As filed with the Securities and Exchange Commission on December 20, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE COSMETIC CENTER, INC.
(Exact name of registrant as specified in its charter)
Delaware 5999 52-1266697
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
or organization) Code No.)
8839 Greenwood Place
Savage, Maryland 20763
(301) 497-6700
(Address of Principal Executive Offices, Including Zip Code)
Bruce Strohl
8839 Greenwood Place
Savage, Maryland 20763
(301) 497-6700
(Name, Address and Telephone Number
of Agent for Service)
The Commission is requested to send
copies of all communications to:
Jeffrey E. Jordan, Esq. Robert K. Kretzman, Esq.
Arent Fox Kintner Plotkin & Kahn Revlon Consumer Products Corporation
1050 Connecticut Avenue, N.W. 625 Madison Avenue
Washington, DC 20036-5339 New York, NY 10022
(202) 857-6473 (212) 527-5695
(202) 857-6395 (facsimile) (212) 527-5693 (facsimile)
Approximate date of commencement of proposed sale to the public: As soon as
practicable on or after the effective date of this Registration Statement.
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit (1) Offering Price (1) Fee
<S> <C>
Class C Common Stock, $.01 par value 4,299,884 shares $5.735 $24,666,870 $7,475
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f)(i).
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION DATED DECEMBER 19, 1996
THE COSMETIC CENTER, INC.
8839 Greenwood Place
Savage, Maryland 20763
TO THE STOCKHOLDERS OF THE COSMETIC CENTER, INC.:
The Boards of Directors of The Cosmetic Center, Inc. ("Cosmetic"), Revlon
Consumer Products Corporation ("Revlon") and Prestige Fragrance & Cosmetics,
Inc., a wholly owned subsidiary of Revlon ("PFC"), have approved an Agreement
and Plan of Merger dated November 27, 1996 (the "Merger Agreement"). Upon the
approval of the Merger Agreement by the holders of Cosmetic Class B common stock
(the only class of Cosmetic stock entitled to vote on the Merger Agreement) and
the satisfaction of certain other conditions, PFC will be merged into Cosmetic,
and the outstanding capital stock of Cosmetic and PFC will be exchanged for
newly issued Cosmetic Class C common stock (the "Merger"). Following the Merger,
the Cosmetic Class C common stock will be the only class of Cosmetic stock
outstanding.
As a result of the Merger, Cosmetic stockholders will receive for each
share of Cosmetic Class A or Class B common stock they hold one share of
Cosmetic Class C common stock or, at each stockholder's election and subject to
the limitation discussed below, $7.63 in cash (the "Cash Election"). Holders of
options to purchase Cosmetic Class A or Class B common stock with an exercise
price of less than $7.63 may elect to receive for each such option they hold an
equivalent option to purchase Cosmetic Class C common stock or, at each such
optionholder's election and subject to the limitation discussed below, cash
equal to the difference between $7.63 and the exercise price per share of such
options. The right of stockholders and optionholders to receive cash is limited
to an aggregate of 2,829,065 shares and options for shares, and to the extent
that holders of more than 2,829,065 shares and options for shares elect to
receive cash, the Cash Election will be provided to such holders pro rata. See
"The Merger Agreement -- Cash Election" in the attached Proxy
Statement/Prospectus for a more detailed description of the right to elect to
receive Cosmetic Class C common stock or cash.
Assuming that the Cash Election is made for all of the 4,299,884
outstanding shares of Cosmetic Class A and Class B common stock and 184,200
outstanding options with an exercise price of less than $7.63 per share,
Cosmetic stockholders will receive in the aggregate approximately 1,587,000
shares of Cosmetic Class C common stock (or approximately 16% of the Cosmetic
Class C common stock to be outstanding immediately after the Merger) and
approximately $20.7 million in cash, and Revlon will receive 8,479,335 shares of
Cosmetic Class C common stock (or approximately 84% of the Cosmetic Class C
common stock to be outstanding immediately after the Merger) as a result of the
Merger.
The Merger requires the approval of the holders of a majority of the
outstanding Cosmetic Class B common stock. The annual meeting of the Cosmetic
stockholders has been scheduled for , February , 1997 at 10:00
a.m., at located at , Maryland
(the "Meeting"). At the Meeting, holders of Cosmetic Class B common stock will
vote upon the Merger Agreement (which provides for the Merger and the
appointment of nine directors upon consummation of the Merger who will replace
the Cosmetic Board of Directors) and also will vote upon (i) amendments to
Cosmetic's Certificate of Incorporation related to the Merger, including
authorizing the issuance of up to 40,000,000 shares of Cosmetic Class C common
stock and repealing the classification of the Cosmetic Board of Directors, (ii)
the election of two Class II directors (who will be replaced in connection with
the appointment of nine directors upon consummation of the Merger) and (iii) the
approval of the Cosmetic 1997 Stock Option Plan, which provides for the grant of
options on the Cosmetic Class C common stock. Only holders of record of Cosmetic
Class B common stock at the close of business on January , 1997 will be
entitled to notice of, and to vote at, the Meeting. Holders of Cosmetic Class A
common stock are not entitled to vote at the Meeting.
Whether or not you plan to attend the Meeting, if you are a holder of
Cosmetic Class B common stock, please take time to vote by completing and
mailing the enclosed proxy card to us.
Mark S. Weinstein, Anita J. Weinstein, Susan K. Magenheim and their family
members own approximately 51.4% of the outstanding Cosmetic Class B common stock
and have advised Cosmetic that they intend to vote in favor of the Merger
Agreement, the amendments to Cosmetic's Certificate of Incorporation, the
election of directors and the Cosmetic 1997 Stock Option Plan. See "The
Stockholders Agreement." Accordingly, the approval of the Merger, the amendments
to Cosmetic's Certificate of Incorporation (except the repeal of the
classification of the Cosmetic Board of Directors, which requires the
affirmative vote of the holders of 80% of the outstanding Cosmetic Class B
common stock), the election of directors and the approval of the Cosmetic 1997
Stock Option Plan are assured without the vote of any other stockholder.
The attached Proxy Statement/Prospectus provides you with detailed
information about the proposed Merger, the other matters to be voted on at the
Meeting, Cosmetic and PFC. We encourage you to read this entire document
carefully.
By order of the Board of Directors,
MARK S. WEINSTEIN
CHAIRMAN OF THE BOARD
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE EVALUATED IN CONNECTION WITH THE MERGER.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE COSMETIC CLASS C
COMMON STOCK TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Proxy Statement/Prospectus dated January , 1997 and
first mailed to stockholders on January , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................................................. 1
SUMMARY................................................................................................................ 3
RISK FACTORS........................................................................................................... 10
THE MERGER............................................................................................................. 14
Background of the Merger............................................................................................. 14
Reasons for the Merger; Recommendation of the Cosmetic Board......................................................... 19
Financing............................................................................................................ 20
Operations After the Merger.......................................................................................... 21
Forward-Looking Statements........................................................................................... 21
Amendments to Cosmetic's Certificate of Incorporation................................................................ 22
Regulatory Filings and Approvals..................................................................................... 22
Accounting Treatment................................................................................................. 22
No Appraisal Rights.................................................................................................. 23
Certain Federal Income Tax Consequences.............................................................................. 23
OPINION OF FINANCIAL ADVISOR........................................................................................... 26
The Offer............................................................................................................ 27
Comparable Companies Analysis........................................................................................ 27
Acquisition Premiums Analysis........................................................................................ 29
Comparable Transactions Analysis..................................................................................... 29
Discounted Cash Flow Analysis........................................................................................ 30
Leveraged Buyout Analysis............................................................................................ 30
Asset Liquidation Analysis........................................................................................... 30
Other Factors........................................................................................................ 31
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................................................................. 31
Employment and Non-Competition Agreements with Mark S. Weinstein and Anita J. Weinstein.............................. 31
Consulting and Non-Competition Agreement with Susan K. Magenheim..................................................... 32
Employment Agreement with Ben S. Kovalsky............................................................................ 32
Stockholders Agreement with Principal Stockholders................................................................... 33
Cosmetic Stock Options............................................................................................... 33
MARKET PRICES OF COSMETIC'S SECURITIES................................................................................. 34
SELECTED FINANCIAL DATA OF COSMETIC.................................................................................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF COSMETIC...................... 36
General.............................................................................................................. 36
Expansion............................................................................................................ 36
Hair Salon Strategy.................................................................................................. 36
Results of Operations................................................................................................ 37
Fiscal Year Ended September 27, 1996 Compared to Fiscal Year Ended September 29, 1995................................ 37
Fiscal Year Ended September 29, 1995 Compared to Fiscal Year Ended September 30, 1994................................ 37
Liquidity and Capital Resources...................................................................................... 38
Seasonality.......................................................................................................... 39
Inflation............................................................................................................ 39
SELECTED FINANCIAL DATA OF PFC......................................................................................... 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PFC........................... 41
Results of Operations................................................................................................ 41
For the Nine Month Period Ended September 30, 1996 Compared to the Nine Month Period Ended September 30, 1995........ 41
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
For the Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994.................................... 41
For the Year Ended December 31, 1994 Compared to the Year Ended December 31, 1993.................................... 41
Financial Condition, Liquidity and Capital Resources................................................................. 42
Seasonality.......................................................................................................... 43
Inflation............................................................................................................ 43
PRO FORMA FINANCIAL INFORMATION........................................................................................ 44
THE MERGER AGREEMENT................................................................................................... 49
General.............................................................................................................. 49
Consideration to be Received in the Merger........................................................................... 49
Cash Election........................................................................................................ 49
Exchange of Stock Certificates....................................................................................... 49
Conditions to the Merger............................................................................................. 50
Representations and Warranties....................................................................................... 51
Conduct of Business Prior to Merger.................................................................................. 51
Certain Covenants.................................................................................................... 51
Termination; Amendment; Waiver....................................................................................... 52
Expenses............................................................................................................. 52
Termination Fee...................................................................................................... 53
THE STOCKHOLDERS AGREEMENT............................................................................................. 53
AGREEMENTS WITH REVLON................................................................................................. 54
Holmdel Lease........................................................................................................ 54
PFC Employee Store Leases............................................................................................ 55
Services Agreement................................................................................................... 55
Supply Agreement..................................................................................................... 56
Tax Sharing Agreement................................................................................................ 56
Registration Rights Agreement........................................................................................ 56
THE MEETING............................................................................................................ 57
Time and Place; Purposes............................................................................................. 57
Voting Rights; Votes Required for Approval........................................................................... 57
Proxies.............................................................................................................. 57
BUSINESS OF COSMETIC................................................................................................... 59
General.............................................................................................................. 59
Retail Division...................................................................................................... 59
Atlanta, Georgia Marketplace......................................................................................... 60
Wholesale Division................................................................................................... 60
Distribution Division................................................................................................ 60
Retail Stores........................................................................................................ 60
Purchasing........................................................................................................... 60
Inventory and Distribution Management................................................................................ 61
Advertising.......................................................................................................... 61
Trade Names and Service Marks........................................................................................ 61
Employees............................................................................................................ 62
Legal Proceedings.................................................................................................... 62
Competition.......................................................................................................... 62
Store Properties..................................................................................................... 62
Distribution Center and Corporate Headquarters....................................................................... 62
BUSINESS OF PFC........................................................................................................ 63
General.............................................................................................................. 63
Store Locations...................................................................................................... 63
Store Operations and Management...................................................................................... 64
Information Systems.................................................................................................. 65
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Store Expansion and Closings......................................................................................... 65
Distribution Operations.............................................................................................. 66
Purchasing........................................................................................................... 66
Trade Name and Service Mark.......................................................................................... 67
Competition.......................................................................................................... 67
Merchandise and Marketing............................................................................................ 67
Properties........................................................................................................... 67
Employees............................................................................................................ 68
Legal Proceedings.................................................................................................... 68
Stockholder Matters.................................................................................................. 68
Certain Relationships and Related Party Transactions................................................................. 68
ELECTION OF DIRECTORS; MANAGEMENT OF COSMETIC FOLLOWING THE MERGER..................................................... 69
Election Of Directors................................................................................................ 69
Directors Following the Merger....................................................................................... 70
Executive Officers Following the Merger.............................................................................. 71
Executive Compensation............................................................................................... 72
Summary Compensation Table........................................................................................... 72
Option Grants in Last Fiscal Year.................................................................................... 72
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values.................................... 73
Employment Agreements................................................................................................ 73
Director Compensation................................................................................................ 74
1991 Option Plan..................................................................................................... 74
Report to Stockholders on Compensation............................................................................... 76
Performance Graph.................................................................................................... 77
COSMETIC 1997 STOCK OPTION PLAN........................................................................................ 78
PRINCIPAL STOCKHOLDERS OF COSMETIC..................................................................................... 79
DESCRIPTION OF COSMETIC CAPITAL STOCK.................................................................................. 81
Cosmetic Class A Common Stock........................................................................................ 81
Cosmetic Class B Common Stock........................................................................................ 81
Cosmetic Class C Common Stock........................................................................................ 83
Dividends............................................................................................................ 83
Transfer Agent....................................................................................................... 83
Nasdaq National Market Listing....................................................................................... 83
Federal Securities Laws Consequences................................................................................. 83
LEGAL MATTERS.......................................................................................................... 84
EXPERTS................................................................................................................ 84
INDEPENDENT PUBLIC ACCOUNTANTS......................................................................................... 84
FUTURE STOCKHOLDER PROPOSALS........................................................................................... 84
WHERE YOU CAN FIND MORE INFORMATION.................................................................................... 84
LIST OF DEFINED TERMS.................................................................................................. 85
INDEX TO FINANCIAL STATEMENTS.......................................................................................... F-1
ANNEX I: Agreement and Plan of Merger
ANNEX II: Form of Amendments to Cosmetic's Certificate of Incorporation
ANNEX III: Opinion of Legg Mason Wood Walker, Incorporated
ANNEX IV: Form of Cosmetic 1997 Stock Option Plan
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: WHY ARE COSMETIC AND PFC PROPOSING TO MERGE?
A: Cosmetic's Board of Directors (the "Cosmetic Board") believes that the
combination of Cosmetic and PFC should create an opportunity to achieve
accelerated earnings growth through cost savings, synergies and critical
mass. The Cosmetic Board also believes that the Cash Election should
provide Cosmetic stockholders liquidity at a significant premium to the
market value of the Cosmetic Class A and Class B common stock prior to
the announcement of the signing of the letter of intent with respect to
the Merger. To review the reasons for the Merger in greater detail, see
pages 19 and 20; to review the related risks, see pages 10 through 13.
Q: WHAT DO I NEED TO DO NOW?
A: If you hold Cosmetic Class B common stock, you should mail your signed
proxy card in the enclosed return envelope as soon as possible, so that
your shares may be represented at the Meeting. Also, if you hold
Cosmetic Class A or Class B common stock and you want to elect to
receive cash with respect to your shares, you must complete and mail
your signed form of election in the enclosed return envelope, so that
your election is received prior to 5:00 p.m., New York City time, on the
business day immediately preceding the Meeting. The Meeting will take
place on February , 1997. If your election is not properly completed
and signed or is not received by that time, you will lose the right to
receive cash with respect to your shares. If your shares are not held in
your name, but are held in the name of a broker, bank or other person,
and you want to make the Cash Election, you must contact the broker,
bank or other person holding your shares, and it must make the Cash
Election for you.
Q: PLEASE EXPLAIN THE ELECTION TO RECEIVE COSMETIC CLASS C COMMON STOCK OR
CASH.
A: As a result of the Merger, Cosmetic stockholders will receive for each
share of Cosmetic Class A or Class B common stock they hold one share of
Cosmetic Class C common stock or, at each stockholder's election and
subject to the limitation discussed below, $7.63 in cash. Holders of
options to purchase Cosmetic Class A or Class B common stock with an
exercise price of less than $7.63 per share may elect to receive for
each such option they hold an equivalent option to purchase Cosmetic
Class C common stock or, at each such optionholder's election and
subject to the limitation discussed below, cash equal to the difference
between $7.63 and the exercise price per share of such options. The
right of stockholders and optionholders to receive cash is limited to an
aggregate of 2,829,065 shares and options for shares, and to the extent
that holders of more than 2,829,065 shares and options for shares elect
to receive cash, the Cash Election will be provided to such holders pro
rata.
Mark S. Weinstein, Anita J. Weinstein, Susan K. Magenheim and a
partnership composed of Mr. Weinstein, Mrs. Weinstein and Mrs. Magenheim
(the "Principal Stockholders") have agreed to make the Cash Election for
all of their 1,392,723 shares of Cosmetic Class A and Class B common
stock and 41,000 options that have an exercise price of less than $7.63
per share. See "The Stockholders Agreement" at page 53. Accordingly, if
other persons holding more than 1,395,342 shares and options for shares
that have an exercise price of less than $7.63 elect to receive cash,
all holders who have made the Cash Election will be subject to
proration.
Examples:
If (i) you currently own 100 shares of Cosmetic Class A (or Class B)
common stock, (ii) you make the Cash Election for all of your shares and
(iii) all other stockholders and optionholders make the Cash Election
for all of their shares and options that have an exercise price of less
than $7.63 per share, then after the Merger you will be entitled to
receive 37 shares of Cosmetic Class C common stock and approximately
$481 in cash.
If (i) you currently own 100 shares of Cosmetic Class A (or Class B)
common stock, (ii) you make the Cash Election for all of your shares and
(iii) other stockholders and optionholders (including the Principal
Stockholders) make the Cash Election such that the Cash Election is made
for an aggregate of 2,829,065 shares and options for shares, then after
the Merger you will be entitled to receive no shares of Cosmetic Class C
common stock and $763 in cash.
If you currently own 100 shares of Cosmetic Class A (or Class B) common
stock and do not make the Cash Election, then after the Merger you will
be entitled to receive 100 shares of Cosmetic Class C common stock and
no cash.
1
<PAGE>
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, we will send holders of Cosmetic
Class A and Class B common stock written instructions for exchanging
their stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the Merger promptly following the Meeting. The
Principal Stockholders and their family members own approximately 51.4%
of the outstanding Cosmetic Class B common stock (the only class of
Cosmetic stock entitled to vote at the Meeting) and they have advised
Cosmetic that they intend to vote in favor of the Merger Agreement.
Accordingly, the approval of the Merger Agreement is assured without the
vote of any other stockholder.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS?
A: The exchange of Cosmetic Class A or Class B common stock for Cosmetic
Class C common stock will be tax-free to Cosmetic stockholders for
federal income tax purposes. The exchange of Cosmetic Class A or Class B
common stock for cash will be taxable. To review the tax consequences to
Cosmetic stockholders in greater detail, see pages 23 through 26. We
also suggest that you discuss the tax consequences with your own tax
advisor.
Q: HOW MUCH COSMETIC CLASS C COMMON STOCK WILL REVLON RECEIVE IN THE
MERGER?
