GENERAL RELEASE
Dep Corporation (or any successor thereof) (the "Company") and
[Employee] ("[Employee]") have reached an agreement regarding the severance
benefits which [Employee] is entitled to under the Company's Retention and
Severance Plan (the "RSP") and the terms of [Employee's] separation from
employment with the Company, which agreement is set forth in this Benefits
Acceptance Agreement and General Release (the "Agreement").
RECITALS
A. The Company has informed [Employee] of any benefits that
[Employee] is entitled to under the RSP.
B. [Employee] and the Company desire to (i) resolve fully and
finally any and all disagreements between them, and (ii) specify the terms of
[Employee's] separation from employment with the Company.
C. In order to fully and finally resolve any and all possible
disagreements between [Employee] and the Company, the Company desires to obtain
from [Employee], and [Employee] wishes to give to the Company, a general
release of any and all liability the Company may have to [Employee].
AGREEMENT AND RELEASE
NOW, THEREFORE, in consideration of the foregoing recitals,
the mutual promises contained herein, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. Pursuant to the RSP, [Employee] will receive a severance
payment equal to [Amount] on [Date] [Note: Date must be 7 days after date of
execution if Employee is over the age of 40 (see Paragraphs 5 and 11)].
2. On or before [Date] [Employee] will return to the Company
all Company property in [Employee's] possession.
3. [Employee] shall not disclose any confidential information
[Employee] acquired while an employee of the Company to any other person or use
such information in any manner that is detrimental to the Company's interests.
4. On behalf of himself and his heirs and assigns, [Employee]
hereby releases and forever discharges the "Releasees" hereunder, consisting of
the Company, and each of its associates; owners; stockholders; affiliates;
divisions; subsidiaries; predecessors; successors; assigns; agents; directors;
officers; partners; employees; insurers; representatives and lawyers,
<PAGE> 13
and all persons acting by, through, under or in concert with them, or any of
them, of and from any and all manner of action or actions, cause or causes of
action, in law or in equity, suits, debts, liens, contracts, agreements,
promises, liability, claims, demands, damages, loss, cost or expense, of any
nature whatsoever, known or unknown, fixed or contingent (hereinafter called
"Claims"), which [Employee] now has or may hereafter have against the
Releasees, or any of them, by reason of any matter, cause, or thing whatsoever
from the beginning of time to the date hereof, including, without limiting the
generality of the foregoing, any Claims arising out of, based upon, or relating
to [Employee's] hire, employment, remuneration or termination by the Releasees,
or any of them, including any Claims arising under Title VII of the Civil
Rights Act of 1964, as amended; the Age Discrimination in Employment Act, as
amended; the Equal Pay Act, as amended; the Fair Labor Standards Act, as
amended; the Employee Retirement Income Security Act, as amended; the Older
Workers Benefit Protection Act; the California Fair Employment and Housing Act,
as amended; the California Labor Code; and/or any other local, state or federal
law governing discrimination in employment and/or the payment of wages and
benefits; provided, however, that [Employee] does not release any rights
[Employee] may have under the RSP or any written agreement between [Employee]
and the Company which has been entered into pursuant to the RSP.
[ INSERT PARAGRAPH 5 FOR EMPLOYEES OVER THE AGE OF 40 ]
5. In accordance with the Older Workers Benefit Protection
Act of 1990, [Employee] should be aware of the following:
(a) [Employee] has the right to consult with an
attorney before signing this Agreement;
(b) [Employee] has twenty-one (21) days from
[Date] (through [Date]) to consider this Agreement; and
(c) [Employee] has seven (7) days after signing
this Agreement to revoke this Agreement, and this Agreement
will not be effective until that revocation period has
expired.