A: The PFC common stock will be converted into 8,479,335 shares of Cosmetic
Class C common stock. As a result of the Principal Stockholders'
agreement to make the Cash Election, the 8,479,335 shares to be held by
Revlon will represent at least 74% of the Cosmetic Class C common stock
outstanding immediately after the Merger and will represent
approximately 84% of such outstanding stock if in addition to the
Principal Stockholders' shares and options the Cash Election is made in
respect of all other outstanding shares and options for shares with an
exercise price of less than $7.63 per share.
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT.
A LIST OF ALL CAPITALIZED TERMS USED IN THIS PROXY STATEMENT/PROSPECTUS MAY
BE FOUND BEGINNING ON PAGE 85.
THE COMPANIES
The Cosmetic Center, Inc., 8839 Greenwood Place, Savage, Maryland 20763.
Telephone: (410) 497-6700.
Cosmetic is primarily engaged in the retail sale of a wide range of brand
name cosmetics, fragrances, beauty aids and related items. As of October 31,
1996, Cosmetic operated 69 specialty retail stores in the greater metropolitan
areas of Washington, D.C.; Richmond, Virginia; Baltimore, Maryland; Chicago,
Illinois; Charlotte/Raleigh/Durham, North Carolina; and Philadelphia,
Pennsylvania.
Prestige Fragrance & Cosmetics, Inc., 2182 Route 35, Holmdel, New Jersey
07733-1199. Telephone: (908) 739-8822.
PFC operates a chain of retail stores that sell a wide range of excess,
returned and discontinued, as well as certain first quality, brand name
cosmetics, fragrances and personal care products at discounted prices. As of
October 31, 1996, PFC operated 194 stores located principally in outlet malls in
41 states.
REASONS FOR THE MERGER
The Cosmetic Board believes that the combination of Cosmetic and PFC should
create an opportunity to achieve accelerated earnings growth through cost
savings, synergies and critical mass. The Cosmetic Board also believes that the
Cash Election should provide Cosmetic stockholders liquidity at a significant
premium to the market value of the Cosmetic Class A and Class B common stock
prior to the announcement of the signing of the letter of intent with respect to
the Merger.
RECOMMENDATION TO STOCKHOLDERS
The Cosmetic Board believes that the terms of the Merger are fair to and in
the best interests of Cosmetic and its stockholders. The Cosmetic Board
unanimously recommends that you vote FOR the proposal to (i) approve the Merger
Agreement and the Merger (including the amendment to Cosmetic's Certificate of
Incorporation to authorize Cosmetic to issue Cosmetic Class C common stock and
the appointment of nine directors), (ii) amend Cosmetic's Certificate of
Incorporation to repeal the classification of the Cosmetic Board, (iii) elect
two Class II directors (who will be replaced in connection with the appointment
of nine directors upon consummation of the Merger) and (iv) approve the Cosmetic
1997 Stock Option Plan.
THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS ANNEX I TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT BECAUSE IT
IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
WHAT COSMETIC STOCKHOLDERS WILL RECEIVE (SEE PAGE 49)
As a result of the Merger, Cosmetic stockholders will receive, for each
share of Cosmetic Class A or Class B common stock they own, one share of
Cosmetic Class C common stock or, at each stockholder's election and subject to
the limitation discussed below, $7.63 in cash. Following the Merger, the
Cosmetic Class C common stock will be the only class of Cosmetic stock
outstanding. Holders of options to purchase Cosmetic Class A or Class B common
stock with an exercise price of less than $7.63 per share may elect to receive
for each such option they hold an equivalent option to purchase Cosmetic Class C
common stock or, at each such optionholder's election and subject to the
limitation discussed below, cash equal to the difference between $7.63 and the
exercise price per share of such options. The right of stockholders and
optionholders to receive cash is limited to an aggregate of 2,829,065 shares and
options for shares, and to the extent that holders of more than 2,829,065 shares
and options for shares elect to receive cash, the Cash Election will be provided
to such holders pro rata. Holders of options to purchase Cosmetic Class A or
Class B common stock with an exercise price of more than $7.63 per share will
receive equivalent options to purchase Cosmetic Class C common stock.
Cosmetic stockholders who wish to make the Cash Election must deliver their
form of election to First Union National Bank of North Carolina (the "Exchange
Agent") by 5:00 p.m. New York City time on the business day before the Meeting.
Stockholders who are not record holders and who wish to make the Cash Election
must have the broker, bank or other person
3
<PAGE>
that holds their shares make the Cash Election for them. Stockholders who do not
make the Cash Election or do not comply with the Cash Election procedure will
receive Cosmetic Class C common stock and will not receive any cash in the
Merger. Stockholders who make the Cash Election may revoke the election by
submitting written notice to the Exchange Agent prior to 5:00 p.m. New York City
time on the business day before the Meeting.
OWNERSHIP OF COSMETIC FOLLOWING THE MERGER
Based on the number of shares of Cosmetic Class C common stock to be issued
to Revlon and the Principal Stockholders' agreement to make the Cash Election,
Revlon will own at least 74% of the Cosmetic Class C common stock outstanding
immediately after the Merger and will own approximately 84% of such shares if in
addition to the Principal Stockholders' shares and options, the Cash Election is
made in respect of all other outstanding shares and options for shares with an
exercise price of less than $7.63 per share.
ELECTION OF DIRECTORS; BOARD OF DIRECTORS AND MANAGEMENT OF COSMETIC
FOLLOWING THE MERGER (SEE PAGES 69 AND 70)
At the Meeting, the holders of the Cosmetic Class B common stock will vote
upon the election to the Cosmetic Board of Mark S. Weinstein and Donald R.
Rogers, the two members of the Cosmetic Board whose terms expire in 1997.
However, in connection with the Merger the Cosmetic Board will be enlarged to
nine members, and the nine persons named in the Merger Agreement will become the
directors of Cosmetic after giving effect to the Merger (the "Combined
Company"). In connection with the Merger, Cosmetic's Certificate of
Incorporation is proposed to be amended to repeal the classification of the
Cosmetic Board so that all of the directors will be elected annually. See "The
Merger -- Amendments to Cosmetic's Certificate of Incorporation."
The members of the Board of Directors of the Combined Company (the
"Combined Company Board") will be Ronald O. Perelman, chairman of the executive
committee and a director of Revlon, Howard Gittis, a director of Revlon, Jerry
W. Levin, chairman, chief executive officer and a director of Revlon and a
director of PFC, Howard Diener, the president of PFC, William J. Fox, executive
vice president, chief financial officer and a director of Revlon and vice
president and a director of PFC, Wade H. Nichols, senior vice president and
general counsel of Revlon and vice president and a director of PFC, and Mark S.
Weinstein, chairman of the Cosmetic Board. It is also anticipated that David N.
Dinkins, a professor at Columbia University and the former Mayor of The City of
New York, and Harvey Rosenthal, the former president of Melville Corporation
(now known as CVS Corporation), will be the independent directors.
Mr. Levin will be appointed chairman of the Combined Company Board, Mr.
Weinstein will be appointed vice chairman of the Combined Company Board and Mr.
Diener will be appointed president and chief executive officer of the Combined
Company.
The Principal Stockholders and Revlon have entered into a Stockholders
Agreement dated November 27, 1996 (the "Stockholders Agreement") pursuant to
which, for three years after the consummation of the Merger, (i) the Principal
Stockholders will vote all of their Cosmetic Class C common stock in favor of
Revlon's nominees for director so that Revlon will at all times maintain
representation on the Combined Company Board equal to Revlon's percentage
ownership of Cosmetic Class C common stock, but not less than seven board seats,
including two independent directors, and (ii) Revlon will vote its shares in
favor of the Principal Stockholders' nominees for director equal to their
aggregate percentage ownership of outstanding Cosmetic Class C common stock,
after giving effect to the Merger and the Cash Election, but not less than one
nor more than two board seats.
OTHER INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER (SEE PAGE 31)
In considering the Cosmetic Board's recommendation that you vote in favor
of the Merger, you should be aware that several officers of Cosmetic, including
some officers who are directors, following the Merger will have employment or
consulting agreements that will provide them with interests in the Merger that
are different from, or in addition to, yours. These persons will receive
significant compensation following the Merger. Please refer to pages through
for more information concerning employment and consulting agreements for these
officers and directors.
CONDITIONS TO THE MERGER (SEE PAGE 50)
The completion of the Merger depends upon satisfaction of several
conditions, including the following:
(i) the approval of the holders of a majority of the outstanding Cosmetic
Class B common stock;
4
<PAGE>
(ii) Cosmetic shall have obtained financing of no less than $50 million to
make the cash payments required by the Cash Election, to refinance existing
indebtedness of Cosmetic and PFC, to pay fees and expenses and to provide future
working capital for the Combined Company following the Merger;
(iii) neither Cosmetic nor PFC shall have suffered a material adverse
change in its financial condition, business or results of operations;
(iv) the representations and warranties of Cosmetic, Revlon and PFC set
forth in the Merger Agreement shall be accurate unless such failure to be
accurate shall not have a material adverse effect;
(v) Cosmetic, Revlon and PFC shall have performed their obligations under
the Merger Agreement in all material respects; and
(vi) Cosmetic, Revlon and PFC shall have obtained all necessary material
governmental and third-party consents and approvals.
Certain conditions to the Merger may be waived by the party entitled to
assert the condition.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 52)
Cosmetic and Revlon can agree to terminate the Merger Agreement without
completing the Merger. In addition, either Cosmetic or Revlon can terminate the
Merger Agreement if any of the following occurs:
(i) if the Merger has not occurred before March 17, 1997, unless the
failure to consummate the Merger by this date is due to the action or failure to
act of the party seeking to terminate the Merger Agreement;
(ii) if the Merger Agreement is not approved by the holders of a majority
of the outstanding Cosmetic Class B common stock; or
(iii) if any governmental entity of competent jurisdiction enacts, enters
or enforces a statute, rule, regulation, order, decree or injunction which
restrains, enjoins or otherwise prohibits the consummation of the Merger.
In addition, Revlon may terminate the Merger Agreement if the Cosmetic
Board withdraws or modifies its recommendation that the Cosmetic stockholders
approve the Merger Agreement.
TERMINATION FEES AND EXPENSES (SEE PAGES 52 AND 53)
The Merger Agreement and the Stockholders Agreement generally require
Cosmetic and the Principal Stockholders to pay up to $1 million of Revlon's
expenses if the Merger Agreement is terminated under certain circumstances and,
if Cosmetic consummates an alternate transaction with another party within 90
days after the termination of the Merger Agreement, require Cosmetic and the
Principal Stockholders to pay Revlon a termination fee of $1 million, and
require the Principal Stockholders to pay to Revlon a fee equal to 25% of the
difference between the consideration paid to the Principal Stockholders and
$7.63 per share times the number of shares held by the Principal Stockholders.
The Merger Agreement also generally requires Revlon to pay up to $1 million
of Cosmetic's expenses if the Merger Agreement is terminated under certain
circumstances and requires Revlon to pay Cosmetic a termination fee of $1.25
million if PFC consummates an alternate transaction with another party within 90
days after the termination of the Merger Agreement.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 26)
In deciding to approve the Merger, the Cosmetic Board considered, among
other factors, an opinion from its financial advisor, Legg Mason Wood Walker,
Incorporated ("Legg Mason"), as to the fairness of the Merger consideration from
a financial point of view. This opinion is attached as Annex III to this Proxy
Statement/Prospectus. The holders of Cosmetic Class A and Class B common stock
should read this opinion.
In connection with delivering its opinion, Legg Mason performed a variety
of analyses. These analyses included (i) comparing the relevant historical and
projected financial and operating results and financial multiples of Cosmetic
and projected financial and operating results and financial multiples of the
Combined Company with the historical and projected operating results and
financial multiples of selected publicly traded companies, (ii) comparing some
possible acquisition premiums in the Merger to the percentage premiums paid by
acquirors in other transactions, (iii) comparing certain financial and operating
statistics of Cosmetic with certain financial and operating statistics of
selected retailers immediately prior to being acquired and (iv) calculating the
discount value of Cosmetic's forecasted cash flow. Legg Mason will receive a fee
of $625,000 in connection with the Merger, $600,000 of which is contingent upon
the closing of the Merger.
5
<PAGE>
REGULATORY APPROVALS (SEE PAGE 22)
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder, which provide that certain merger transactions may not be
consummated until required information and material have been furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and certain waiting periods have expired or been terminated. The required
information with respect to the Merger was filed on December , 1996 and the
waiting period expired on January , 1997.
ACCOUNTING TREATMENT (SEE PAGE 22)
For accounting and financial reporting purposes, the Merger will be treated
as a reverse acquisition, which means that PFC will be considered to be the
acquiring company even though Cosmetic will be the surviving corporation. As a
result, PFC's historical financial statements will be the continuing historical
financial statements of the Combined Company and Cosmetic's assets, liabilities
and results of operations will be consolidated with the historical financial
statements of PFC subsequent to the consummation of the Merger. Fair value
adjustments will be made to Cosmetic's assets and liabilities to the extent of
Revlon's ownership interest in the Combined Company.
NO APPRAISAL RIGHTS (SEE PAGE 23)
Cosmetic stockholders have no right under the Delaware General Corporation
Law to an appraisal of the value of their shares in connection with the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 23)
The exchange of Cosmetic Class A or Class B common stock for Cosmetic Class
C common stock will be tax-free to Cosmetic stockholders for federal income tax
purposes. A Cosmetic stockholder who receives only cash in exchange for all of
his or her shares of Cosmetic Class A and Class B common stock (and is not
treated for federal income tax purposes as owning Cosmetic Class C common stock
owned by related persons or entities) will recognize a gain or loss for federal
income tax purposes. A Cosmetic stockholder who receives both cash and Cosmetic
Class C common stock will not recognize any loss for federal income tax purposes
but will recognize some or all of any gain. Cosmetic stockholders should consult
their own tax advisors.
COSMETIC PER SHARE MARKET PRICE INFORMATION (SEE PAGE 34)
Cosmetic Class A and Class B common stock are listed on the Nasdaq National
Market. On September 30, 1996, the last full trading day prior to the public
announcement of the signing of a letter of intent with respect to the Merger,
the Cosmetic Class A common stock closed at $6.50 per share and the Cosmetic
Class B common stock closed at $7.25 per share. On January , 1997, the
Cosmetic Class A common stock closed at per share and the Cosmetic Class B
common stock closed at per share.
LISTING OF COSMETIC CLASS C COMMON STOCK (SEE PAGE 83)
Cosmetic has made application for the listing of the Cosmetic Class C
common stock on the Nasdaq National Market.
AMENDMENTS TO COSMETIC'S CERTIFICATE OF INCORPORATION (SEE PAGE 22)
The Merger Agreement provides that, as part of the Merger, Cosmetic will
amend its Certificate of Incorporation to authorize the issuance of up to
40,000,000 shares of Cosmetic Class C common stock (the "Class C Amendment"). A
vote by Cosmetic Class B stockholders in favor of the Merger is also a vote to
approve the Class C Amendment.
The Merger Agreement also requires Cosmetic to seek the approval of an
amendment to its Certificate of Incorporation to repeal the classification of
the Cosmetic Board, resulting in the annual election of all of Cosmetic's
directors (the "Board Amendment"). The Board Amendment, which requires the
affirmative vote of the holders of 80% of the outstanding Cosmetic Class B
common stock, will be voted on separately and is not a condition to the Merger.
The proposed forms of the amendments to Cosmetic's Certificate of
Incorporation are attached as Annex II to this Proxy Statement/Prospectus.
COSMETIC 1997 STOCK OPTION PLAN (SEE PAGE 78)
At the Meeting, Cosmetic Class B stockholders will also be asked to approve
the Cosmetic 1997 Stock Option Plan, which provides for the grant of stock
options to purchase up to shares of Cosmetic Class C common stock to
Cosmetic's directors, officers and key employees following the Merger.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following summary historical and pro forma financial data of Cosmetic
and PFC have been derived from the financial statements and related notes
thereto of Cosmetic and PFC and the pro forma financial data and related notes
thereto included elsewhere herein. It is anticipated that upon consummation of
the Merger, Cosmetic will change its fiscal year to a 52 or 53 week year ending
on or about December 31. The pro forma consolidated financial data for the year
ended December 31, 1995 include the historical statement of operations of PFC
for its year ended December 31, 1995 and the historical statement of operations
of Cosmetic for its fiscal year ended September 29, 1995. The pro forma
consolidated financial data for the nine months ended September 30, 1996 are
derived from the unaudited historical statement of operations of PFC for its
nine months ended September 30, 1996 and the unaudited historical statement of
operations of Cosmetic for the nine months ended September 27, 1996. The pro
forma consolidated statement of operations data give effect to the Merger as if
it had been consummated on January 1, 1995. The pro forma balance sheet data as
of September 30, 1996 are derived from the historical balance sheet of Cosmetic
as of September 27, 1996 and the unaudited historical balance sheet of PFC as of
September 30, 1996. The pro forma balance sheet data give effect to the Merger
as if it had been consummated on September 30, 1996. The summary pro forma
consolidated financial data set forth below are not necessarily indicative of
results that would have occurred if the Merger had been consummated on such
dates or that may be achieved in the future. In the opinion of management, the
unaudited data reflect all adjustments (which include only normal, recurring
adjustments) necessary for a fair presentation of such data. The following
information should be read in conjunction with the financial statements of
Cosmetic and the financial statements of PFC (as indexed on page F-1) as well as
"Selected Financial Data of Cosmetic," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Cosmetic," "Selected Financial
Data of PFC", "Management's Discussion and Analysis of Financial Condition and
Results of Operations of PFC" and "Pro Forma Financial Information" included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------- ------------------------------------------------
PRO FORMA PRO FORMA
COSMETIC PFC ADJUSTMENTS AS ADJUSTED COSMETIC PFC ADJUSTMENTS AS ADJUSTED
-------- ------- ----------- ----------- ------- ------- ----------- -----------
<S> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Net sales................. $132,304 $72,717 $ -- $ 205,021 $92,215 $48,970 $ -- $ 141,185
-------- ------- ----------- ----------- ------- ------- ----------- -----------
Gross margin.............. 27,210 34,673 -- 61,883 18,874 25,378 -- 44,252
Selling, general and
administrative
expenses................ 27,033 36,500 (3,991) 59,542 22,622 28,237 (2,993) 47,866
Restructuring charges -- -- -- -- 4,024 -- -- 4,024
-------- ------- ----------- ----------- ------- ------- ----------- -----------
Operating income (loss)... 177 (1,827) 3,991 2,341 (7,772) (2,859) 2,993 (7,638)
Other (income) expense.... (670) -- 250 (420) (66) -- 188 122
Interest expense.......... 725 2,137 2,823 5,685 714 699 2,117 3,530
Income taxes (benefit).... (157) 50 -- (107) (2,930) 45 -- (2,885)
-------- ------- ----------- ----------- ------- ------- ----------- -----------
Net income (loss)......... $ 279 $(4,014) $ 918 $ (2,817) $(5,490) $(3,603) $ 688 $ (8,405)
-------- ------- ----------- ----------- ------- ------- ----------- -----------
-------- ------- ----------- ----------- ------- ------- ----------- -----------
Income (loss) per common
and common equivalent
shares.................. $ 0.06 $ (0.28) $ (1.28) $ (0.83)
-------- ----------- ------- -----------
-------- ----------- ------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------------------------
PRO FORMA
COSMETIC PFC ADJUSTMENTS AS ADJUSTED
------- ------- ----------- -----------
<S> <C>
BALANCE SHEET DATA:
Working capital.............................................................. $42,815 $30,797 $ (10,400) $ 63,212
Inventory.................................................................... 56,479 32,686 -- 89,165
Total assets................................................................. 72,522 44,776 3,258 120,556
Long-term debt and Due to Revlon............................................. 12,329 18,746 22,529 53,604
Stockholders' equity......................................................... $37,181 $21,215 $ (29,671) $ 28,725
</TABLE>
7
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF COSMETIC
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------
SEPT. SEPT. SEPT. SEPT. SEPT.