6. In furtherance of [Employee's] intention that this
Agreement and the release herein extend to any and all claims of any character
whatsoever, known and unknown, [Employee] expressly waives any and all rights
granted [Employee] by California Civil Code Section 1542, which reads as
follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
<PAGE> 14
7. [Employee] represents and warrants that there has been no
assignment or other transfer of any interest in any Claim which it may have
against the Releasees, or any of them, and [Employee] agrees to indemnify and
hold the Releasees, and each of them, harmless from any liability, Claims,
demands, damages, costs, expenses and attorneys' fees incurred by the
Releasees, or any of them, as a result of any person asserting such assignment
or transfer.
8. The provisions of this Agreement are severable. If any
provision is held to be invalid or unenforceable, it shall not affect the
validity or enforceability of any other provision.
9. [Employee] represents that he has thoroughly read and
considered all aspects of this Agreement, that he understands all its
provisions and that he is voluntarily entering into said Agreement.
10. This Agreement sets forth the entire agreement between
[Employee] and the Company and supersedes any and all prior oral or written
agreements or understandings between [Employee] and the Company concerning the
subject matter. This Agreement may not be altered, amended or modified, except
by a further written document signed by [Employee] and the Company.
[ INSERT PARAGRAPH 11. FOR EMPLOYEES OVER THE AGE OF 40 ]
11. This Agreement will not become effective, and the payment
provided herein will not be paid, until seven (7) days after the date on which
[Employee] executes this Agreement.
DATE: ___________________________ Dep Corporation
By: ________________________________
DATE: ___________________________ ____________________________________
[Employee]
<PAGE> 15
EXHIBIT C
RIGHTS UNDER THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974
The RSP is intended to be an employee welfare benefit plan,
under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). If you are a participant in the RSP, you are entitled to certain
rights and protections under ERISA. ERISA provides that all participants of
plans covered by ERISA shall be entitled to:
1. Examine, without charge, at the Company's office,
all RSP documents filed by the RSP with the U.S. Department of Labor, such as
annual reports and RSP descriptions.
2. Obtain copies of all RSP documents and other RSP
information upon written request to the Company. The Company may make a
reasonable charge for the copies.
In addition to creating rights for RSP participants, ERISA
imposes duties upon the people who are responsible for the operation of the
employee benefit plan. The people who operate the RSP, called "fiduciaries,"
have a duty to do so prudently and in the interest of you and other RSP
participants. The Company cannot, for purposes of preventing you from
obtaining benefits or exercising your rights under ERISA, fire you or otherwise
discriminate against you. If your claim for a benefit is denied in whole or in
part, you must receive a written explanation of the reason for the denial. You
have the right to have the RSP review and reconsider your claim. Under ERISA,
there are steps you can take to enforce the above rights. For instance, if you
request materials from the RSP and do not receive them within 30 days, you may
file suit in a federal court. In such a case, the court may require the
Company to provide the materials and, unless the materials were not sent
because of reasons beyond the control of the Company, pay you up to $100 a day
for each day's delay. If you have a claim for benefits which is denied or
ignored, in whole or in part, you may file suit in a state or federal court.
If it should happen that you are discriminated against for asserting your
rights, you may seek assistance from the U.S. Department of Labor, or you may
file suit in a federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees. If you have any questions about the RSP, you should
contact the Company. If you should have any questions about this statement or
about your rights under ERISA, you should contact the nearest Area Office of
the U.S. Labor-Management Service Administration, Department of Labor.
<PAGE> 1
Exhibit 10.19
FORM CHANGE IN CONTROL EXECUTIVE SEVERANCE AGREEMENT
August 15, 1995
1~
2~
3~
4~
Dear 5~:
Dep Corporation (the "Company") considers it essential to the
best interests of its stockholders to foster the continuous employment of key
management personnel. In connection with this, the Company's Board of
Directors (the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control of the Company may exist
and that such possibility, and the uncertainty and questions that it may raise
among management, could result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders.
The Board has decided to reinforce and encourage the continued
attention and dedication of members of the Company's management, including
yourself, to their assigned duties without distraction arising from the
possibility of a change in control of the Company by entering into this letter
agreement (this "Agreement") with you, which Agreement is entered into pursuant
to the Dep Corporation Retention and Severance Plan (the "RSP").