25, 24, 30, 29, 27,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $101,175 $109,486 $123,551 $132,304 $133,795
-------- -------- -------- -------- --------
Gross margin..................................................... 20,852 22,972 26,977 27,210 28,034
Selling, general and administrative expenses..................... 16,251 17,115 19,929 27,033 30,268
Restructuring charges............................................ -- -- -- -- 4,024
-------- -------- -------- -------- --------
Operating income (loss).......................................... 4,601 5,857 7,048 177 (6,258)
Other income, net................................................ (49) (84) (110) (670) (95)
Interest expense................................................. 559 97 166 725 1,030
Income taxes (benefit)........................................... 1,657 2,267 2,804 (157) (2,433)
-------- -------- -------- -------- --------
Net income (loss)................................................ $ 2,434 $ 3,577 $ 4,188 $ 279 $ (4,760)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) per common and common equivalent shares............ $ 0.68 $ 0.82 $ 0.95 $ 0.06 $ (1.11)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------
SEPT. SEPT. SEPT. SEPT. SEPT.
25, 24, 30, 29, 27,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 29,918 $ 33,386 $ 36,039 $ 33,090 $ 42,815
Inventory........................................................ 41,217 45,002 50,422 61,891 56,479
Total assets..................................................... 49,914 54,765 62,134 77,967 72,522
Short-term debt.................................................. 195 222 5,297 12,276 311
Long-term debt, less current portion............................. 555 814 711 420 12,329(a)
Stockholders' equity............................................. $ 33,855 $ 37,436 $ 41,662 $ 41,941 $ 37,181
</TABLE>
SUMMARY HISTORICAL FINANCIAL DATA OF PFC
<TABLE>
<CAPTION>
NINE MONTHS ENDED,
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $39,255 $44,033 $54,677 $62,674 $72,717 $45,790 $48,970
------- ------- ------- ------- ------- ------- -------
Gross margin........................... 22,356 21,326 27,041 30,752 34,673 22,025 25,378
Selling, general and administrative
expenses............................. 20,185 22,174 27,641 31,441 36,500 26,977 28,237
------- ------- ------- ------- ------- ------- -------
Operating income (loss)................ 2,171 (848) (600) (689) (1,827) (4,952) (2,859)
Interest expense....................... 493 43 914 1,329 2,137 1,958 699
Income taxes........................... 12 16 17 25 50 45 45
------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $ 1,666 $ (907) $(1,531) $(2,043) $(4,014) $(6,955) $(3,603)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------ -------------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------------
<S> <C>
BALANCE SHEET DATA:
Working capital........................ $ 11,281 $ 20,123 $ 21,218 $ 25,782 $ 30,014 $ 30,797
Inventory.............................. 12,020 20,890 22,003 26,701 29,171 32,686
Total assets........................... 15,482 24,853 28,479 37,769 41,337 44,776
Due to Revlon (b)...................... -- 8,930 11,681 21,353 9,615 18,746
Stockholder's equity................... $ 13,448 $ 13,496 $ 13,512 $ 11,332 $ 28,298 $ 21,215
</TABLE>
- ---------------
(a) In October 1996, Cosmetic refinanced its existing short-term note payable
with borrowings under a new revolving credit facility that expires on
October 31, 1999 and, as a result, reclassified its short-term note payable
to long-term debt at September 27, 1996.
(b) PFC's working capital and capital expenditure needs have been financed
through interest-bearing obligations that are payable by PFC to Revlon. PFC
has reflected this obligation on a long-term basis as the obligation has not
been repaid as a result of a capitalization of the amount due to Revlon in
September 1995. To the extent debt to Revlon was incurred subsequent to the
capital infusion, PFC anticipates that such balance will be payable, to the
extent of funds available, from operations, and, if and to the extent such
financing is secured and permits such repayment, from long-term third-party
financing.
8
<PAGE>
COMPARABLE PER SHARE INFORMATION
Per share information for Cosmetic and the Combined Company on a historical
and pro forma basis, respectively, is summarized below.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
COSMETIC COMPANY
-------- ---------
<S> <C>
Book value per share as of September 30, 1996....................................................... $ 8.66 $ 2.85
Net income (loss) per common and common equivalent shares - 1995 fiscal year........................ $ 0.06(a) $ (0.28)(b)
Net loss per common and common equivalent shares - nine months ended September 30, 1996(c).......... $(1.11) $ (0.83)
Cash dividends...................................................................................... $ -- $ --
</TABLE>
- ---------------
(a) The net income (loss) per common and common equivalent shares - 1995 fiscal
year for Cosmetic has been derived from the historical statement of
operations of Cosmetic for its fiscal year ended September 29, 1995.
(b) The net income (loss) per common and common equivalent shares - 1995 fiscal
year for the Combined Company has been derived from the historical statement
of operations of Cosmetic for its fiscal year ended September 29, 1995 and
the historical statement of operations of PFC for its year ended December
31, 1995.
(c) The net loss per common and common equivalent shares - nine months ended
September 30, 1996 has been derived from the unaudited historical statement
of operations of Cosmetic for the nine months ended September 27, 1996 and
the historical statement of operations of PFC for the nine months ended
September 30, 1996.
9
<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN RISK FACTORS OR INVESTMENT CONSIDERATIONS THAT
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE MERGER, IN ADDITION TO THE
RISKS AND OTHER INFORMATION DESCRIBED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
HISTORICAL NET LOSSES. Cosmetic had a net loss of $4.8 million for the
fiscal year ended September 27, 1996, and PFC had net losses of $4.0 million and
$2.0 million for the years ended December 31, 1995 and 1994, respectively, and a
net loss of $3.6 million for the nine-month period ended September 30, 1996. Had
the Merger occurred on January 1, 1995, the Combined Company (on a pro forma
basis) would have had net losses of $2.8 million and $8.4 million for the year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively.
The ability of the Combined Company to generate operating income and net
income after the Merger will depend upon, among other things, its ability to
integrate successfully the operations of Cosmetic and PFC, the nature and extent
of any future business developments, the Combined Company's capital structure
and general economic conditions. There can be no assurance that the Combined
Company will be profitable, and will not incur losses. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Cosmetic," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of PFC" and "Pro Forma Financial Information."
UNCERTAINTIES REGARDING INTEGRATION OF COSMETIC AND PFC. The Combined
Company will attempt to use the Merger to effect cost savings, including a
reduction in operating expenses as a result of the elimination of duplicative
facilities, functions and other overhead expenses. Significant uncertainties,
however, accompany any business combination and its implementation with respect
to the ability of the combined companies to integrate functions and management
resources to achieve operating efficiencies. There can be no assurance that the
Combined Company will be able to realize cost savings as a result of the Merger,
that any such elimination of facilities, functions or overhead expenses will not
result in a decrease in revenue and profits, or that there will not be other
adverse effects from the integration. The inability to achieve the anticipated
cost savings could have a material adverse effect on the Combined Company's
operating results following the Merger. See "The Merger -- Operations After the
Merger."
REQUIREMENT FOR FINANCING TO CONSUMMATE THE MERGER; SIGNIFICANT BORROWINGS;
FUTURE FINANCING. Pursuant to the terms of the Merger Agreement, the
availability of satisfactory financing by the effective time of the Merger is a
condition to the consummation of the Merger.
The Combined Company will incur substantial indebtedness to effect the
Merger, refinance existing Cosmetic and PFC indebtedness, pay fees and expenses
in connection with the Merger and the financing and provide for future working
capital needs. If the Merger had occurred on September 30, 1996, the Combined
Company (on a pro forma basis) would have had long-term debt - third parties and
obligations under capital leases aggregating $49.9 million compared to
Cosmetic's historical long-term debt, less current portion, of $12.3 million as
of September 27, 1996.
Upon consummation of the Merger and execution of a definitive credit
agreement (currently under negotiation with several lenders), the Combined
Company is expected to have a credit facility of up to $70 million, of which
approximately $49.7 million is expected to be borrowed upon the consummation of
the Merger ($20.9 million to fund the Cash Election, up to $27.2 million to
refinance existing Cosmetic and PFC indebtedness and $1.6 million for fees and
expenses related to the Merger) and up to $20.3 million is expected to be
available for future working capital requirements and for general corporate
purposes (the "Financing"). The Financing is expected to impose certain
limitations on the Combined Company. In addition, it is anticipated that
substantially all of the Combined Company's inventory and accounts receivable
will be pledged to secure the obligations under this credit facility. See "The
Merger -- Financing" with respect to the anticipated terms of the credit
facility, which are subject to change in connection with the negotiation of the
definitive credit agreement.
The Combined Company's level of indebtedness could have important
consequences to the holders of Cosmetic Class C common stock, including the
following: (i) a substantial portion of the Combined Company's cash flow from
operations must be dedicated to the payment of the principal of and interest on
its indebtedness and will not be available for other purposes; (ii) the ability
of the Combined Company to obtain financing in the future for working capital
needs, capital expenditures, acquisitions, investments, general corporate
purposes or other purposes may be materially limited or impaired; and (iii) the
Combined Company's level of indebtedness may reduce its flexibility to respond
to changing business and economic conditions. However, Cosmetic believes that
this level of indebtedness will not materially impair the Combined Company's
ability to obtain capital for capital expenditures, acquisitions or investments
or materially reduce the Combined Company's flexibility to respond to business
or economic conditions. Subject to certain limitations contained in the Revlon
Notes (as defined herein) and Revlon's credit agreement, the Combined Company
may incur additional indebtedness to finance working capital
10
<PAGE>
or capital expenditures, investments or acquisitions or for other purposes. See
"Risk Factors -- Restrictions Imposed by the Terms of Revlon Indebtedness."
RESTRICTIONS IMPOSED BY THE TERMS OF REVLON INDEBTEDNESS. The terms and
conditions of four series of Revlon's debt securities and the debt securities of
Revlon's indirect parent, Revlon Worldwide Corporation (the "Revlon Notes"),
impose restrictions on the ability of Revlon and its subsidiaries, which will
include the Combined Company after the effective time of the Merger, to incur
debt, create liens, pay dividends and sell assets, among other things. There can
be no assurance that such restrictions will not limit the ability of the
Combined Company to expand its business or to take advantage of business
opportunities or transactions. It is anticipated that all of the Cosmetic Class
C common stock held by Revlon will be pledged as collateral for Revlon's
obligations under Revlon's credit agreement and a credit agreement of a
subsidiary of Revlon. See "Risk Factors -- Requirement for Financing to
Consummate the Merger; Significant Borrowings; Future Financing."
DETERMINATION OF CONVERSION RATIO. Prior to the Merger, there was no public
market for the PFC common stock. The conversion ratio pursuant to which there
are to be issued 8,479,335 shares of Cosmetic Class C common stock for all of
the PFC common stock has been determined by negotiations among Cosmetic and
Revlon and may not be indicative of the value of PFC.
CHANGE OF CONTROL OF COSMETIC; CONTROL OF THE COMBINED COMPANY BY REVLON.
As a result of the Merger, assuming the Cash Election is made in respect of all
outstanding shares and options for shares with an exercise price of less than
$7.63 per share, Revlon will own approximately 84% of the Cosmetic Class C
common stock (the only class of Cosmetic stock to be outstanding following the
Merger). Revlon and the Principal Stockholders have entered into a Stockholders
Agreement which provides that for three years from the consummation of the
Merger, the Principal Stockholders will vote all of their Cosmetic Class C
common stock in favor of Revlon's nominees for director so that Revlon will at
all times maintain representation on the Combined Company Board equal to
Revlon's percentage ownership of Cosmetic Class C common stock, but not less
than seven board seats, including two independent directors, and Revlon will
vote its shares in favor of the Principal Stockholders' nominees for director
equal to their aggregate percentage ownership of Cosmetic Class C common stock,
after giving effect to the Merger and the Cash Election, but not less than one
nor more than two board seats. Accordingly, Revlon, the Combined Company's
principal vendor, will control the management and policies of the Combined
Company, including the terms of any agreements with Revlon as well as the vote
on all matters submitted to a vote of the Combined Company's stockholders,
including extraordinary transactions such as mergers and acquisitions, sales of
all or substantially all of the Combined Company's assets or "going private"
transactions. See "Risk Factors -- Reliance on Vendors and Sources of Supply,"
"The Stockholders Agreement" and "Agreements with Revlon."
COMPETITION. The retail cosmetic product business is very competitive.
Cosmetic's and PFC's competitors include department stores, mass volume
retailers, chain drug stores, independent drug stores, discount stores and other
retail stores. Some of these competitors sell cosmetic products at discount
prices, and many are part of large national or regional chains and have
substantially greater resources and name recognition than Cosmetic and PFC.
Additionally, some of the Combined Company's principal competitors are principal
customers of Revlon. There can be no assurance that the Combined Company will
not be adversely affected by such competition. See "Risk Factors -- Change of
Control of Cosmetic; Control of the Combined Company by Revlon" and "Business of
Cosmetic -- Competition" and "Business of PFC -- Competition."
RELIANCE ON VENDORS AND SOURCES OF SUPPLY. Cosmetic purchases products from
approximately 560 vendors, and its largest single vendor, Revlon, accounted for
approximately 10% of total purchases for the fiscal year ended September 27,
1996. As is customary in the cosmetic product industry, Cosmetic currently has
no long-term or exclusive contract with any vendor. The loss of Cosmetic's
largest vendor could have a material adverse effect on Cosmetic.
PFC purchases products from approximately 75 vendors. PFC's largest vendor,
Revlon, and its indirect parent, Revlon Holdings Inc. ("Holdings"), accounted
for approximately 29% of PFC's total purchases for the nine months ended
September 30, 1996 and approximately 32% of PFC's total purchases for the year
ended December 31, 1995. PFC's second largest supplier, with whom PFC has a
supply contract that expires in 1999, accounted for approximately 15% of total
purchases during 1995. In connection with the Merger, the Combined Company and
Revlon will enter into a supply contract with a term of at least two and a
maximum of four years. The loss of Revlon as a supplier or a material change in
the terms of the supply contract could have a material adverse effect on the
Combined Company's business following the Merger. See "Agreements with Revlon."
Some of the products purchased by Cosmetic and PFC from their respective
vendors may include products that were originally sold to department stores and
other retailers. From time to time, certain manufacturers have taken actions to
prohibit or restrict the resale of such products by department stores and other
retailers. Some of the products purchased by
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Cosmetic and PFC from their respective vendors also may include products that
are subject to copyright, trademark, trade dress and patent rights, either
manufactured in foreign countries or manufactured in the United States and sold
to foreign distributors. Periodically, litigation and administrative proceedings
have been instituted and federal legislation has been proposed seeking to halt
or restrict the importation of such merchandise. Any of the foregoing
prohibitions or restrictions could have a material adverse effect on the
Combined Company if the Combined Company could not obtain alternative sources
for its products on terms at least as favorable as are currently available. See
"Business of Cosmetic -- Purchasing" and "Business of PFC -- Purchasing."
Manufacturers of professional hair care products traditionally have allowed
their products to be sold only by retail hair salons. Historically, Cosmetic
purchased such products from secondary sources, and sales of these products
accounted for about 6% of Cosmetic sales volume in fiscal 1994. With the growth
of Cosmetic over the past three years, sufficient quantities of professional
hair care products have been increasingly difficult to purchase through
secondary sources. Cosmetic has added hair salons in its stores as an additional
service with the anticipation of developing direct relationships with
professional hair care products manufacturers, which required Cosmetic to
discontinue sales of such products obtained from secondary sources. Currently,
Cosmetic purchases from only one of the four major professional hair care
products manufacturers and from no secondary sources, which has resulted in lost
sales. There can be no assurance that the hair salon strategy will be successful
or that the Combined Company will be able to secure sufficient quantities of
professional hair care products directly from manufacturers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Cosmetic -- Hair Salon Strategy."
SEASONALITY. Both Cosmetic's and PFC's businesses are, and the Combined
Company's business will be, seasonal. Both Cosmetic's and PFC's highest sales
volumes occur during the October to December quarter. The seasonality of the
Combined Company's sales may cause a significant variation in its quarterly
operating results, and a significant decrease in the October to December quarter
sales could have a material adverse effect on the Combined Company's results of
operations for the corresponding fiscal year.
SHARES ELIGIBLE FOR FUTURE SALE. Assuming the Cash Election is made in
respect of all outstanding shares and options for shares with an exercise price
of less than $7.63 per share, upon the consummation of the Merger, Revlon will
own approximately 84% of the outstanding Cosmetic Class C common stock, all of
which will be "restricted stock" as that term is defined in Rule 144 adopted
under the Securities Act of 1933, as amended (the "Securities Act"), and
initially will not be freely saleable in the public market without registration
under the Securities Act. It is anticipated that all of the shares of Cosmetic
Class C common stock owned by Revlon immediately after the effective time of the
Merger will be pledged by Revlon to secure its obligations under Revlon's credit
agreement and a credit agreement of a subsidiary of Revlon. Subject to
applicable law and the terms of Revlon's credit agreement and the subsidiary's
credit agreement, Revlon could sell any or all of the shares of Cosmetic Class C
common stock owned by it from time to time for any reason. Following the Merger,
Revlon will be entitled to demand on three occasions that Cosmetic file a
registration statement under the Securities Act for the sale of its Cosmetic
Class C common stock and will also be entitled to include its Cosmetic Class C
common stock in certain registration statements filed for the benefit of
Cosmetic. The Principal Stockholders will also be entitled to certain rights to
the registration of their Cosmetic Class C common stock. Although Cosmetic can
make no prediction as to the effect, if any, that sales of shares of Cosmetic
Class C common stock by Revlon, any pledgee of such shares or the Principal
Stockholders would have on the market price prevailing for the Cosmetic Class C
common stock from time to time, sales of substantial amounts of Cosmetic Class C
common stock or the availability of such shares for sale could adversely affect
prevailing market prices. See "Risk Factors -- Restrictions Imposed by the Terms
of Revlon Indebtedness," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of PFC -- Financial Condition, Liquidity and
Capital Resources," "Agreements with Revlon -- Registration Rights Agreement,"
"Interests of Certain Persons in the Merger -- Stockholders Agreement with
Principal Stockholders," "The Stockholders Agreement" and "Description of
Cosmetic Capital Stock -- Federal Securities Laws Consequences."