In order to induce you to remain in its employ, the Company
hereby agrees that after this Agreement has been fully executed and subsequent
to a "Change in Control" (as defined in Section 2), you shall receive the
severance benefits set forth in this Agreement, in lieu of any other severance
benefits under the RSP, in the event your employment with the Company is
terminated under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on
August 15, 1995 and shall continue in effect through August 15, 1998; provided,
however, that commencing on August 15, 1998, and each August 15 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than April 30 of such year, the Company shall have given
notice that it does not wish to extend this Agreement; provided, that if a
Change in Control (as defined in Section 2), occurs during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of not less than eighteen (18) months beyond the month in which such
Change in Control occurred. Notwithstanding anything to the contrary contained
in this Agreement, in no event shall the term of this Agreement extend beyond
the end of the calendar month in which your 65th birthday occurs.
<PAGE> 2
2. Change in Control. No benefits shall be payable
hereunder unless there has been a Change in Control. For purposes of this
Agreement, a "Change in Control" shall be deemed to occur if:
(i) Robert Berglass, Judith Berglass and any controlled
affiliate thereof (collectively, "Berglass") is no longer the Beneficial Owner
of securities of the Company representing 26% or more of the combined voting
power of the Company's then outstanding securities. For purposes of this
Agreement, the term "Beneficial Owner" shall have the meaning given to such
term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); provided, however, that Berglass shall be deemed to be the
Beneficial Owner of any securities of the Company which are owned by Berglass
but subject to call options by third parties unless and until such options are
exercised;
(ii) individuals who at the beginning of any period of two
consecutive years constitute the Board, and any new director (other than a
director designated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections 2(i), (iii) or (iv))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof. For
purposes of this Agreement, the term "Person" is used as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); provided, however, that the term shall not include the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation (or other entity),
other than (i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66-2/3% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which Berglass remains the Beneficial Owner of
securities of the Company representing at least 26% of the combined voting
power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
<PAGE> 3
3. Termination Following Change in Control.
(i) General. If any of the events described in Section 2
constituting a Change in Control shall have occurred, you shall be entitled to
the benefits provided in Section 4(ii) upon the subsequent termination of your
employment during the term of this Agreement, unless such termination is (a) by
the Company for "Just Cause" (as defined in Section 3(iii)) or for "Disability"
(as defined in Section 3(ii)) or (b) by you other than for "Good Reason" (as
defined in Section 3(iv)). In the event your employment with the Company is
terminated for any reason and subsequently a Change in Control occurs, you
shall not be entitled to any benefits hereunder.
(ii) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six (6) consecutive months, and
within thirty (30) days after written Notice of Termination (as defined in
Section 3(v)) is given you shall not have returned to the full-time performance
of your duties, your employment may be terminated for "Disability."
(iii) Just Cause. Termination by the Company of your
employment for "Just Cause" shall mean termination:
(a) upon your willful and continued failure to substantially
perform your duties with the Company after a written demand
for substantial performance is delivered to you by the Board
which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your
duties;
(b) upon your willful participation in conduct which is
demonstrably and materially injurious to the Company,
monetarily or otherwise; or
(c) upon there being substantial evidence that you are guilty
of a crime classified as a felony (or the equivalent thereof)
under applicable law, or that you have been convicted of such
a crime.
For purposes of this Section 3(iii), no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted to be done,
by you not in good faith. Notwithstanding the foregoing, you shall not be
deemed terminated for Just Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board at a meeting of
the Board (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the Board's
good faith opinion you were guilty of conduct set forth above in this Section
3(iii) and specifying the particulars thereof in reasonable detail.