DIVIDENDS UNLIKELY. Cosmetic has not paid any dividends on its common stock
to date, and it is unlikely that the Combined Company will pay any dividends in
the foreseeable future. The payment of dividends after the Merger will be
contingent upon the Combined Company's revenues and earnings, if any, capital
requirements and general financial condition, and will be subject to the
discretion of the Combined Company Board. See "Risk Factors -- Requirement for
Financing to Consummate the Merger; Significant Borrowings; Future Financing"
and "Description of Cosmetic Capital Stock -- Dividends."
REDUCED PUBLIC FLOAT; POSSIBLE VOLATILITY OF CLASS C COMMON STOCK PRICE.
There will be substantially fewer shares of Cosmetic Class C common stock held
by non-affiliated stockholders than Cosmetic Class A and Class B common stock
held by non-affiliated stockholders prior to the Effective Time. This reduced
market capitalization could cause the market price of
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the Cosmetic Class C common stock to be subject to significant fluctuations. In
addition, following the Merger, factors such as announcements by the Combined
Company of variations in its quarterly financial results, analysts' estimates of
the Combined Company's financial results, industry-wide results, changes in
economic conditions, competitive developments, sales of substantial blocks of
the securities of the Combined Company by the holders thereof, and the issuance
of stock in connection with future financings or corporate transactions among
other things, could cause dilution to existing stockholders and cause the market
price of the Combined Company's shares to fluctuate significantly. See "Risk
Factors -- Shares Eligible for Future Sale," "Authorization of Additional Common
Stock for Future Issuance" and "Market Prices of Cosmetic's Securities."
AUTHORIZATIONS OF ADDITIONAL COMMON STOCK FOR FUTURE ISSUANCE. The
Principal Stockholders and their family members have advised the Cosmetic Board
that they intend to vote all of their shares in favor of the proposal to amend
Cosmetic's Certificate of Incorporation so as to authorize the issuance of
40,000,000 shares of Cosmetic Class C common stock, and such vote is sufficient
under the General Corporation Law of Delaware and the Certificate of
Incorporation for the adoption of such amendment, without the vote of any other
stockholders. Upon effectiveness of such amendment, the Combined Company Board
will have the power, without further action of the stockholders, to issue any or
all of such shares for cash, securities, other assets or businesses of third
parties upon such terms as the Combined Company Board may determine, any of
which transactions could have the effect of diluting the interests of existing
stockholders of Cosmetic. See "The Merger -- Amendments to Cosmetic's
Certificate of Incorporation."
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THE MERGER
We are furnishing this Proxy Statement/Prospectus to the holders of the
Cosmetic Class A and Class B common stock in connection with the solicitation of
proxies by the Cosmetic Board for use at the Meeting and at any adjournments or
postponements thereof. At the Meeting, holders of Cosmetic Class B common stock
will be asked to vote upon a proposal to approve and adopt the Merger Agreement
and the related transactions, including the Merger, the issuance of Cosmetic
Class C common stock and the payment of cash to Cosmetic stockholders, the
issuance of Cosmetic Class C common stock to Revlon and the appointment of nine
directors (who will replace the Cosmetic Board upon consummation of the Merger).
Copies of the Merger Agreement and the Class C Amendment are attached hereto as
Annex I and Annex II, respectively.
The Merger Agreement provides, among other things, for the Merger of PFC
with and into Cosmetic, with Cosmetic surviving the Merger. The Merger will
become effective on the date on which the Certificate of Merger has been duly
filed with the Delaware Secretary of State or such date and time as is agreed
upon by Cosmetic and Revlon and specified in the Certificate of Merger (the
"Effective Time"), which is currently expected to occur promptly following the
receipt of Cosmetic Class B stockholder approval at the Meeting.
In the Merger, each share of Cosmetic Class A and Class B common stock
outstanding immediately before the Effective Time shall be converted into the
right to receive one share of Cosmetic Class C common stock or, at the election
of each record stockholder and subject to the limitation discussed below, cash
in the amount of $7.63 per share.
The Merger Agreement also provides that each option to purchase Cosmetic
Class A or Class B common stock outstanding immediately prior to the Effective
Time will, after the Effective Time, be exercisable for the same number of
shares of Cosmetic Class C common stock, with the same exercise price and
expiration date as such option was exercisable immediately prior to the Merger;
PROVIDED, HOWEVER, that each holder of an option that has an exercise price of
less than $7.63 per share can elect, subject to the limitation discussed below,
to receive, in return for cancellation of such option, cash in an amount equal
to the difference between $7.63 and the exercise price of such option.
The Cash Election is subject to the limitation that not more than 2,829,065
shares of Cosmetic Class A and Class B common stock and outstanding options that
have an exercise price of less than $7.63 per share will be exchangeable for
cash pursuant to the Cash Election (the "Limit"). To the extent that the
aggregate shares and options as to which a Cash Election has been made exceed
the Limit, each stockholder's and optionholder's Cash Election will be reduced
pro rata.
The Principal Stockholders have agreed to make the Cash Election for all of
their 1,392,723 shares of Cosmetic Class A and Class B common stock and 41,000
options that have an exercise price of less than $7.63 per share. Accordingly,
if other persons holding more than 1,395,342 shares and options for shares with
an exercise price of less than $7.63 per share elect to receive cash, the Limit
will be exceeded and all holders who have made the Cash Election will be subject
to proration.
The PFC common stock outstanding at the Effective Time will be converted
into 8,479,335 shares of Cosmetic Class C common stock. The conversion ratio has
been determined by negotiations among Cosmetic and Revlon and may not be
indicative of the value of PFC. As a result of the Principal Stockholders'
agreement to make the Cash Election, such shares will represent at least 74% of
the Cosmetic Class C common stock outstanding immediately after the Merger and
will represent approximately 84% of such shares if, in addition to the Principal
Stockholders' shares and options, the Cash Election is made in respect of all
other outstanding shares and options for shares with an exercise price of less
than $7.63 per share.
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of Cosmetic and Revlon. The following is a
brief discussion of the background of these negotiations, the Merger and the
related transactions.
On July 8, 1995, Louis Weinstein, founder and chairman of the Cosmetic
Board, died. As a result, Louis Weinstein's wife, Anita J. Weinstein, age 67,
became the sole owner of the 425,086 shares of Cosmetic Class A common stock and
605,995 shares of Cosmetic Class B common stock she had held as joint tenant
with her husband.
Since Louis Weinstein's death, Cosmetic and the Principal Stockholders have
received proposals from third parties with respect to transactions which relate
to or, if implemented, would result in (i) an extraordinary corporate
transaction such as a merger or reorganization involving Cosmetic, (ii) a change
in the Cosmetic Board or Cosmetic's management, (iii) material changes in
Cosmetic's current capitalization or dividend policy and (iv) other material
changes in Cosmetic's business or
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corporate structure. While Cosmetic and the Principal Stockholders have
considered several of these proposals, neither Cosmetic nor the Principal
Stockholders entered into any letter of intent or definitive agreement regarding
any such prior proposals.
In May 1996, Jerry W. Levin, chairman of the board and chief executive
officer of Revlon, contacted Mark S. Weinstein, chairman of the Cosmetic Board,
to inquire if he was interested in meeting to discuss a possible business
combination involving Cosmetic and PFC. (Mr. Levin had contacted Mr. Weinstein
after Mr. Weinstein had indicated to an acquaintance of Mr. Levin that Mr.
Weinstein would be interested in discussing with Revlon representatives a
possible business combination involving Cosmetic and PFC.) Shortly thereafter,
Mr. Weinstein met with Mr. Levin and other senior PFC officers and discussed a
possible business combination. Thereafter, Mr. Weinstein advised certain
Cosmetic Board members and officers, including Ben S. Kovalsky, Cosmetic's
president and chief executive officer, and Bruce E. Strohl, Cosmetic's chief
financial officer, of his meeting with Mr. Levin and PFC officers.
Subsequently, from May 1996 to August 20, 1996, several meetings and
discussions occurred between PFC representatives and Cosmetic representatives,
the latter consisting of Messrs. Weinstein, Kovalsky and Strohl. On or about May
13, 1996, Revlon and Cosmetic executed a confidentiality letter agreement
regarding a possible transaction involving Cosmetic and PFC.
On or about June 5, 1996, Revlon submitted to Cosmetic a draft non-binding
discussion sheet regarding a proposed merger of PFC into Cosmetic, pursuant to
which, among other things, Cosmetic would, concurrently with such merger, offer
to purchase up to 2,000,000 shares of its common stock at a price of $7.00 per
share and, upon consummation of such transactions, Revlon would own
approximately 81% of Cosmetic's outstanding common stock. On or about August 9,
1996, Revlon submitted a revised draft non-binding discussion sheet to Cosmetic
regarding a proposed merger of PFC into Cosmetic, pursuant to which, among other
things, Cosmetic would, concurrently with the merger, offer to purchase up to
2,336,000 shares of its common stock at a price of $7.63 per share and, upon
consummation of the transactions, Revlon would own approximately 80% of
Cosmetic's outstanding common stock (the "Proposal").
On August 20, 1996, a special meeting of the Cosmetic Board was held to
discuss the Proposal. At the Cosmetic Board meeting, a Legg Mason representative
provided the Cosmetic directors with a written presentation prepared by Legg
Mason regarding the Proposal, which included a summary of the proposed terms, a
preliminary valuation analysis of Cosmetic, certain financial data relating to
PFC and a summary comparison of market multiples for the fragrance distribution
industry and for the women's retail industry. The Legg Mason representative
noted that the preliminary conclusions were subject to the receipt of further
information and projections to be provided by Cosmetic and PFC as a result of
their respective due diligence, including projected operating performance and
potential cost savings and anticipated one time costs arising out of the
proposed merger.
Also discussed at the August 20, 1996 Cosmetic Board meeting was the
background to the Proposal, including the several meetings between Cosmetic
representatives and Revlon and PFC representatives and the material differences
between the Proposal and the June 5th draft discussion sheet referred to above.
It was noted that, while under the June 5th draft discussion sheet, Revlon and
Cosmetic's existing stockholders would initially own, upon consummation of the
merger, without giving effect to the cash offer, 70% and 30%, respectively, of
Cosmetic's outstanding common stock and the cash offer would be for 2,000,000
shares at $7.00 per share, under the Proposal, upon consummation of the merger,
without giving effect to the cash offer, Revlon and the existing Cosmetic
stockholders would own 65% and 35%, respectively, of Cosmetic's outstanding
common stock and the cash offer would be for 2,336,000 shares at $7.63 per
share. It was also noted that Revlon had rejected a proposal to acquire Cosmetic
on an "all cash" basis.
At the August 20, 1996 meeting, the Cosmetic Board authorized Cosmetic to
engage Legg Mason as exclusive financial advisor to Cosmetic in connection with
Cosmetic's analysis of any investment in, merger with, acquisition of, or other
business combination with PFC, and if requested by the Cosmetic Board, to render
Legg Mason's opinion as to the fairness, from a financial point of view, of the
proposed merger consideration to be received by Cosmetic's stockholders.
From August 20, 1996 until October 1, 1996, numerous discussions and
negotiations occurred between Cosmetic representatives, including its legal
advisors and Legg Mason representatives, and Revlon and PFC representatives,
including their legal advisors, regarding the proposed merger, including a
related proposed letter of intent and exclusivity agreement between Cosmetic,
the Principal Stockholders, Revlon and PFC.
On October 1, 1996, a special meeting of the Cosmetic Board was held to
consider and act on (i) a proposed letter of intent among Revlon, PFC, Cosmetic
and the Principal Stockholders (the "Letter of Intent") and (ii) a related
exclusivity agreement to be executed by the same parties (the "Exclusivity
Agreement"), which collectively, provided for the negotiation
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of a merger agreement pursuant to which, among other things, PFC would merge
into Cosmetic or a wholly owned subsidiary thereof. Copies of the Letter of
Intent and Exclusivity Agreement, both dated October 1, 1996, were distributed
to the Cosmetic directors at the meeting.
The terms of the proposed Letter of Intent and Exclusivity Agreement
included the following:
THE LETTER OF INTENT. The Letter of Intent provided that in connection with
the Merger, (a) Cosmetic's Certificate of Incorporation would be amended to
create Cosmetic Class C common stock, (b) Revlon would receive newly issued
Cosmetic Class C common stock such that, immediately following the Merger
(without giving effect to the Cash Election), Revlon would own at least 65% of
the outstanding Cosmetic Class C common stock (on a fully diluted basis taking
into account (x) all shares issuable upon the exercise of options then
outstanding with an exercise price of $7.70 or less, (y) 10,000 shares issuable
upon the exercise of options then outstanding with an exercise price of more
than $7.70 and (z) cancellation at or prior to the effective time of the Merger
of outstanding options exercisable for 20,000 shares that have an expiration
date of January 15, 1997), (c) each existing Cosmetic stockholder could elect to
receive, in exchange for each share of Cosmetic Class A or Class B common stock
held by such stockholder, either (i) one share of Cosmetic Class C common stock
or (ii) cash in the amount of $7.63 per share and (d) each stock option
outstanding immediately prior to the effective time of the Merger would, after
the effective time, be exercisable for the same number of shares of Cosmetic
Class C common stock and with the same exercise price and expiration date as
such option was exercisable immediately prior to the Merger; PROVIDED, HOWEVER,
that each holder of an option that has an exercise price of less than $7.63 per
share could elect, in lieu of retaining the stock option, to receive in
cancellation thereof cash in an amount equal to the difference between $7.63 and
the exercise price of such option. The Cash Election would be subject to the
limitation that not more than 2,829,065 shares of Cosmetic Class A and Class B
common stock, including outstanding Cosmetic Class A and Class B common stock
and shares subject to outstanding options, would be exchangeable for cash
pursuant to the Cash Election. To the extent that the aggregate shares and
options as to which a Cash Election was made exceeded the Limit, each
stockholder's and optionholder's Cash Election would be reduced pro rata. The
Principal Stockholders would agree to elect to make the Cash Election for all of
their Cosmetic Class A and Class B common stock and options that have an
exercise price of less than $7.63 per share.
The Letter of Intent provided that Cosmetic's bylaw would be amended to
provide that the Cosmetic Board would consist of nine directors, of which there
would be two independent directors. For three years from the consummation of the
Merger, (i) the Principal Stockholders would agree to vote all of their Cosmetic
Class C common stock in favor of Revlon's nominees for director so that Revlon
would at all times maintain representation on the Combined Company Board equal
to Revlon's percentage ownership of Cosmetic Class C common stock, but not less
than five board seats, and (ii) Revlon would agree to vote its shares in favor
of the Principal Stockholders' nominees for director equal to their aggregate
percentage ownership of Cosmetic Class C common stock, after giving effect to
the Merger and the Cash Election, but not less than one nor more than two board
seats.
Jerry Levin, Revlon's chairman and chief executive officer, would be
appointed as a director and chairman of the Combined Company Board, Mark
Weinstein would be appointed as a vice chairman of the Combined Company Board
and Howard Diener, the president of PFC, would be appointed as president and
chief executive officer of the Combined Company.
Each of Mark Weinstein and Anita Weinstein would enter into an employment
and non-competition agreement with Cosmetic, and Susan Magenheim would enter
into a consulting and non-competition agreement with Cosmetic, each upon terms
and conditions acceptable to the parties.
PFC would enter into lease agreements with Revlon for five stores, each
upon terms and conditions acceptable to the parties.
The Principal Stockholders would together be entitled to demand on one
occasion that Cosmetic file a registration statement under the Securities Act
for the sale of their Cosmetic Class C common stock and would also be entitled
to include their Cosmetic Class C common stock in certain registration
statements filed for Cosmetic's benefit. Revlon would be entitled to demand on
three occasions that Cosmetic file a registration statement under the Securities
Act for the sale of its Cosmetic Class C common stock and would also be entitled
to include its Cosmetic Class C common stock in certain registration statements
filed for Cosmetic's benefit. All such registration statements would be prepared
at Cosmetic's expense, except for fees and expenses of legal counsel of Revlon
or the Principal Stockholders, as the case may be, and underwriting discounts,
fees and expenses.
The Letter of Intent provided that the Merger would be subject to (i)
Cosmetic's and Revlon's satisfaction with complete financial, operations, tax,
legal, real estate, environmental, business and other due diligence, (ii) notice
to, filings with and
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approvals by government agencies (including the Federal Trade Commission and/or
The Department of Justice pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act and the Securities and Exchange Commission ("SEC") pursuant to
the federal securities laws), (iii) receipt of material third party consents,
(iv) the availability of financing for Cosmetic to finance the Cash Election,
refinance existing debt and provide working capital on terms and conditions
acceptable to both Cosmetic and Revlon and (v) the negotiation, execution and
delivery of a mutually acceptable definitive merger agreement. In addition,
Revlon's obligations would be subject to approval of the transaction by Revlon's
bank group and Revlon's board of directors. Cosmetic's obligations would be
subject to approval of the transaction by the Cosmetic Board and the holders of
Cosmetic's Class B common stock.
From and after October 1, 1996, the businesses of PFC and Cosmetic each
would be operated in the ordinary course and consistent with past practices
pending the Merger.
The Letter of Intent also provided that the merger agreement would include
certain exclusivity, expense reimbursement and termination fee provisions
substantially the same as those provided for in the Merger Agreement. See "The
Merger Agreement -- Certain Covenants," " -- Expenses" and " -- Termination Fee"
for a more detailed description of these provisions.
According to the Letter of Intent, the merger agreement would provide that
unless the merger agreement was terminated in accordance with its terms,
Cosmetic and the Principal Stockholders would be subject to exclusivity
obligations substantially the same as Cosmetic's exclusivity obligations under
the Exclusivity Agreement (briefly described below in the description of the
Exclusivity Agreement), and if Cosmetic or the Principal Stockholders were to
take certain actions or consummate certain transactions that were inconsistent
with the Merger during the 90-day period immediately following the later of (i)
the 110th day after the date the merger agreement was signed and (ii) certain
events of termination under the merger agreement, Cosmetic and the Principal
Stockholders would reimburse Revlon's expenses up to a maximum of $1 million.
The merger agreement would also provide that if Cosmetic should consummate such
a transaction prior to such date, Cosmetic would pay Revlon a termination fee of
$1 million. The Letter of Intent also provided that the Principal Stockholders
would enter into a stockholders agreement with Revlon that would provide, among
other things, that (i) if Cosmetic should consummate such a transaction prior to
such date, the Principal Stockholders would be obligated to pay a termination
fee equal to 25% of the excess of the amount of consideration received by the
Principal Stockholders in such transaction over $7.63 and (ii) if the Principal
Stockholders voted against the Merger, the Principal Stockholders also would be
obligated to pay a fee of $1 million (with a credit for any amount of the fee
paid by the Principal Stockholders pursuant to clause (i)).
The merger agreement would further provide that unless the merger agreement
was terminated in accordance with its terms, Revlon would be subject to
exclusivity obligations substantially the same as Revlon's exclusivity
obligations under the Exclusivity Agreement (briefly described below in the
description of the Exclusivity Agreement) and, if Revlon or PFC were to take
certain actions or consummate certain transactions that were inconsistent with
the Merger during the 90-day period immediately following the later of (i) the
110th day after the date the merger agreement was signed and (ii) certain events
of termination under the merger agreement, Revlon would reimburse Cosmetic's
expenses up to a maximum of $1 million. It also provided that if Revlon or PFC
should consummate such a transaction prior to such date, Revlon would pay
Cosmetic a termination fee of $1.25 million.
The Letter of Intent provided that it would terminate upon the earlier of
the execution of the merger agreement or November 30, 1996.
THE EXCLUSIVITY AGREEMENT. The Exclusivity Agreement contemplated that
Cosmetic and Revlon would conduct due diligence with respect to completing the
Merger and that the due diligence activities would require each party to incur
significant expenses. In view of these expenses, the Exclusivity Agreement
provided that until the earlier of (i) November 30, 1996 or (ii) termination of
the Letter of Intent (the "Exclusivity Period"), neither Cosmetic nor any of the
Principal Stockholders nor any of their representatives or agents would solicit,
engage in negotiations, provide information to or otherwise cooperate with any
person or entity that sought to acquire or expressed an interest in acquiring
all or a substantial part of the any class of the securities, business or assets
of Cosmetic nor would they grant any proxy, option or other similar right to any
third person or entity in connection with a transaction inconsistent with the
Merger. The Exclusivity Agreement further provided that nothing contained
therein would prohibit the Cosmetic Board from furnishing information to, or
entering into discussions or negotiations with, any person or entity that made
an unsolicited bona fide proposal in writing to acquire Cosmetic or
substantially all of its assets on terms which, in an exercise of their
fiduciary duty after the consideration of advice from Cosmetic's legal and
financial advisors, a majority of Cosmetic's directors determined was likely to
be more beneficial to Cosmetic's stockholders than the Merger. This proviso,
however, would not permit Cosmetic to terminate the Exclusivity Agreement or to
enter into an agreement with respect to (i) an alternate transaction prior to
the expiration of the Exclusivity
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Period or (ii) affect any other obligation under the Exclusivity Agreement. In
addition, the Principal Stockholders agreed that during the Exclusivity Period
they would not sell, pledge, agree to sell or pledge or otherwise dispose of any
of their Cosmetic common stock to any third person, would vote against any
alternate transaction and, if available, would exercise appraisal rights with
respect to any alternate transaction.
The Exclusivity Agreement also provided that, during the Exclusivity
Period, Revlon and its representatives and agents would not solicit, engage in
negotiations, provide information to or otherwise cooperate with any person or
entity that expressed an interest in acquiring all or a substantial part of any
class of the securities, business or assets of the PFC nor would Revlon grant
any proxy, option or other similar right to any third person or entity in
connection with a transaction inconsistent with the Merger.
The Exclusivity Agreement provided that, if Cosmetic or the Principal
Stockholders breached the Exclusivity Agreement or took certain other actions
inconsistent with the Merger during the Exclusivity Period and, in certain
circumstances, during the 120-day period immediately following the Exclusivity
Period, Cosmetic or the Principal Stockholders, as the case may be, would pay
Revlon an amount equal to its documented fees and expenses in connection with
the due diligence, preparation and negotiation of documents and preparation of
PFC financial statements related to the Merger, up to a maximum of $0.5 million.
It also provided that, if Revlon or PFC breached the Exclusivity Agreement or
took certain other actions inconsistent with the Merger during the Exclusivity
Period and, in certain circumstances, during the 120-day period immediately
following the Exclusivity Period, Revlon would pay Cosmetic an amount equal to
its documented fees and expenses in connection with the due diligence,
preparation and negotiation of documents and preparation of financial statements
related to the Merger, up to a maximum of $0.5 million.
In addition to the foregoing expense reimbursement provisions, the
Exclusivity Agreement also provided that if Cosmetic consummated an alternate
transaction at any time during the Exclusivity Period or during the 120-day
period immediately following the Exclusivity Period, Cosmetic would pay to
Revlon on the date of consummation of such alternate transaction a break-up fee
of $1 million and the Principal Stockholders, jointly and severally, would pay
to Revlon on the date of consummation of such alternate transaction a break-up
fee equal to 25% of the difference between (a) the value of the consideration
paid to them in such alternate transaction with respect to all of their shares
minus (b) the product of (i) the number of shares held by the Principal
Stockholders multiplied by (ii) $7.63.
If Revlon or PFC consummated an alternate transaction at any time during
the Exclusivity Period or during the 120-day period immediately following the
Exclusivity Period, the Exclusivity Agreement provided that Revlon would pay to
Cosmetic on the date of consummation of such alternate transaction a break-up
fee of $1.25 million.
Also, at the October 1, 1996 Cosmetic Board meeting, the Legg Mason
representatives reviewed with the Cosmetic Board estimates of the potential
projected "stockholder value creation" which could result from the transaction
and the relative contribution made to such potential stockholder value creation
by each of Cosmetic and PFC. Legg Mason's representatives noted that in
developing their presentation, they relied upon historical and projected
financial information independently provided to Legg Mason by the managements of
PFC and Cosmetic. They also reviewed with the Cosmetic Board (i) a "line item"
discussion of Cosmetic and PFC managements' estimated cost synergies expected to
result from the combination of the two companies, including reductions in the
costs for merchandising, information systems and various personnel savings; (ii)
a summary of Cosmetic and PFC managements' estimates of "one-time" costs,
including costs for integrating information systems, consolidating distribution
operations, and specific transaction related expenses; (iii) the Combined
Company valuation analysis, which included the valuation methodology, comparison
of operating projections versus the last presented to the Cosmetic Board on
August 20, 1996, income statement information, balance sheet information and a
preliminary valuation analysis; and (iv) a summary of Cosmetic and PFC
managements' estimates of additional benefits not included in the analysis,
including "payback" from installation of point of sale scanning systems,
reduction of payroll expense at store level, other expense reductions,
accelerated access to higher margin professional products, and reductions in
freight costs. Legg Mason also presented a "stand alone" valuation analysis of
Cosmetic, including its historical stock price and trading volume, income
statement and balance sheet and a "stand alone" valuation analysis of PFC,
including an income statement and balance sheet analysis, and comparable company
trading multiples and transaction multiples for the drug store industry.
Mr. Weinstein discussed with the Cosmetic Board the above-referenced
previous contacts, discussions and negotiations in which he and the other
Cosmetic representatives and advisors had participated over the past two years
in respect of proposed business combinations involving Cosmetic or acquisitions
of Cosmetic's securities. Mr. Weinstein stated that none of these discussions
led to the execution of a letter of intent or definitive agreement. The Cosmetic
Board was also advised that while there was a limited audience for other
potential business combinations with Cosmetic, if the Letter of Intent were
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executed and a definitive merger agreement was not reached, Cosmetic could
consummate an alternative transaction after the 180th day of the execution date
of the Letter of Intent, without paying a termination fee to Revlon.
After discussion, the Cosmetic Board created a committee of the Cosmetic
Board consisting of Ronald M. Hirschel and Donald R. Rogers to monitor the
negotiations of the merger agreement and related documents and to keep the
Cosmetic Board advised of the progress of such negotiations and of any
unsolicited offers received from third parties to acquire all or a substantial
portion of Cosmetic's business or equity before responding in any way to such
offers. Also, the Cosmetic Board determined that it was in the best interest of
Cosmetic and its stockholders for Cosmetic to enter into the Letter of Intent
and Exclusivity Agreement and, accordingly, authorized Cosmetic's execution and
delivery of the Letter of Intent and Exclusivity Agreement.
After the Cosmetic Board meeting on October 1, 1996, Cosmetic, the
Principal Stockholders, Revlon and PFC executed the Letter of Intent and the
Exclusivity Agreement, and Revlon and Cosmetic issued a press release announcing
the execution of such documents.
From October 1, 1996 until November 15, 1996, numerous discussions and
negotiations occurred between Cosmetic representatives, including Cosmetic's
legal counsel and Legg Mason representatives, and Revlon and PFC
representatives, including their legal advisors, regarding the proposed merger
and the definitive agreement and plan of merger and ancillary documents thereto.
On November 15, 1996, a special meeting of the Cosmetic Board was held to
consider and act on the proposed merger agreement by and among Cosmetic, Revlon
and PFC pursuant to which PFC would merge into Cosmetic or a wholly owned
subsidiary thereof. At the Cosmetic Board meeting, Legg Mason representatives
made a presentation to the Cosmetic Board regarding their opinion that, from a
financial point of view, the consideration to be paid to Cosmetic's stockholders
for their Cosmetic Class A and Class B common stock pursuant to the Merger
Agreement was fair. See "Opinion of Financial Advisor."
The Cosmetic Board noted at its November 15, 1996 meeting that at no time
since the initial public announcement of the proposed merger on October 1, 1996
had any person contacted Cosmetic, any Cosmetic Board member or any Principal
Stockholder about any proposal or offer to acquire Cosmetic or any alternative
transaction in respect of the Merger. The Cosmetic Board also noted that, while
Messrs. Hirschel and Rogers had frequently discussed and conferred with Cosmetic
representatives involved in negotiating the definitive Merger Agreement, they,
in view of (i) such negotiations being conducted in a manner consistent with the
detailed Letter of Intent and Exclusivity Agreement and (ii) no alternate
transactions having been proposed since the initial public announcement of the
proposed merger, had not formally met as a committee. Also, in consideration of
their significant involvement in the process of negotiating the Merger, the
Cosmetic Board asked Messrs. Hirschel and Rogers to make a proposal to the
Cosmetic Board regarding their compensation for serving as directors during the
Merger negotiations and the resulting extraordinary amount of time they were
devoting to such deliberations.
The Cosmetic Board unanimously (i) approved Cosmetic's execution and
delivery of the Merger Agreement, the Principal Stockholders' execution and
delivery of the Stockholders Agreement and the agreements referred to therein or
contemplated thereby, (ii) determined that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are in the best
interests of Cosmetic's stockholders, (iii) approved the transactions
contemplated thereby for purposes of Section 203 of the General Corporation Law
of Delaware, and (iv) resolved to recommend that the holders of the Cosmetic
Class B common stock adopt the Merger Agreement and the transactions
contemplated therein, including the Merger.
On November 27, 1996, as authorized by the Cosmetic Board, Cosmetic
executed and delivered the Merger Agreement and the Principal Stockholders
executed and delivered the Stockholders Agreement. Thereafter, on November 27,
1996, Cosmetic and Revlon issued a press release announcing the execution and
delivery of such agreements.
REASONS FOR THE MERGER; RECOMMENDATION OF THE COSMETIC BOARD
The Cosmetic Board believes that the Merger is in the best interests of
Cosmetic and its stockholders and unanimously recommends to its stockholders
that they vote FOR approval and adoption of the Merger Agreement and the
transactions contemplated thereby. The Cosmetic Board believes that Cosmetic and
Cosmetic stockholders will benefit from the Merger.
As part of its review, the Cosmetic Board considered, among other things,
(i) information concerning the financial performance, condition, business
operations and prospects of each of Cosmetic and PFC, (ii) the proposed terms
and structure of the Merger, (iii) the terms of the Merger Agreement, including
the parties' mutual representations, warranties and covenants and the conditions
to their respective obligations, (iv) financial and other data with respect to
other public companies in
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the cosmetic products retail industry, (v) the Legg Mason Opinion (as defined
herein), (vi) the dilutive effect of the issuance of Cosmetic Class C common
stock in the Merger, and (vii) the business advantages expected to result from
the combination of Cosmetic and PFC. In considering the Legg Mason Opinion (as
defined herein), the Cosmetic Board took into account the fees payable to Legg
Mason and the contingent nature of those fees. See "The Merger -- Opinion of
Financial Advisor."
Among the reasons for the Cosmetic Board's belief that the Merger is in the
best interest of Cosmetic's stockholders are the following:
The Cosmetic Board believes that the Combined Company can achieve
reductions in operating expenses and increased operating income as the overhead
expenses of Cosmetic and PFC are consolidated, duplicative functions are
eliminated and other savings are realized. Although the amount of reduction in
operating expenses cannot be quantified with certainty and there can be no
assurances that such reductions will be realized, Cosmetic believes that
selling, general and administrative expenses for the year ended December 31,
1995 and the nine months ended September 30, 1996 on a pro forma basis would
have been decreased by approximately $4.0 million and $3.0 million,
respectively, had the Merger been consummated on January 1, 1995. See "The
Merger -- Forward-Looking Information," "Pro Forma Financial Information," "Risk
Factors -- Historical Net Losses" and " -- Uncertainties Regarding Integration
of Cosmetic and PFC."
The Cosmetic Board also believes that the Cash Election should provide
Cosmetic stockholders liquidity at a significant premium to the market value of
the Cosmetic Class A and Class B common stock prior to the announcement of the
signing of the Letter of Intent.
The Cosmetic Board considered that the Exclusivity Agreement provided and
the Merger Agreement provides that Cosmetic may not during a specified period of
time solicit any alternate transaction. The Exclusivity Agreement provided and
the Merger Agreement provides, however, that Cosmetic may furnish information to
and enter into discussions or negotiations with, any party that makes an
unsolicited bona fide written proposal to acquire Cosmetic or substantially all
of its assets on terms which, in an exercise of the Cosmetic Board's fiduciary
duty after the consideration of advice from Cosmetic's legal and financial
advisors, a majority of Cosmetic's directors determines is likely to be more
beneficial to Cosmetic's stockholders than the Merger. This provision, however,
does not permit Cosmetic to (i) terminate the Merger Agreement, (ii) enter into
an agreement with respect to an alternate transaction prior to the termination
of the Merger Agreement or (iii) affect any other obligation under the Merger
Agreement. The Cosmetic Board noted that the Merger Agreement provides for the
payment of up to $1 million of Revlon's expenses if the Merger Agreement is
terminated under certain circumstances and the payment to Revlon of a
termination fee of $1 million if Cosmetic enters into an alternate transaction
with another party within a specified period of time and was aware that Revlon
would not have agreed to enter into the Merger Agreement without those
provisions. The Cosmetic Board concluded that, while the existence of the
expense and termination fee provisions might reduce the likelihood that a third
party would propose an alternate transaction, the increased cost to a third
party would not be material and the benefits of the Merger to Cosmetic
outweighed the risks.
In considering the Merger, the Cosmetic Board acknowledged that there are
certain risks associated with the Merger, including (i) the possibility that the
potential benefits set forth above may not be realized, (ii) the other factors
set forth under "Risk Factors," (iii) the dilutive effect of the issuance of the
Cosmetic Class C common stock in the Merger and (iv) the possibility that the
Merger might not be consummated, resulting in a potential adverse effect on the
market price of the Cosmetic Class A and Class B common stock. Notwithstanding
the risks, the Cosmetic Board concluded that the positive factors described
above outweighed the negative considerations.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger Agreement, the Cosmetic Board did not find it practical
to, and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determinations.
THE COSMETIC BOARD UNANIMOUSLY RECOMMENDS THAT COSMETIC STOCKHOLDERS VOTE
"FOR" THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. SEE
"INTERESTS OF CERTAIN PERSONS IN THE MERGER."
FINANCING
The sources and application of funds required by Cosmetic to consummate the
Merger and provide working capital following the Merger are estimated as
follows:
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<TABLE>
<CAPTION>
SOURCES OF FUNDS APPLICATION OF FUNDS
- -------------------------------------------------- --------------------------------------------------
<S> <C>
Financing $ 70.0 million Cash Election $ 20.9 million
Refinancing 27.2 million
Fees and expenses 1.6 million
Future working capital 20.3 million
-------------- --------------
Total $ 70.0 million Total $ 70.0 million
-------------- --------------
-------------- --------------
</TABLE>
To finance the Cash Election, refinance existing indebtedness of Cosmetic
and PFC, pay fees and expenses in connection with the Merger and the Financing
and provide financing for future working capital requirements and general
corporate purposes, including certain non-recurring costs incurred after the
Merger relating to the transaction and the consolidation of operations, Cosmetic
intends to enter into an agreement with one or more financial institutions
pursuant to which such financial institutions will lend up to $70 million to the
Combined Company. The Financing is expected to consist of two facilities, a term
loan facility and a revolving credit facility, each with a two-year term. It is
anticipated that the Financing will be secured by all of the accounts receivable
and inventory of the Combined Company and will contain certain restrictive
covenants applicable to the Combined Company.
OPERATIONS AFTER THE MERGER
Following consummation of the Merger, the Combined Company will continue to
operate the Cosmetic Center stores and will also operate the PFC stores. It is
anticipated that the Cosmetic Center stores and the PFC stores will be operated
as separate divisions. It is anticipated that certain warehouse and distribution
operations of Cosmetic and PFC will be consolidated in Maryland, and additional
warehouse and distribution space will be secured. The Combined Company expects
to spend approximately $2.7 million as a result of the Merger to integrate and
enhance management information systems. See "Business of Cosmetic" and "Business
of PFC."
At the Effective Time, the Combined Company's bylaws will be amended to
provide that the Combined Company Board will consist of nine directors and the
persons named in the Merger Agreement will become the directors of the Combined
Company. Pursuant to the Stockholders Agreement, for three years after the
consummation of the Merger, (i) the Principal Stockholders have agreed to vote
all of their Cosmetic Class C common stock in favor of Revlon's nominees for
director so that Revlon will at all times maintain representation on the
Combined Company Board equal to Revlon's percentage ownership of Cosmetic Class
C common stock, but not less than seven board seats, including two independent
directors, and (ii) Revlon has agreed to vote its shares in favor of the
Principal Stockholders' nominees for director equal to their aggregate
percentage ownership of Cosmetic Class C common stock after giving effect to the
Merger and the Cash Election, but not less than one nor more than two board
seats. The members of the Combined Company Board immediately after the Merger
will be Ronald O. Perelman, chairman of the executive committee and a director
of Revlon, Howard Gittis, a director of Revlon, Jerry W. Levin, chairman, chief
executive officer and a director of Revlon and a director of PFC, Howard Diener,
the president of PFC, William J. Fox, executive vice president, chief financial
officer and a director of Revlon and vice president and a director of PFC, Wade
H. Nichols, senior vice president and general counsel of Revlon and vice
president and a director of PFC, and Mark S. Weinstein, chairman of the Cosmetic
Board. It is also anticipated that David M. Dinkins, a professor at Columbia
University and former Mayor of The City of New York, and Harvey Rosenthal, the
former president of Melville Corporation (now known as CVS Corporation), will be
the independent directors. Messrs. Levin, Weinstein and Diener will be appointed
chairman of the Combined Company Board, vice chairman of the Combined Company
Board and president and chief executive officer of the Combined Company,
respectively. See "Election of Directors; Management of Cosmetic Following the
Merger."