<PAGE> 4
(iv) Good Reason. You shall be entitled to terminate your
employment for Good Reason. "Good Reason" shall mean, without your express
written consent, the occurrence after a Change in Control of any of the
following circumstances unless, in the case of Sections 3(iv)(a), (e), (f) or
(g), such circumstances are fully corrected prior to the Date of Termination
(as defined in Section 3(vi)) specified in the Notice of Termination given in
respect thereof:
(a) the assignment to you of any duties inconsistent with the
position in the Company that you held immediately prior to a
Change in Control, or a significant adverse alteration in the
nature or status of your responsibilities or the conditions of
your employment from those in effect immediately prior to such
Change in Control;
(b) the Company's reduction of your annual base salary as in
effect on the date hereof or as the same may be increased from
time to time except for across-the-board salary reductions
similarly affecting all management personnel of the Company
and all management personnel of any person in control of the
Company, provided that any such across-the-board reduction in
base salary does not exceed 25% of your base salary
immediately prior to the Change in Control;
(c) the relocation of the Company's offices at which you were
principally employed immediately prior to the date of a Change
in Control to a location more than 25 miles from such location
or the Company's requiring you to be based anywhere other than
the Company's offices at such location except for required
travel on the Company's business to an extent substantially
consistent with your present travel obligations;
(d) the Company's failure to pay to you any portion of your
current compensation or to pay to you any portion of an
installment of deferred compensation under any deferred
compensation program of the Company within seven (7) days of
the date such compensation is due, provided that you have
given written notice of such failure to the Chief Executive
Officer of the Company and the Company has not remedied such
failure within seven (7) days after such notice;
(e) the Company's failure to continue in effect any material
compensation or benefit plan in which you participate
immediately prior to a Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the
Company's failure to continue your participation therein (or
in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative
to other participants, as existed immediately prior to the
Change in Control;
<PAGE> 5
(f) the Company's failure to continue to provide you with
benefits substantially similar to those enjoyed by you under
any of the Company's life insurance, medical, health and
accident, or disability plans in which you are participating
immediately prior to a Change in Control or the taking of any
action by the Company which would directly or indirectly
materially reduce any of such benefits; or
(g) the Company's failure to obtain an agreement from any
successor to assume and agree to perform this Agreement.
Your right to terminate your employment pursuant to this
Section 3(iv) shall not be affected by your incapacity due to physical or
mental illness. Your continued employment shall not constitute consent to, or
a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
(v) Notice of Termination. Any purported termination of
your employment by the Company or by you shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 7.
"Notice of Termination" shall mean a notice that shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(vi) Date of Termination, Etc. "Date of Termination" shall
mean (a) if your employment is terminated for Disability thirty (30) days after
Notice of Termination is given (provided that you shall not have returned to
the full-time performance of your duties during such thirty (30)-day period),
and (b) if your employment is terminated pursuant to Section 3(iii) or Section
3(iv) or for any other reason (other than Disability), the date specified in
the Notice of Termination (which, in the case of a termination for Just Cause
shall not be less than thirty (30) days from the date such Notice of
Termination is given, and in the case of a termination for Good Reason shall
not be less than fifteen (15) nor more than sixty (60) days from the date such
Notice of Termination is given). Notwithstanding anything to the contrary
contained in this Section 3(vi), if within fifteen (15) days after any Notice
of Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, then
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, or as set forth
in Section 8; provided, however, that the Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.
4. Compensation Upon Termination. Following a Change in
Control, you shall be entitled to the benefits described below upon termination
of your employment, provided that such termination occurs during the term of
this Agreement. The benefits to which you are entitled, subject to the terms
and conditions of this Agreement, are:
<PAGE> 6
(i) If your employment shall be terminated by the Company
for Just Cause or by you other than for Good Reason, the Company shall pay you
your full base salary, when due, through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further obligations to you
under this Agreement.