Cosmetic's Certificate of Incorporation provides for the Cosmetic Board to
be divided into three classes, with the members of each class serving staggered
terms of three years. This provision, however, is proposed to be repealed by the
Board Amendment. If the Board Amendment is adopted, after consummation of the
Merger the Combined Company Board would not be classified and all of the
directors would be elected annually.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes forward-looking statements that
are subject to risks and uncertainties. Forward-looking statements include (i)
expectations and estimates as to the Combined Company's future financial
performance, including growth in net sales and earnings and earnings potential
of the Combined Company; (ii) cash flows from operations; (iii) the amount of
required capital expenditures, including costs associated with store openings
and closings, and the availability of funds from the Financing; (iv) the Pro
Forma Financial Information (including assumptions in the notes included
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therein); (v) the ability to integrate successfully the operations of Cosmetic
and PFC and the costs, timing, benefits and effectiveness of such integration;
(vi) the opportunities for earnings growth through cost savings, synergies and
critical mass; (vii) costs, timing, effectiveness and benefits of management
information system enhancements; (viii) cost savings as a result of elimination
of duplicative functions after the Merger; (ix) the availability of product from
Revlon after expiration or termination of the Supply Agreement (as defined
below); (x) the continued viability of Cosmetic's salon business; and (xi) those
other statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates" or similar expressions. For these statements, Cosmetic
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. The following
important factors, in addition to those discussed under "Risk Factors" and
elsewhere in this Proxy Statement/Prospectus, could affect the future results of
the Combined Company and could cause those results to differ materially from
those expressed in the forward-looking statements: (i) the inability to generate
growth in net sales and earnings; (ii) the inability to generate sufficient cash
flows from operations to fund capital expenditures and debt service on the
Financing; (iii) unanticipated capital expenditures, including costs associated
with store openings and closings; (iv) the inability to realize significant cost
savings and decreases in operating expenses and other benefits as a result of
the integration of the operations of Cosmetic and PFC or to realize increases in
revenues or income as a result of such integration; (v) the inability to
successfully integrate or difficulties or delays in integrating the operations
of Cosmetic and PFC; (vi) unanticipated costs, difficulties or delays in
completing or realizing the intended benefits of projects associated with
information systems upgrades; (vii) actions by competitors, including
combinations within the retail industry and successful new retail store
concepts; (viii) the unavailability of product or the loss of suppliers,
including secondary source suppliers, the unavailability of products from Revlon
after the expiration of or termination of the Supply Agreement and the inability
to secure sufficient professional hair care products; (ix) the lack of viability
of Cosmetic's salon business; and (x) changes in consumer preferences, including
reduced consumer demand for cosmetics and other beauty products.
AMENDMENTS TO COSMETIC'S CERTIFICATE OF INCORPORATION
The Merger Agreement provides that, as part of the Merger, Cosmetic will
amend its Certificate of Incorporation to authorize the issuance of up to
40,000,000 shares of Cosmetic Class C common stock. A vote in favor of the
Merger is also a vote to approve the Class C Amendment.
Up to approximately 10.1 million shares of Cosmetic Class C common stock
would be issued in connection with the Merger. The remaining 29.9 million shares
would be available for issuance in connection with Cosmetic stock option plans,
including the proposed Cosmetic 1997 Stock Option Plan, and also in connection
with future public or private financings, acquisitions, employee stock benefit
plans and other transactions. Other than the issuance in connection with the
Merger and the stock option plans, there are no current plans or proposals for
the issuance of Cosmetic Class C common stock.
The Merger Agreement also requires Cosmetic to seek the approval of an
amendment to its Certificate of Incorporation to repeal the classification of
the Cosmetic Board, which would result in the annual election of all of the
Combined Company's directors. The Board Amendment will be voted on separately
and is not a condition to the Merger. The Cosmetic Board recommends a vote FOR
the approval of the Board Amendment.
The proposed forms of the Class C Amendment and of the Board Amendment are
attached as Annex II to this Proxy Statement/Prospectus.
REGULATORY FILINGS AND APPROVALS
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder, which provide that certain merger transactions may not be
consummated until required information and material have been furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and certain waiting periods have expired or been terminated. The required
information with respect to the Merger was filed on December , 1996 and the
waiting period expired on January , 1997.
ACCOUNTING TREATMENT
Upon consummation of the Merger and assuming the Cash Election is made for
all outstanding shares and options for shares with an exercise price of less
than $7.63 per share, existing Cosmetic stockholders will hold securities with
approximately 16% of the voting power of Cosmetic and Revlon will hold
securities with approximately 84% of the voting power of the Combined Company.
Accordingly, the Merger will be accounted for as a reverse acquisition under
generally accepted accounting principles, pursuant to which PFC will be
considered the acquiror. Because PFC will be deemed to be the acquiring company
for accounting purposes, PFC's historical financial statements will be the
Combined Company's continuing
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historical financial statements and Cosmetic's assets, liabilities and results
of operations will be consolidated with PFC's historical financial statements
subsequent to the consummation of the Merger. Fair value adjustments will be
made to Cosmetic's assets and liabilities to the extent of Revlon's ownership
interest in Cosmetic. The amount recorded by PFC as the cost of acquiring the
net assets of Cosmetic will be the estimated aggregate fair value of Revlon's
ownership of the outstanding Cosmetic common stock. This amount will also be
recorded in the common stock and additional paid-in capital equity accounts of
the Combined Company as if the Combined Company had issued such shares.
NO APPRAISAL RIGHTS
Holders of Cosmetic Class A and Class B common stock are not entitled to
appraisal rights under the Delaware General Corporation Law in connection with
the Merger because Cosmetic Class A and Class B common stock is listed on the
Nasdaq National Market, Cosmetic Class C common stock will be listed on the
Nasdaq National Market and no holder of Cosmetic Class A or Class B common stock
will be required to accept any consideration in cancellation of such shares
other than Cosmetic Class C common stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion which summarizes the material federal
income tax consequences of the Merger to holders of Cosmetic Class A or Class B
common stock under the Internal Revenue Code of 1986, as amended (the "Code").
The discussion does not deal with all of the tax considerations that may be
relevant to particular Cosmetic stockholders, such as stockholders who are
dealers in securities, foreign persons, tax-exempt entities or stockholders who
received their stock in Cosmetic in connection with the Cosmetic stock option
plan. Also, the discussion does not address any state, local or foreign tax
considerations or any federal estate, gift, employment, excise or other
non-income tax considerations. The following discussion is based upon provisions
of the Code, regulations, administrative rulings and judicial decisions
currently in effect, all of which are subject to change (possibly with
retroactive effect) or to different interpretations.
ALL COSMETIC STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY OF FEDERAL, STATE AND LOCAL TAX LAWS.
No ruling from the Internal Revenue Service ("IRS") has been or will be
sought with respect to the tax consequences of the Merger.
COSMETIC STOCKHOLDERS WHO RECEIVE ONLY COSMETIC CLASS C COMMON STOCK. A
Cosmetic stockholder who receives only Cosmetic Class C common stock for his or
her Cosmetic Class A or Class B common stock will not recognize any gain or loss
for federal income tax purposes. Such a Cosmetic stockholder's tax basis for his
or her Cosmetic Class C common stock will be equal to his or her tax basis in
the Cosmetic Class A and/or Class B common stock owned by the Cosmetic
stockholder immediately before the transaction. Assuming the Cosmetic Class A
and/or Class B common stock exchanged by the Cosmetic stockholder was held as a
capital asset, his or her holding period for the Cosmetic Class C common stock
will include his or her holding period for the Cosmetic Class A and/or Class B
common stock exchanged for the Cosmetic Class C common stock.
COSMETIC STOCKHOLDERS WHO RECEIVE ONLY CASH. A Cosmetic stockholder who
receives only cash for all of his or her Cosmetic Class A or Class B common
stock and is not treated as owning any Cosmetic Class C common stock by the
Code's attribution rules (see "Constructive Ownership of Stock," below) will
recognize a gain or loss equal to the difference between (i) the amount of cash
received and (ii) his or her tax basis for the Cosmetic Class A or Class B
common stock surrendered. If the Cosmetic Class A or Class B common stock
exchanged is a capital asset in the hands of such stockholder, the gain or loss
will be a capital gain or loss. The federal income tax consequences to a
Cosmetic stockholder who receives only cash for all of his or her Cosmetic
common stock but is (under the Code's attribution rules) treated as owning
Cosmetic Class C common stock immediately following the transaction will be
governed by the rules which apply to persons who receive both cash and Cosmetic
Class C common stock in the transaction.
COSMETIC STOCKHOLDERS WHO RECEIVE BOTH CLASS C COMMON STOCK AND CASH. A
Cosmetic stockholder will receive both cash and Cosmetic Class C common stock if
either (i) the Cosmetic stockholder makes the Cash Election as to some but not
all of his or her Cosmetic Class A or Class B common stock or (ii) the Cosmetic
stockholder makes the Cash Election as to some or all of his or her Cosmetic
Class A or Class B common stock and such Cash Election is pro rated as described
under "The Merger." Further, as noted above, the federal income tax consequences
to a Cosmetic stockholder who receives cash for all of his or her Cosmetic Class
A or Class B common stock but is treated (under the Code's attribution rules) as
owning
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Cosmetic Class C common stock after the transaction are determined under the
rules applicable to stockholders receiving both cash and Cosmetic Class C common
stock.
A Cosmetic stockholder who receives both cash and Cosmetic Class C common
stock in the Merger will not recognize any loss on the transaction for federal
income tax purposes. However, a Cosmetic stockholder who receives both cash and
Cosmetic Class C common stock in the transaction will be required to recognize a
gain equal to the lesser of (i) his or her realized gain (the value of cash and
Cosmetic Class C common stock received over his or her tax basis for the shares
surrendered) or (ii) the amount of cash received. Gain may be subject to tax as
ordinary income or capital gain depending upon an individual stockholder's facts
and circumstances.
A Cosmetic stockholder who receives Cosmetic Class C common stock and cash
will have a basis in his Cosmetic Class C common stock equal to the excess of
(A) the sum of (i) his or her basis in his or her Cosmetic Class A and Class B
common stock and (ii) the amount of gain recognized by the Cosmetic stockholder
over (B) the amount of cash received by the Cosmetic stockholder. One effect of
this basis rule is that any unrecognized loss will be reflected in a Cosmetic
stockholder's basis in his or her Cosmetic Class C common stock and will
increase the loss or reduce the gain on a subsequent sale of such shares.
Assuming such stockholder held his or her Cosmetic Class A and/or Class B common
stock as a capital asset, such stockholder's holding period for his or her
Cosmetic Class C common stock will include the period he or she held the
Cosmetic Class A and Class B common stock.
The determination as to whether a Cosmetic stockholder has a gain which
must be recognized or a loss which cannot be recognized must be made on a share
by share basis. Thus, a Cosmetic stockholder who makes the Cash Election as to
two different shares of stock, one of which was purchased at a price greater
than the Cash Election exchange price and the other of which was purchased for a
price which was less than the Cash Election exchange price, will (assuming the
Cash Election is oversubscribed so that the stockholder receives both Cosmetic
Class C common stock and cash) have a gain which must be recognized with respect
to the one share of stock and a loss which cannot be currently recognized with
respect to the other share of stock.
In the case of an individual taxpayer, ordinary income is subject to tax at
progressive rates, which can be as high as 39.6%, and capital gain income is
subject to tax at the lower of (i) the taxpayer's ordinary tax rate or (ii) 28%.
In general, corporate taxpayers are subject to the same tax rates on ordinary
income and capital gain; however, a corporate taxpayer is normally entitled to
exclude a portion of any dividend income from its taxable income. As described
below, the determination as to whether a Cosmetic stockholder who (i) receives
both cash and stock and (ii) recognizes a gain will have dividend income or
capital gain income is dependent on the Cosmetic stockholder's individual facts
and circumstances. The determination as to whether a gain on the transaction
should be ordinary income or a capital gain is further complicated by certain
factors, including the reclassification of nonvoting stock to voting stock.
Accordingly, each Cosmetic stockholder who is considering making the Cash
Election and expects to recognize a gain as the result of such election, should
consult his or her personal tax advisor as to whether such a gain will
constitute a capital gain or dividend income.
Whether gain recognized by a Cosmetic stockholder who receives both cash
and Cosmetic Class C common stock in the transaction is treated (i) as dividend
income (i.e., ordinary income) to the extent of the recipient's pro rata share
of Cosmetic's earnings and profits (as determined for federal income tax
purposes) or (ii) solely as capital gain is determined under the principles of
Section 302 of the Code. Under these principles, a Cosmetic stockholder who
recognizes gain as a result of receiving (or being treated by attribution as
receiving) a distribution of both cash and Cosmetic Class C common stock in the
transaction will not be entitled to capital gain treatment unless his or her
distribution either (i) is not essentially equivalent to a dividend or (ii)
results in a substantially disproportionate reduction of the Cosmetic
stockholder's interest in Cosmetic.
Insofar as relevant, a substantially disproportionate reduction in a
stockholder's interest requires that (i) a stockholder's voting power be reduced
to less than 80% of what it was prior to the distribution, (e.g., from 20% to
less than 16%) and (ii) a stockholder's percentage ownership of common stock be
reduced to less than 80% of what it was prior to the distribution.
A distribution is not essentially equivalent to a dividend if it results in
a "meaningful reduction" in the stockholder's ownership interest. For these
purposes, a stockholder's ownership interest includes rights to share in (i) the
corporation's voting power, (ii) the corporation's earning power (through future
dividends) and (iii) the corporation's assets upon liquidation. Whether
disproportionate reduction in one or more of such interests is a meaningful
reduction is generally a factual question based on the particular circumstances.
However, based on court decisions and IRS rulings, a stockholder with
significant voting power can never have a meaningful reduction in ownership
interest unless there is a significant reduction in his or her voting power
(e.g., from over 50% to less than 50%, or a loss of the ability to join with one
other stockholder to control the corporation).
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Further, the IRS has held in a published ruling that, under the particular
facts of that ruling, a very small reduction in the percentage stock ownership
of a stockholder constituted a "meaningful reduction" when the stockholder owned
an insignificant percentage of the corporation's stock (which was voting stock)
before and after a redemption and did not exercise any control over corporate
affairs and where the payments were not pro rata with respect to all outstanding
shares. There are no judicial or published administrative authorities addressing
the issue of whether a reduction in a minor stockholder's ownership interest in
dividends and assets can constitute a meaningful reduction if it also involves
an increase in the minor stockholder's voting power. Inasmuch as many of the IRS
rulings in this area give significant weight to voting power, it is likely that
the IRS would take the position that such a reduction is not meaningful.
As the foregoing discussion indicates, the determination as to whether a
cash distribution results in a capital gain or ordinary income requires a
comparison of the recipient's stock ownership after the event with his or her
ownership before the event. There is no judicial or published administrative
authority specifically addressing the issue. Based on published rulings in
analogous areas (e.g., transactions including a purchase of some of a
corporation's stock and the redemption of its stock as part of an integrated
plan), the comparison most likely should be between a Cosmetic stockholder's
initial ownership of Cosmetic Class A and Class B common stock and his or her
ownership of Cosmetic Class C common stock following the consummation of all of
the contemplated transactions (i.e., the Merger, the reclassification of
Cosmetic Class A and Class B common stock as Cosmetic Class C common stock and
the Cash Election). That is, the appropriate comparison would be between a
Cosmetic stockholder's ownership of Cosmetic Class C common stock after the
consummation of all the contemplated transactions with his or her ownership of
Cosmetic Class A and Class B common stock immediately before the contemplated
transactions.
Under this approach, each Cosmetic stockholder's ending percentage interest
in earning power and assets would be less than 80% of his or her percentage
interest in such items before the contemplated transactions, but whether such a
Cosmetic stockholder had a reduction in voting power would depend on the portion
of his or her pre-transaction Cosmetic common stock which was voting (Class B)
common stock. Specifically, if at least 7.5% of a Cosmetic stockholder's shares
were shares of Cosmetic Class B common stock and the Cosmetic stockholder made
the Cash Election as to all of his or her Cosmetic Class A and Class B common
stock, the percentage of Cosmetic's voting power represented by his or her
shares of Cosmetic Class C common stock would be less than 80% of the percentage
of the voting power represented by his or her Cosmetic Class B common stock
prior to the contemplated transactions. (Such a Cosmetic stockholder would have
some reduction in percentage voting power if at least 6.0% of his or her
Cosmetic Class A and Class B common stock had been shares of Cosmetic Class B
common stock.)
As stated above, there is no published authority specifically addressing
how Section 302 principles should be applied to transactions identical to the
Merger. Accordingly, the IRS might assert that a different comparison should be
used to determine whether a Cosmetic stockholder has had a meaningful or
substantially disproportionate reduction in interest such as comparing his or
her beginning or ending ownership position with some hypothetical intermediate
position (e.g., after the Merger but before the reclassification of Cosmetic
Class A and Class B common stock).
CONSTRUCTIVE OWNERSHIP OF STOCK. Generally, under Section 318 of the Code,
a taxpayer is deemed to constructively own stock actually owned by, and in
certain circumstances constructively owned by, certain family members,
corporations in which the stockholder has a major interest, partnerships, trusts
and estates in which the stockholder has an interest, or which the taxpayer may
acquire by exercise of an option or by conversion of a security. In addition, a
taxpayer which is a partnership, trust or estate is deemed to constructively own
shares owned by persons having an interest in the taxpayer, and a taxpayer which
is a corporation is deemed to constructively own shares owned by major
stockholders of the corporation.
An individual Cosmetic stockholder who receives solely cash for his or her
Cosmetic common stock but is treated as constructively owning stock owned by
members of his or her family, may be able to avoid being treated as the
constructive owner of such stock by filing an election under Section
302(c)(2)(A) of the Code. Similarly, a partnership, estate, trust or corporation
which receives solely cash for its shares of Cosmetic common stock but is
treated as constructively owning stock constructively owned by its owners or
beneficiaries may be able to eliminate such attribution by filing an election
under Section 302(c)(2)(A). The availability of and conditions to Section
302(c)(2)(A) are highly technical and are fact specific. A Cosmetic stockholder
who is considering such an election should discuss the matter with his, her or
its tax advisor.
CASH RECEIVED FOR OPTIONS. A holder of options on Cosmetic Class A or Class
B common stock who receives an equivalent option to purchase Cosmetic Class C
common stock will not recognize any income as a result of such exchange. A
holder of options on Cosmetic Class A or Class B common stock who makes a Cash
Election with respect to some or all of his or her options will recognize
ordinary income equal to the cash he or she receives as a result of such
election.
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OPINION OF FINANCIAL ADVISOR
Cosmetic's financial advisor, Legg Mason, at the November 15, 1996 Cosmetic
Board meeting delivered its oral opinion to the Cosmetic Board, which opinion
was subsequently confirmed in writing (the "Legg Mason Opinion") that, as of
November 15, 1996, the consideration to be received by the holders of Cosmetic
Class A and Class B common stock in the Merger is fair from a financial point of
view to such holders. The full text of the Legg Mason Opinion, which sets forth
the assumptions made, matters considered, scope and limitations of the review
undertaken and procedures followed by Legg Mason in rendering its opinion, is
attached to this Proxy Statement as Annex III. Cosmetic stockholders are urged
to read the opinion carefully and in its entirety. The Legg Mason Opinion is
directed only to the fairness from a financial point of view to the Cosmetic
stockholders of the consideration to be received by them in the Merger and does
not constitute a recommendation to any Cosmetic stockholder as to how such
stockholder should vote at the Meeting or whether or to what extent any
stockholder should or should not make the Cash Election.