(ii) If your employment by the Company shall be terminated
by you for Good Reason or by the Company other than for Just Cause or
Disability, then you shall be entitled to the benefits provided below:
(a) the Company shall pay to you your full base salary, when
due, through the Date of Termination at the rate in effect at
the time Notice of Termination is given, at the time specified
in Section 4(v), plus all other amounts to which you are
entitled under any compensation plan of the Company at the
time such payments are due;
(b) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay
as severance pay to you, at the time specified in Section
4(v), a lump sum severance payment (together with the payments
provided in Sections 4(ii)(c) and (d) below, the "Severance
Payments") equal to 6~ YOUR ANNUAL SALARY 7~ MONTHS OF YOUR
ANNUAL SALARY (after adding back any voluntary salary
reduction) as in effect as of the Date of Termination or
immediately prior to the Change in Control, whichever is
greater;
(c) the Company shall pay to you all reasonable legal fees
and expenses incurred by you as a result of such termination
(including all such reasonable fees and expenses, if any,
incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by
this Agreement (as set forth in Section 8 of this Agreement)
or in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the
Internal Revenue Code, as Amended (the "Code"), to any payment
or benefit provided hereunder); and
(d) for a period of 8~ months after such termination, the
Company shall arrange to provide you with life, disability,
accident and group health insurance benefits substantially
similar to those that you were receiving immediately prior to
the Notice of Termination; provided, however, that (i) the
Company shall no longer provide you with the group health
insurance benefits referred to above at such time as you are
covered under another employer's group health insurance plan,
unless your participation in such other plan is affected by
any exclusion or limitation related to a pre-existing
condition and (ii) the Company shall no longer provide you
with the life, disability or accident insurance benefits
referred to above at such time as you are covered under
another employer's life, disability
<PAGE> 7
or accident insurance plan, unless such other plan does not
provide benefits substantially comparable to the benefits
referred to above.
(iii) To the extent any payment made under this Agreement
would not be deductible by the Company when paid or accrued by virtue of
Section 162(m) of the Code, the non-deductible portion of such payment shall be
deferred and paid on the first date that the deductibility of such payment
would not be limited by Section 162(m) of the Code.
(iv) If by reason of Section 280G of the Code any payment or
benefit received or to be received by you in connection with a Change in
Control or the termination of your employment (whether payable pursuant to the
terms of this Agreement ("Contract Payments") or any other plan, arrangements
or agreement with the Company or an Affiliate (as defined below) (collectively
with the Contract Payments, "Total Payments") would not be deductible (in whole
or part) by the Company, an Affiliate or other person making such payment or
providing such benefit, then the Severance Payments shall be reduced (to zero
if necessary) and, if Severance Payments are reduced to zero, other Contract
Payments shall be reduced (to zero if necessary) and, if Contract Payments are
reduced to zero, other Total Payments shall be reduced (to zero if necessary)
until no portion of the Total Payments is not deductible by reason of section
280G of the Code. For purposes of this limitation, (a) no portion of the Total
Payments the receipt or enjoyment of which you shall have effectively waived in
writing prior to the date of payment of the Severance Payments shall be taken
into account; (b) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Company's independent
auditors and acceptable to you does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code (without regard to subsection
(A)(ii) thereof); (c) the Severance Payments (and, thereafter, other Contract
Payments and other Total Payments) shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(a) and (b) of Section 4(ii)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code, in the opinion of the tax counsel referred to in clause
(b), and (d) the value of any noncash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the Company's
independent auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code. For purposes of this Section 4(iii), the term "Affiliate"
means the Company's successors, any Person whose actions result in a Change in
Control or any corporation affiliated (or which, as a result of the completion
of the transactions causing a Change in Control shall become affiliated) with
the Company within the meaning of section 1504 of the Code.
<PAGE> 8
(v) The payments provided for in Section 4(ii)(a) shall be
made not later than the fifth day following the Date of Termination. The
payments provided for in Section 4(ii)(b) shall be made not later than the
thirtieth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to you on such day an estimate, as determined in good
faith by the Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to you, payable on the fifth day after demand
by the Company.
(vi) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise
nor, except as provided in Section 4(ii)(d), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.