In arriving at its opinion, Legg Mason, among other things: (i) reviewed
the Merger Agreement, the Stockholders Agreement and other related agreements;
(ii) reviewed certain publicly available audited and unaudited financial
statements of Cosmetic and certain other publicly available information of
Cosmetic; (iii) reviewed certain internal information, primarily financial in
nature, concerning Cosmetic and PFC, prepared by their respective managements;
(iv) discussed the past and current operations and financial condition and
prospects of Cosmetic with the senior management of Cosmetic; (v) discussed the
past and current operations and financial condition and prospects of PFC with
the senior management of PFC; (vi) reviewed forecast financial statements of
Cosmetic prepared and furnished to Legg Mason by the senior management of
Cosmetic; (vii) reviewed forecast financial statements of PFC prepared and
furnished to Legg Mason by the senior management of PFC; (viii) reviewed pro
forma financial statements of the Combined Company prepared jointly by the
managements of Cosmetic and PFC; (ix) held meetings and discussions with certain
officers and employees of Cosmetic and PFC, concerning the operations, financial
condition and prospects of the Combined Company; (x) reviewed recent stock
market data relating to Cosmetic; (xi) reviewed certain publicly available
financial and stock market data relating to selected public companies that Legg
Mason considered relevant to its inquiry; (xii) analyzed certain publicly
available information concerning the terms of selected merger and acquisition
transactions that Legg Mason considered relevant to its inquiry; (xiii)
considered the pro forma financial effects of the Merger on Cosmetic; and (xiv)
conducted such other financial studies, analyses and investigations and
considered such other information as Legg Mason deemed necessary or appropriate.
In connection with its review, Legg Mason assumed and relied upon the
accuracy and completeness of all financial and other information supplied to it
by the managements of Cosmetic and PFC and all publicly available information,
and did not independently verify such information. Legg Mason also relied upon
the managements of Cosmetic and PFC, as to the reasonableness and achievability
of the financial projections (and the assumptions and bases therein) provided to
Legg Mason for Cosmetic, PFC and the Combined Company, respectively, and assumed
that such projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of management as to the future
operating performance of each respective entity, including, without limitation,
the tax benefits, cost savings and operating synergies to be enjoyed by the
Combined Company. Neither Cosmetic nor PFC publicly discloses internal
management projections of the type provided to Legg Mason in connection with
Legg Mason's review of the Merger. Such projections were not prepared with the
expectation of public disclosure. The projections were based on numerous
variables and assumptions that are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions.
Accordingly, actual results could vary significantly from those set forth in
such projections.
Legg Mason was not requested to make, and did not make, an independent
appraisal or evaluation of the assets, properties, facilities or liabilities of
either Cosmetic or PFC and was not furnished with any such appraisal or
evaluation. Estimates of values of companies and assets do not purport to be
appraisals or necessarily reflect the prices at which companies and assets may
actually be sold. Because such estimates are inherently subject to uncertainty,
Legg Mason assumed no responsibility for their accuracy. Furthermore, Legg Mason
did not consider the range of possible tax consequences facing individual
Cosmetic stockholders, and the valuations per share derived by Legg Mason were
prior to any tax impact on individual Cosmetic stockholders.
The Legg Mason Opinion is necessarily based on stock prices and economic
and other conditions and circumstances as existed or were in effect on, and the
information made available to it as of, the date it delivered its oral opinion.
Legg Mason expressed no opinion as to what the value of Cosmetic Class C common
stock actually will be when issued to current holders of Cosmetic Class A and
Class B common stock pursuant to the Merger Agreement or as to the price or
trading range at which Cosmetic Class C common stock may trade following the
Merger.
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In connection with rendering its opinion, Legg Mason performed a variety of
financial analyses, certain of which are summarized below. The summary of such
analyses set forth below does not purport to be a complete description of the
analyses performed and factors considered by Legg Mason in arriving at its
opinion. Legg Mason believes that its analysis must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, would create a misleading view of
the processes underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to a partial analysis or
summary description. Legg Mason was not authorized to solicit, and did not
solicit, indications of interest from any third party with respect to an
acquisition of Cosmetic, its assets, or any part thereof. In this regard, Legg
Mason was advised by Cosmetic's senior management that since the first public
announcement of the Merger, no person contacted Cosmetic's senior management,
the Cosmetic Board or the Principal Stockholders regarding any potential
alternative transaction to the Merger. Legg Mason assumed that the Merger and
related transactions described elsewhere in this Proxy Statement/Prospectus will
be consummated according to the terms and conditions described in the forms of
the agreements reviewed by Legg Mason, without any waiver of material terms or
conditions by Cosmetic, PFC or Revlon, and that obtaining any necessary
regulatory approvals or satisfying any other conditions for consummation of the
Merger would not have an adverse effect on the Combined Company.
The following is a summary of the principal financial and valuation
analyses performed by Legg Mason in connection with the preparation of the Legg
Mason Opinion. These analyses were presented to the Cosmetic Board at its
meeting on November 15, 1996 and were based on stock price information through
the close of the market on November 13, 1996.
THE OFFER
Legg Mason considered the fairness of the consideration to be received by
the holders of Cosmetic Class A and Class B common stock using three scenarios:
first, the fairness of the per share cash offer of $7.63 per share of Cosmetic
Class A and Class B common stock (the "Cash Offer"); second, the fairness
assuming an election to receive Cosmetic Class C common stock (the "Stock
Offer"); and third, the fairness of the pro rata combination of Cosmetic Class C
common stock and cash assuming all shareholders and all holders of options with
an exercise price of less than $7.63 per share make the Cash Election (the "Pro
Rata Offer"), according to which each stockholder would receive $4.80 in cash
and 0.37 shares of Cosmetic Class C common stock for each share of Cosmetic
Class A or Class B common stock.
COMPARABLE COMPANIES ANALYSIS
Legg Mason compared the relevant historical, current and projected
financial and operating results of both Cosmetic and the Combined Company with
the operating results of selected publicly traded companies that in Legg Mason's
judgment are and would be comparable to both Cosmetic and the Combined Company
(collectively, the "Comparable Companies"). The Comparable Companies were chosen
by Legg Mason based on general business, operating and financial characteristics
representative of companies in the industry in which both Cosmetic and the
Combined Company do and would operate. No company or business used in the
Comparable Companies analysis is identical to Cosmetic, PFC or the Combined
Company. Accordingly, an analysis of the results of the following is not
entirely mathematical; rather, it involved complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the public trading value of either the Comparable
Companies or the company to which they are being compared; therefore, the
resulting multiples relied upon for this analysis are subject to interpretation.
Legg Mason recognized that each of the Comparable Companies is and would be
distinguishable from both Cosmetic and the Combined Company in certain respects.
For the purposes of this analysis, the Comparable Companies selected by Legg
Mason were the following companies that retail cosmetics and similar products:
Arbor Drugs, Inc., Drug Emporium, Inc., Genovese Drug Stores, Inc., Longs Drug
Stores Corp., Perfumania, Inc., Revco D.S., Inc., Rite Aid Corp., and Walgreen
Co.
In performing its analysis, Legg Mason examined both the aggregate equity
value of the outstanding common equity (defined as the number of outstanding
shares times the current price per share as of November 13, 1996, hereafter the
"Equity Value") and the Equity Value plus preferred equity (if any) at
liquidation value, minority interests (if any) and total debt net of cash and
cash equivalents (the "Enterprise Value") of the Comparable Companies. Using
each Comparable Company's Enterprise Value, Legg Mason calculated multiples of,
among other things, each Comparable Company's latest 12 month's ("LTM") revenue
(the "Revenue Multiples"), LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA") (the "EBITDA Multiples") and LTM earnings before
interest and taxes ("EBIT") (the "EBIT Multiples") (collectively, the
"Enterprise Value Multiples").
Using each Comparable Company's Equity Value, and based on published
security analysts' estimates, Legg Mason also calculated multiples of, among
other things, each company's LTM earnings per share ("EPS") (the "LTM EPS
Multiples"),
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projected 1997 EPS (the "Projected 1997 EPS Multiples"), projected 1998 EPS (the
"Projected 1998 EPS Multiples") and most recent book value (the "Book Value
Multiples") (collectively, the "Equity Value Multiples").
Legg Mason noted that because Cosmetic's recent performance had been
significantly below average relative to the Comparable Companies, and both
Cosmetic and the pro forma Combined Company would have recorded net losses for
the LTM period, LTM multiples for both Cosmetic and the Combined Company were
generally of minimal informative value, and because of the losses, LTM EPS
results were not meaningful. Furthermore, because the Combined Company would not
enjoy the benefit of a full year of synergies until 1998, Legg Mason concluded
that the Projected 1998 EPS Multiples were most indicative of both the relative
and absolute values of Cosmetic and the Combined Company.
Using the foregoing information, Legg Mason derived a range of implied
Enterprise Values and Equity Values by applying the aforementioned mean and
median Enterprise Value Multiples and Equity Value Multiples of the Comparable
Companies to the appropriate financial statistics of Cosmetic and the Combined
Company. In cases where Legg Mason's analysis indicated that the multiple for a
particular Comparable Company was not meaningful (e.g. because of recently
depressed financial and operating performance), Legg Mason excluded that
multiple and relied upon the mean and median multiples of the other Comparable
Companies.
COSMETIC STAND-ALONE. In using the Comparable Companies analysis to value
Cosmetic on a stand-alone basis, Legg Mason analyzed financial information which
included, among other things: (i) operating performance; (ii) growth rates;
(iii) capitalization ratios; (iv) ratios of common stock share prices to 1997
and 1998 estimated earnings per share and book value per share; and (v) ratios
of Enterprise Value to LTM revenues, EBITDA and EBIT.
Legg Mason noted that the mean and median multiples of Equity Value to 1997
and 1998 estimated earnings were 16.9x and 17.1x, and 14.7x and 14.9x,
respectively. Applying the mean multiples to Cosmetic's 1997 and 1998 estimated
earnings yielded implied per share values of Cosmetic common stock of $3.08 and
$5.10, respectively. Applying the median multiples to Cosmetic's 1997 and 1998
estimated earnings yielded implied per share values of Cosmetic common stock of
$3.13 and $5.17, respectively. Legg Mason noted that the mean and median
multiples of Enterprise Value to LTM revenues were 0.52x and 0.49x,
respectively, representing Cosmetic per share values of $12.67 and $12.05,
respectively; the mean and median multiples of Enterprise Value to LTM EBITDA
were 8.6x and 7.9x, respectively, representing Cosmetic per share values of
$3.55 and $3.13, respectively; and the mean and median multiples of Enterprise
Value to LTM EBIT were 12.1x and 12.3x, respectively, yielding negative implied
equity value. Legg Mason noted that because of Cosmetic's depressed LTM
financial performance, none of the LTM multiples and common stockholders' equity
multiples, or the resulting implied share values, were considered to be reliable
measures of value for Cosmetic.
THE COMBINED COMPANY. In using the Comparable Companies analysis to value
the Combined Company, Legg Mason analyzed financial information which included,
among other things: (i) operating performance; (ii) growth rates; (iii)
capitalization ratios; (iv) ratios of common stock share prices to pro forma
1997 and 1998 estimated earnings per share; and (v) ratios of Enterprise Value
to LTM revenues, EBITDA and EBIT. To derive the value of the Combined Company,
Legg Mason applied the multiples resulting from the Comparable Companies
analysis to the projected financial performance of the Combined Company,
exclusive of the effects on earnings of both one-time charges arising from the
Merger and the tax benefits resulting from accumulated net operating losses (the
"NOLs") attributable to the Combined Company (collectively, the "Non-Operating
Items").
Legg Mason noted that the mean and multiples of Equity Value to 1997 and
1998 estimated earnings were 16.9x and 17.1x, and 14.7x and 14.9x, respectively.
These multiples, as applied to the forecast of the Combined Company's results
provided to Legg Mason by the managements of Cosmetic and PFC, yielded estimated
values for each share of Cosmetic Class C common stock of $4.10 and $4.16, and
$9.25 and $9.37, per share, respectively. Legg Mason noted that the mean and
median multiples of Enterprise Value to LTM revenues were 0.52x and 0.49x,
respectively, representing estimated values per share of Cosmetic Class C common
stock of $6.17 and $5.72, respectively; the mean and median multiples of
Enterprise Value to LTM EBITDA were 8.6x and 7.9x, respectively, representing
estimated values per share of Cosmetic Class C common stock of $4.71 and $4.00,
respectively; and that the mean and median multiples of Enterprise Value to LTM
EBIT were 12.1x and 12.3x, respectively, representing estimated values per share
of Cosmetic Class C common stock of $2.55 and $2.65, respectively.
The Non-Operating Items were evaluated separately from the operating
performance of the Combined Company, and then incorporated into the estimated
value calculations for both the Stock Offer and the Pro Rata Offer. The
estimated balance of $15 million of NOLs expected to be attributable to the
Combined Company, as provided to Legg Mason by the management of PFC, were
valued at $5.2 million, or $0.51 of additional value per share of the Combined
Company, based on the
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estimated cash flows attributable to their recognition over an assumed four-year
time period, discounted back at the Combined Company's estimated medium-term
after-tax cost of debt of approximately 6%. Legg Mason also considered the cost
of $4.2 million of one-time charges to be incurred as a result of the Merger,
which were valued at $2.5 million on an after-tax basis, or $0.25 of additional
charges per share of the Combined Company. In total, the Non-Operating Items
amounted to an additional $2.7 million of value, or $0.26 of additional value
per share of the Combined Company, accounting for $0.26 of additional value in
the Stock Offer scenario, and $0.10 of additional value in the Pro Rata Offer
scenario.
Applying the mean and median Projected 1998 EPS Multiples and incorporating
the additional value attributable to the Non-Operating Items, Legg Mason
developed mean and median estimated values per Cosmetic share attributable to
the Merger of the Cash Offer, the Stock Offer, and the Pro Rata Offer of $7.63
and $7.63, $9.51 and $9.64, and $8.34 and $8.39, respectively.
Legg Mason also noted that the Merger was projected to be accretive on an
EPS basis to Cosmetic for each of the LTM, 1997 and 1998 periods.
ACQUISITION PREMIUMS ANALYSIS
Legg Mason analyzed 1,286 transactions occurring since 1991 with regard to
the median percentage premium paid by acquirors. Legg Mason's analysis indicated
that the median percentage premium of offer prices to trading prices one month
prior to the announcement date for publicly announced transactions was 46% in
1991, 38% in 1992, 36% in 1993, 35% in 1994, 35% in 1995 and 29% through the
first three quarters of 1996. Legg Mason noted that the Cash Offer represented a
premium of 92%, the Stock Offer represented an estimated premium of 143% (based
on median Projected 1998 EPS Multiples) and the Pro Rata Offer represented an
estimated premium of 111% (based on median Projected 1998 EPS Multiples)
relative to the weighted average closing trading price for the Cosmetic Class A
and Class B common stock as of August 30, 1996 (the "Cosmetic Unaffected Stock
Price") of $3.97, the date one month prior to Cosmetic's public announcement of
the signing of the non-binding Letter of Intent.
COMPARABLE TRANSACTIONS ANALYSIS
Legg Mason also performed an analysis of comparable merger and acquisition
transactions in reaching its opinion. Legg Mason compared certain financial and
operating statistics of Cosmetic with certain financial and operating statistics
of selected retailers immediately prior to their being acquired (the "Acquired
Companies"). While Legg Mason believed that the Acquired Companies were
comparable to Cosmetic, Legg Mason recognized that each of the Acquired
Companies was distinguishable from Cosmetic in certain respects and was not
acquired in circumstances directly comparable to the Merger. The 11 selected
acquisition transactions occurred between 1993 and the present and included
(acquiror/acquired company): American Stores/Clark Drugs, Drug Emporium
Inc./Eagleville Pharmacy, Eckerd Corp./Rite Aid Corp. (Florida), J.C. Penney
Co./Fay's Inc., J.C. Penney Co./Kerr Drug Stores, Inc., Pharmhouse Corp./FW
Woolworth (Rx Place), Revco D.S. Inc./Big B, Inc., Revco D.S., Inc./Hook-SupeRx,
Inc., Rite Aid Corp./Pathmark (Drug Stores), Rite Aid Corp./Perry Drugstores,
Inc., and Thrifty PayLess Holdings, Inc./PayLess Drug Stores Northwest, Inc.
In performing its analysis, Legg Mason examined both the amount paid for
each Acquired Company's common equity (the "Purchase Price of Equity") and the
Purchase Price of Equity plus the Acquired Company's total debt, preferred
equity (if any) and minority interests (if any) less cash and cash equivalents
(the "Transaction Value"). Using the Purchase Price of Equity for each Acquired
Company, Legg Mason calculated multiples of the Acquired Company's LTM, one year
forward and two years forward estimated EPS and then current common
stockholders' equity (the "Purchase Price of Equity Multiples") as of the
transaction date. Using the Transaction Value of each Acquired Company
transaction, Legg Mason calculated multiples of, among other things, the
Acquired Company's then LTM revenues, LTM EBITDA and LTM EBIT (collectively, the
"LTM Transaction Value Multiples"). Legg Mason also calculated the mean and
median premiums paid by acquirors, relative to each Acquired Company's
unaffected share price one month prior to the transaction date.
Legg Mason noted that the mean and median multiples of Purchase Price of
Equity to LTM net income and book value were 34.3x and 39.1x, and 2.79x and
2.76x, respectively. Applying the mean and median multiples to Cosmetic's LTM
net income yielded results which were not meaningful due to Cosmetic's LTM
losses. Applying mean and median multiples to Cosmetic's book value yielded
implied values of Cosmetic common stock of $22.32 and $22.15, respectively, per
share. Legg Mason noted that the mean and median multiples of Transaction Value
to LTM revenues were 0.39x and 0.39x, respectively, representing Cosmetic per
share values of $9.05 and $9.12, respectively; the mean and median multiples of
Transaction Value to LTM EBITDA were 9.1x and 8.9x, respectively, representing
Cosmetic per share values of $3.87 and $3.74, respectively; and the mean and
median multiples of Transaction Value to LTM EBIT of 15.9x and 14.8x,
respectively, which
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yielded per share values which were negative and therefore not meaningful. Legg
Mason noted that because of Cosmetic's depressed LTM financial performance, none
of the LTM Transaction Value Multiples and Purchase Price of Equity Multiples,
or the resulting implied share values, were considered to be reliable measures
of value for Cosmetic.
Applying the mean and median multiples of one year forward and two year
forward estimated EPS for the Acquired Companies of 12.9x and 11.0x, and 9.7x
and 8.9x, respectively, to Cosmetic's projected 1997 and 1998 EPS, Legg Mason
calculated imputed values for each Cosmetic share attributable to the Merger of
$2.36 and $2.01, and $3.37 and $3.09, respectively. Legg Mason also calculated
mean and median premiums to unaffected share prices for the Acquired Companies
of 62.1% and 63.0%, which suggested values for each Cosmetic share attributable
to the Merger of $6.44 and $6.47, respectively. The values per Cosmetic share
attributable to the Merger of the Cash Offer, the Stock Offer and the Pro Rata
Offer were compared to the Cosmetic per share values implied by the results of
the Comparable Transactions Analysis.