5. Other Employee Benefit Programs.
(i) The provisions of other employee benefit programs
including, but not limited to, the Company's MBO Bonus Program, the 1983 and
1992 Stock Option Plans, the 1993 Stock Target Ownership Plan, the Executive
Deferred Compensation Plan, and vacation pay, shall continue to apply. The
terms and provisions of such plans and programs shall determine the benefits,
if any, available you.
(ii) You shall have the right to continue health insurance
benefits, after the severance benefits period specified in Section 4(ii)(d)
expires, under the federal law known as COBRA; however, the severance benefits
provided in Section 4(ii)(d) will be offset against the required COBRA
continuation period. The Company shall provide you, upon the termination of
your employment, with information regarding your rights under COBRA.
6. Successors; Binding Agreement.
(i) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle you to terminate your employment and
receive compensation from the Company in the same amount and on the same terms
to which you would be entitled hereunder if you terminate your employment for
Good Reason following a Change in Control, except that for purposes of
<PAGE> 9
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. Where the context requires,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by you and your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
7. Notice. For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
8. Arbitration; Dispute Resolution.
(i) Arbitration Procedure. The Claims Procedure provided in
Section VII of the RSP and the Arbitration Provision provided in Section VIII
of the RSP shall not apply to any disagreement, dispute, controversy or claim
arising out of or relating to this Agreement. Any such disagreement, dispute,
controversy or claim shall be settled by arbitration in accordance with the
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") (except as otherwise provided in this
Agreement) in Los Angeles, California. The arbitral tribunal shall consist of
one arbitrator. In making any decision, the arbitrator shall apply and follow
the substantive law of California without reference to the conflicts of law
provisions thereof. The parties to the arbitration jointly shall directly
appoint such arbitrator within thirty (30) days of initiation of arbitration.
If the parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
You and the Company agree that the arbitral award may be enforced against the
parties to the arbitration proceeding or their assets wherever they may be
found and that a judgment upon the arbitral award may be entered in any court
having jurisdiction thereof. The Company shall pay all fees and expenses of
the Arbitrator regardless of the result and shall provide all witnesses and
evidence reasonably required by you to present your case. The Company shall
pay to you all reasonable arbitration expenses and legal fees incurred by you
as a result of a termination of your employment in seeking to obtain or enforce
any right or benefit provided by this Agreement (whether or not you are
successful in obtaining or enforcing such right or benefit). Such payments
shall be made within five (5) days after your
<PAGE> 10
request for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
(ii) Compensation During Dispute. Your compensation during
any disagreement, dispute, controversy or claim arising out of or relating to
this Agreement or the interpretation of this Agreement shall be as follows:
(a) If a purported termination by you for Good Reason occurs
or is deemed to occur following a Change in Control and during
the term of this Agreement, and such termination is disputed
in accordance with Sections 3(vi) and 8(i) of this Agreement,
the Company shall continue to pay you the full compensation in
effect when the notice giving rise to the dispute was given
(including, but not limited to, salary) and continue you as a
participant in all compensation, benefit and insurance plans
in which you were participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved
in accordance with Section 8(i). Amounts paid under this
Section 8(ii)(a) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement. You agree to
remain in the employ of the Company during the resolution of
the dispute and to continue to provide services unless your
employment is terminated earlier by Disability or by action of
the Company. If the dispute is resolved by a determination
that you did not have Good Reason, this Agreement, in
accordance with its terms, shall continue to apply to the
circumstances of your employment by the Company and any
termination thereof.
(b) If there is a termination by the Company followed by a
dispute as to whether you are entitled to the payments and
other benefits provided under this Agreement, then, during the
period of that dispute the Company shall pay you one-hundred
percent (100%) of the amount specified in Section 4(ii)(a) and
fifty percent (50%) of the amount specified in Section
4(ii)(b) hereof, and the Company shall provide you with the
other benefits provided in Section 4(ii) of this Agreement,
if, but only if, you agree in writing that if the dispute is
resolved against you, you shall promptly refund to the Company
all payments you receive under Sections 4(ii)(a) and 4(ii)(b)
of this Agreement. If the dispute is resolved in your favor,
promptly after resolution of the dispute the Company shall pay
you the sum that was withheld during the period of the dispute
plus interest at the rate provided in Section 1274(d) of the
Code, compounded monthly.
<PAGE> 11
9. Miscellaneous.
(i) As a condition to your entitlement to receive any
payments under this Agreement, you must execute a Benefits Acceptance Agreement
in the form of Exhibit A attached hereto.
(ii) Any payments provided for hereunder shall be paid net
of any applicable withholding required under federal, state or local law.
(iii) The obligations of the Company under Section 4 shall
survive the expiration of the term of this Agreement.
(iv) All references to sections of the Code and the Exchange
Act shall be deemed also to refer to any successor provisions to such sections.
(v) No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
(vi) No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
(vii) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without regard to its conflicts of law principles.
(viii) The section headings contained in this Agreement are
for convenience only, and shall not affect the interpretation of this
Agreement.
(ix) Nothing in this Agreement shall confer upon you any
right to continue in the employ of the Company or shall interfere with or
restrict in any way the Company's right, which is hereby expressly reserved, to
discharge you at any time for any reason whatsoever, with or without cause and
with or without notice.
10. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
<PAGE> 12
11. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
12. Entire Agreement. This Agreement sets forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto; and
any prior agreement of the parties hereto in respect of the subject matter
contained herein, is hereby terminated and cancelled.
If this letter sets forth our agreement on the subject matter
hereof, please sign and return to the Company the enclosed copy of this letter,
which shall then constitute our agreement on this subject.
Dep Corporation
By _________________________________
ROBERT BERGLASS
CHAIRMAN AND PRESIDENT
Agreed to this ______________ day
of ________________________, 1995.
Signature: __________________________________________________
1~
2~
<PAGE> 1
Exhibit 10.20
FORM CHANGE IN CONTROL EXECUTIVE RETENTION BONUS AGREEMENT
August 15, 1995
To: 1~
2~
As you know, Dep Corporation (the "Company"), in order to
induce you to remain employed by the Company, has adopted a Retention and
Severance Plan (the "RSP") which allows the Company to enter into an agreement
with you providing for the payment of a retention bonus under certain
circumstances. This letter agreement (this "Agreement"), which is entered into
pursuant to the RSP, entitles you to receive a retention bonus (the "Retention
Bonus"), under certain circumstances, in addition to any severance payment you
may be entitled to under the RSP or that certain letter agreement regarding
severance benefits, between you and the Company, dated as of August 15, 1995
(the "Severance Agreement").
The Company hereby agrees that subject to your acceptance of
this Agreement, you will receive the Retention Bonus described below under the
circumstances described below.
1. Retention Bonus Circumstances.
You will receive the Retention Bonus if:
(i) a "Change in Control" (as defined in the
Severance Agreement) occurs within 24 months after
the date of this Agreement; and
(ii) (a) you remain employed by the Company for a
period of 6 months after the Change in Control or (b)
you are terminated by the Company or a successor of
the Company,unless such termination is for "Just
Cause" (as defined in the Severance Agreement) or is
by you for other than "Good Reason" (as defined in
the Severance Agreement).
<PAGE> 2
2. Time and Amount of Retention Bonus.
(a) The Retention Bonus will be a payment, within five
(5) days after the circumstances in Section 1 have occurred, equal to 3~.
(b) To the extent the Retention Bonus would not be
deductible by the Company when paid or accrued by virtue of Section 162(m) of
the Code, the non-deductible portion of such payment shall be deferred and paid
on the first date that the deductibility of such payment would not be limited
by Section 162(m) of the Code.
(c) If by reason of Section 280G of the Code any payment
or benefit received or to be received by you in connection with a Change in
Control or the termination of your employment would not be deductible to the
Company (in whole or in part), then the Retention Bonus shall be reduced in
accordance with the provisions of Section 4(iv) of the Severance Agreement.
3. Miscellaneous.
(a) Any payments provided for hereunder shall be paid net
of any applicable withholding required under federal, state or local law.
(b) Nothing in this Agreement shall confer upon you any
right to continue in the employ of the Company or shall interfere with or
restrict in any way the Company's right, which is hereby expressly reserved, to
discharge you at any time for any reason whatsoever, with or without cause and
with or without notice.
(c) No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and an officer of the Company who is specifically
designated by the Board.
(d) No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
(e) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without regard to its conflicts of law principles.
<PAGE> 3
(f) Any disagreement, dispute, controversy or claim
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the terms of Section 8 of the Severance Agreement.
If this letter sets forth our agreement on the subject matter
hereof, please sign and return to me the enclosed copy of this letter, which
shall then constitute our agreement on this subject.
Dep Corporation
By _________________________________
Robert Berglass
Chairman and President
Agreed to this ____________________________ day
of _______________________________________ 1995.
Signature: __________________________________
1~
2~
<PAGE> 1
Exhibit 11
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended July 31,
------------------------------
1995 1994 1993
-------- ------- ------
<S> <C> <C> <C>
Net income (loss) ($26,958) ($3,583) $1,170
======== ======= ======
Shares:
Weighted average shares outstanding 6,244 6,227 6,222
Shares issuable from assumed exercise
of outstanding options -- 23 145
-------- ------- ------
Adjusted weighted average shares
outstanding 6,244 6,250 6,367
======== ======= ======
Income (loss) per share ($4.32) ($0.57) $0.18
======== ======= ======
</TABLE>
Fully diluted shares are not shown because there is no difference between
primary and fully diluted.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Dep Corporation
We consent to incorporation by reference in the registration statement
(No. 33-8500) on Form S-8 of Dep Corporation and subsidiaries of our report
dated September 21, 1995, except for Notes 6 and 16, which date is October 30,
1995, relating to the consolidated balance sheets of Dep Corporation and
subsidiaries as of July 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows and related schedule
for each of the years in the three-year period ended July 31, 1995, which
report appears in the July 31, 1995 report on Form 10-K of Dep Corporation and
subsidiaries.
Our report dated September 21, 1995, except for Notes 6 and 16, which date
is October 30, 1995, contains an explanatory paragraph that states that the
Company is in technical default of certain financial covenants in connection
with its bank facility which have been waived by the lenders through October
31, 1995. In addition, the Company has a mandatory payment of $8,300,000 due
on April 15, 1996. Based on current estimates of available cash flow,
management does not believe it will have sufficient cash to make the mandatory
payment. Accordingly, the entire amount outstanding under the bank facility of
$60,969,000 has been classified as a current liability. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Long Beach, California
October 30, 1995
85
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT JULY 31, 1995, AND CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 4,611,000
<SECURITIES> 0
<RECEIVABLES> 18,811,000<F1>
<ALLOWANCES> 0
<INVENTORY> 13,071,000
<CURRENT-ASSETS> 40,735,000
<PP&E> 15,423,000<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,904,000
<CURRENT-LIABILITIES> 76,417,000
<BONDS> 3,744,000
<COMMON> 64,000<F3>
0
0
<OTHER-SE> 11,163,000
<TOTAL-LIABILITY-AND-EQUITY> 93,904,000
<SALES> 127,689,000
<TOTAL-REVENUES> 0
<CGS> 47,495,000
<TOTAL-COSTS> 151,389,000<F4>
<OTHER-EXPENSES> (54,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,177,000
<INCOME-PRETAX> (29,823,000)
<INCOME-TAX> (2,865,000)
<INCOME-CONTINUING> (26,958,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,958,000)
<EPS-PRIMARY> (4.32)
<EPS-DILUTED> 0
<FN>
<F1>Accounts receivable net of allowance for doubtful accounts.
<F2>Property, plant and equipment net of accumulated depreciation.
<F3>Common stock includes both Class A and Class B common stock.
<F4>Includes 25,166,000 related to the write-down in value of Agree and Halsa
assets.
</FN>
</TABLE>