No company utilized in the Comparable Transactions Analysis was identical
to Cosmetic. Legg Mason advised the Cosmetic Board that an analysis of the
results of the foregoing was not purely mathematical; rather, it involved
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the Acquired Companies and
other factors that could affect the acquisition value of such businesses and
Cosmetic.
DISCOUNTED CASH FLOW ANALYSIS
Legg Mason reviewed a discounted cash flow analysis of Cosmetic premised
upon the assumptions summarized below. The discounted cash flow analysis was
based upon the financial and operating information relating to the business,
operations and prospects of Cosmetic supplied by the management of Cosmetic and
covering the period from calendar year 1997 through the end of the calendar year
2001.
Using discount rates ranging from 11.4% to 19.4%, Legg Mason calculated the
present value of the projected stream of Net Unleveraged Cash Flow (as defined
below) for calendar years 1997 through 2001 and the present cash value of the
terminal value (the "Terminal Value") of Cosmetic at December 31, 2001. Legg
Mason applied discount rates derived from Cosmetic's implied weighted average
cost of capital (using a pricing model known as the Capital Asset Pricing Model
and based on general and systemic risk factors reflected by the Comparable
Companies) and developed a range of rates which reflected the additional risk
implied by Cosmetic's recent and projected operating performance. "Net
Unleveraged Cash Flow," as used in the analysis, is defined, for each period, as
projected EBIT, less taxes at an estimated rate of 40.0%, plus projected
depreciation and amortization, less projected capital expenditures, plus or
minus projected changes in non-cash working capital. The Terminal Value was
computed by multiplying Cosmetic's projected EBIT by terminal multiples of 5.0x
to 7.0x. Legg Mason adjusted the calculated present value of the Net Unleveraged
Cash Flow and Terminal Value by subtracting the debt on Cosmetic's balance
sheet, and adding cash and cash equivalents, to calculate a range of equity
values for Cosmetic. Legg Mason believes the ranges of discount rates and
terminal multiples were appropriate in view of Cosmetic's current performance,
projected performance and its estimated weighted average cost of capital.
Based on the range of discount rates and terminal multiples referred to
above, Legg Mason calculated a range of equity values for Cosmetic of $2.4
million to $14.7 million, or $0.56 to $3.41 per share of Cosmetic Class A and
Class B common stock.
LEVERAGED BUYOUT ANALYSIS
Legg Mason also reviewed a leveraged buyout analysis of Cosmetic as a means
of establishing the value of Cosmetic assuming that Cosmetic were to be taken
private by a financial buyer. A leveraged buyout ("LBO") involves the
acquisition or recapitalization of a company financed primarily by incurring
debt that is serviced by the post-LBO operating cash flow of the company. Legg
Mason advised the Cosmetic Board that an LBO value tends to be lower than the
value derived by other valuation analyses because the debt servicing requirement
of a leveraged company limits the price which a financial buyer is able to pay.
Furthermore, Legg Mason noted that a financial buyer typically is unable to
realize strategic or synergistic benefits from an acquisition. In the course of
developing the LBO analyses, Legg Mason determined that the projected Net
Unleveraged Cash Flow to be generated by Cosmetic would be insufficient to
support an LBO.
ASSET LIQUIDATION ANALYSIS
Legg Mason also considered an asset liquidation analysis as a method of
valuing Cosmetic. An asset liquidation assumes that Cosmetic would be dissolved
and its assets sold for cash proceeds equal to estimated fair market values.
Legg Mason advised the Cosmetic Board that an asset liquidation tends to yield a
lower value than that derived from other analyses because a liquidation does not
attribute any value to the operation of the liquidated entity as a going
concern. In the course of
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considering this type of analysis, Legg Mason determined that an asset
liquidation analysis would not provide a reliable measure of the value of
Cosmetic, as the liquidation values of the assets of retailers in general are,
and Cosmetic in specific would be, less than the book value of such assets, and
typically represent only a small portion of such entities' going concern value.
OTHER FACTORS
In rendering its opinion, Legg Mason considered certain other factors,
including a review of the business and operations of and the industries in which
Cosmetic and PFC operate, a review of Cosmetic's and PFC's historical operating
results and the financial and operating information with respect to the
business, operations and prospects of Cosmetic, PFC and the Combined Company, a
review of the current and historic stock price performance of Cosmetic and other
factors it deemed relevant.
Legg Mason is a nationally recognized investment banking firm which has
substantial experience in, among other things, the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, sales and
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Legg Mason acted as sole
manager in connection with an offering of Cosmetic Class A common stock in April
1992, for which it received customary compensation. In the ordinary course of
its business, Legg Mason may actively trade in the securities of Cosmetic for
its own account and the accounts of its customers, and accordingly, may at any
time hold a long or short position in such securities.
Pursuant to the terms of an engagement letter, Cosmetic agreed to pay Legg
Mason $625,000 for acting as financial advisor in connection with the Merger. Of
this amount $25,000 was paid upon the engagement of Legg Mason and $600,000 is
contingent upon the closing of the Merger. In addition, Cosmetic paid Legg Mason
a fee of $50,000 for rendering the Legg Mason Opinion. Cosmetic has agreed to
reimburse Legg Mason for its out-of-pocket expenses (including the reasonable
fees and expenses of its legal counsel), and to indemnify Legg Mason and certain
related parties against certain liabilities, including liabilities under the
federal securities laws, arising out of or in connection with the services
rendered by Legg Mason under its engagement letter.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Cosmetic Board's recommendation in favor of the Merger,
Cosmetic stockholders should be aware that certain Cosmetic officers, including
some officers who are also directors, have certain interests in the Merger that
are different from, or in addition to, the interests of Cosmetic's stockholders
generally. Four Cosmetic officers, Mark S. Weinstein, Anita J. Weinstein, Susan
K. Magenheim and Ben S. Kovalsky, are also members of the current six-person
Cosmetic Board.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS WITH MARK S. WEINSTEIN AND ANITA J.
WEINSTEIN
Mark Weinstein currently has an employment agreement with Cosmetic. See
"Election of Directors; Management of Cosmetic Following the Merger --
Employment Agreements." At the Effective Time, Mark Weinstein and Anita
Weinstein will enter into employment and non-competition agreements with the
Combined Company. The employment and non-competition agreement with Mark
Weinstein provides that he will be employed as vice-chairman of the Cosmetic
Board and will receive bi-weekly payments totaling $315,000 and $150,000
annually in respect of salary and a non-competition covenant, respectively. The
employment and non-competition agreement with Anita Weinstein provides that she
will be employed as a vice-president of the Combined Company and will receive
bi-weekly payments totaling $50,000 and $50,000 annually in respect of salary
and a non-competition covenant, respectively. The agreements require that the
Combined Company continue to provide to Mark Weinstein and Anita Weinstein the
vehicles currently provided to them by Cosmetic, pay for operating expenses for
such vehicles during the term of the agreements and at their request during the
term of the agreements, and for thirty days thereafter, transfer such vehicles
to them. The agreements provide that each of Mark Weinstein and Anita Weinstein
will participate in certain of the Combined Company's benefit programs
(principally medical and disability insurance).
Each of the agreements has a four-year term, commencing at the Effective
Time. Each of the agreements provides that if the employee is terminated for
other than "good cause" (as defined therein), the Combined Company is obligated
to pay the employee the balance of the salary and non-competition payment due
over the remaining term of the agreement. If there is a "change in control" (as
defined therein) of the Combined Company, the employee may elect to treat such
change of control as a termination for other than "good cause," and the Combined
Company would be obligated to pay the employee the
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<PAGE>
balance of the salary and non-competition payments due in a single lump sum
payment. Additionally, upon death, expiration of the term of the agreement,
change in control of the Combined Company or termination for other than "good
cause," the Combined Company is obligated to purchase all of the employee's
options (vested and unvested). See "Principal Stockholders of Cosmetic."
Payments would be based upon the difference between the market price of Cosmetic
Class C common stock on the termination date and the exercise prices of the
options.
Each agreement provides that, during the term of the agreement and for two
years thereafter, the employee will not, directly or indirectly, own, control,
manage or operate stores with products similar to those in stores operated by
the Combined Company in Maryland, Virginia, Illinois or the District of Columbia
or within a 50 mile radius of any other city where the Combined Company is
operating retail stores.
The agreement with Mark Weinstein requires that the Combined Company
continue in effect a life insurance policy in the face amount of $1 million.
Cosmetic currently pays the annual premium of approximately $8,800 on the
policy. Cosmetic is, and the Combined Company will be, the beneficiary of the
policy to the extent of the premiums paid by it and the balance of the benefits
are payable to the beneficiaries designated by Mark Weinstein. The agreement
with Anita Weinstein requires that the Combined Company continue in effect a
life insurance policy in the face amount of $4 million. Cosmetic currently pays
the annual premium of approximately $60,650 on the policy. Cosmetic is, and the
Combined Company will be, the beneficiary of the policy to the extent of the
premiums paid by it and the balance of the benefits are payable to the L&A
Weinstein Trust, a trust for the benefit of Mark Weinstein, Susan Magenheim and
their respective children. During the term of the agreements, each of Mark
Weinstein and Anita Weinstein have the right to purchase from the Combined
Company such life insurance policy for the amount of the premiums paid by
Cosmetic. In addition, the agreement with Mark Weinstein requires that the
Combined Company continue in effect a "key-man" life insurance policy in the
face amount of $1 million, which Mr. Weinstein will have the right to purchase
at the end of the term of his employment for the amount of the premiums paid by
Cosmetic and the Combined Company.
CONSULTING AND NON-COMPETITION AGREEMENT WITH SUSAN K. MAGENHEIM
At the Effective Time, Susan Magenheim will enter into a consulting
agreement with the Combined Company. The consulting and non-competition
agreement with Susan Magenheim calls for bi-weekly payments totaling $90,000 and
$45,000 annually in respect of the consulting fee and a non-competition
covenant, respectively. The agreement will commence at the Effective Time and
have a term of four years. The agreement provides that if Mrs. Magenheim is
terminated for other than "good cause" (as defined therein), the Combined
Company is obligated to pay Mrs. Magenheim the balance of the consulting fee and
non-competition payments due over the remaining term of the agreement. If there
is a "change of control" (as defined therein) of the Combined Company, Mrs.
Magenheim may elect to treat such change of control as a termination for other
than "good cause," and the Combined Company would be obligated to pay Mrs.
Magenheim the balance of the consulting fee and non-competition payments due in
a single lump sum payment. Also under the agreement, the Combined Company will
transfer to Mrs. Magenheim the vehicle currently provided to her by Cosmetic.
EMPLOYMENT AGREEMENT WITH BEN S. KOVALSKY
Ben Kovalsky, currently Cosmetic's president, chief executive officer and
chief operating officer, has an employment agreement with Cosmetic. See
"Election of Directors; Management of Cosmetic Following the Merger --
Employment Agreements." At the Effective Time, Mr. Kovalsky will enter into an
amendment to his employment agreement with the Combined Company. The agreement
as amended will extend the term of the agreement through February 2000 and
provide for an annual salary of $225,000 and payments for a non-competition
covenant of $100,000 per annum. The amended agreement provides that if Mr.
Kovalsky terminates the agreement after the six-month anniversary of the
Effective Time or if the Combined Company terminates at any time other than for
"good cause" (as defined therein), the Combined Company will be obligated to pay
in a lump sum the salary and non-competition payments through the end of the
term and will be obligated to purchase all of Mr. Kovalsky's options at the
difference between the market price (but not less than $7.63) and the exercise
price. See "Principal Stockholders of Cosmetic." The agreement also provides
that, upon expiration, termination by Mr. Kovalsky after the six-month
anniversary of the Effective Time or termination by the Combined Company other
than for "good cause" (as defined therein), the Combined Company is obligated to
transfer to Mr. Kovalsky the vehicle that he currently uses.
The amended agreement provides that, during the term of the agreement and
for two years thereafter, Mr. Kovalsky will not, directly or indirectly, own,
control, manage or operate stores with products similar to those in stores
operated by the
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Combined Company in Maryland, Virginia, Illinois or the District of Columbia or
within a 50 mile radius of any other city where Cosmetic is operating retail
stores.
The amended agreement requires that, upon termination of Mr. Kovalsky's
employment, the Combined Company will make certain deferred salary payments to
Mr. Kovalsky. Cosmetic has used the amounts deferred from Mr. Kovalsky's salary
to purchase a life insurance policy in the amount of $763,000 payable following
the death of Mr. Kovalsky and his spouse. Mr. Kovalsky may purchase this life
insurance policy for the amount of the premiums paid by Cosmetic and the
Combined Company.
STOCKHOLDERS AGREEMENT WITH PRINCIPAL STOCKHOLDERS
Concurrent with the execution of the Merger Agreement, the Principal
Stockholders entered into the Stockholders Agreement. At December 9, 1996, the
Principal Stockholders in the aggregate own approximately 23% of the outstanding
Cosmetic Class A common stock and approximately 48% of the outstanding Cosmetic
Class B common stock.
Pursuant to the Stockholders Agreement, the Principal Stockholders holding
at least 25% of the shares held by the Principal Stockholders will be entitled
to demand on one occasion that Cosmetic file a registration statement under the
Securities Act for the sale of their Cosmetic Class C common stock and will also
be entitled to include their Cosmetic Class C common stock in certain
registration statements filed for the benefit of Cosmetic. Cosmetic will bear
all expenses of such registration statements, except for fees and expenses of
counsel for the Principal Stockholders and underwriters' discounts, fees and
expenses.
The Stockholders Agreement provides that for three years after the
consummation of the Merger, (a) the Principal Stockholders will vote all of
their Cosmetic Class C common stock in favor of Revlon's nominees for director
so that Revlon will at all times maintain representation on the Combined Company
Board equal to Revlon's percentage ownership of Cosmetic Class C common stock,
but not less than seven board seats, including two independent directors, and
(b) Revlon will vote its shares of Cosmetic Class C common stock in favor of the
Principal Stockholders' nominees for director equal to their aggregate
percentage ownership of Cosmetic Class C common stock, after giving effect to
the Merger and the Cash Election, but not less than one nor more than two board
seats.
See "The Stockholders Agreement" for a complete description of the terms of
the Stockholders Agreement.
COSMETIC STOCK OPTIONS
The Merger Agreement provides that each option to purchase Cosmetic Class A
or Class B common stock outstanding immediately prior to the Effective Time
will, after the Effective Time, be exercisable for the same number of shares of
Cosmetic Class C common stock, with the same exercise price and expiration date
as such option was exercisable immediately prior to the Merger; PROVIDED,
HOWEVER, that each holder of an option that has an exercise price of less than
$7.63 per share can elect, in lieu of retaining the stock option, to receive in
cancellation thereof cash in an amount equal to the difference between $7.63 and
the exercise price of such option.
The Cash Election is subject to the limitation that not more than 2,829,065
shares of Cosmetic Class A and Class B common stock and options with an exercise
price of less than $7.63 per share will be exchangeable for cash pursuant to the
Cash Election. To the extent that the aggregate shares and options as to which a
Cash Election has been made exceed the Limit, each stockholder's and
optionholder's Cash Election will be reduced pro rata. Pursuant to the
Stockholders Agreement, the Principal Stockholders have agreed to elect to make
the Cash Election for all of their 1,392,723 shares of Cosmetic Class A and
Class B common stock and 41,000 options that have an exercise price of less than
$7.63 per share.
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<PAGE>
MARKET PRICES OF COSMETIC'S SECURITIES
Cosmetic's Class A and Class B common stock are each quoted on the Nasdaq
National Market under the symbols COSCA and COSCB, respectively. The following
table sets forth the high and low closing sale prices for the periods indicated.
Cosmetic has never paid cash dividends on the Cosmetic Class A or Class B common
stock.
MARKET PRICE
<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FISCAL YEAR QUARTER HIGH LOW HIGH LOW
- ----------- ----------------------- ---- --- ---- ---
<S> <C>
1995 First $ 19 $12 3/4 $ 18 3/4 $12 5/8
Second $ 14 $ 7 $ 14 $ 7 3/4
Third $ 9 1/4 $ 7 1/2 $ 11 $ 8
Fourth $ 10 $ 7 1/2 $ 10 $ 7 3/4
1996 First $ 7 7/8 $ 5 3/4 $ 8 3/8 $ 6 1/4
Second $ 7 3/4 $ 4 $ 7 1/2 $ 4 1/4
Third $ 5 7/8 $ 4 3/4 $ 6 3/4 $ 5
Fourth $ 5 3/4 $ 3 3/4 $ 6 1/8 $ 4 1/4
1997 First (through ) $ $ $ $
</TABLE>
As of December 9, 1996, there were 189 holders of record of the Cosmetic
Class A common stock and 136 holders of record of the Cosmetic Class B common
stock, excluding holders whose stock is held in nominee or street name.
On September 30, 1996, the last full trading day prior to the public
announcement of the signing of the Letter of Intent, the closing sale prices of
Cosmetic Class A and Class B common stock, as reported by the Nasdaq National
Market, were $6.50 and $7.25, respectively. On January , 1997, such closing
sale prices were $ and $ , respectively. Cosmetic stockholders are
urged to obtain current market quotations for Cosmetic Class A and Class B
common stock.
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<PAGE>
SELECTED FINANCIAL DATA OF COSMETIC
The following selected historical financial data of Cosmetic have been
derived from, and should be read in conjunction with, Cosmetic's audited
consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------
SEPT. SEPT. SEPT. SEPT. SEPT.
25, 24, 30, 29, 27,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $101,175 $109,486 $123,551 $132,304 $133,795
-------- -------- -------- -------- --------
Gross margin..................................................... 20,852 22,972 26,977 27,210 28,034
Selling, general and administrative expenses..................... 16,251 17,115 19,929 27,033 30,268
Restructuring charges............................................ -- -- -- -- 4,024
-------- -------- -------- -------- --------
Operating income (loss).......................................... 4,601 5,857 7,048 177 (6,258)
Other income, net................................................ (49) (84) (110) (670) (95)
Interest expense................................................. 559 97 166 725 1,030
Income taxes (benefit)........................................... 1,657 2,267 2,804 (157) (2,433)
-------- -------- -------- -------- --------
Net income (loss)................................................ $ 2,434 $ 3,577 $ 4,188 $ 279 $ (4,760)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) per common and common equivalent shares............ $ 0.68 $ 0.82 $ 0.95 $ 0.06 $ (1.11)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------
SEPT. SEPT. SEPT. SEPT. SEPT.
25, 24, 30, 29, 27,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 29,918 $ 33,386 $ 36,039 $ 33,090 $ 42,815
Inventory........................................................ 41,217 45,002 50,422 61,891 56,479
Total assets..................................................... 49,914 54,765 62,134 77,967 72,522
Short-term debt.................................................. 195 222 5,297 12,276 311
Long-term debt, less current portion............................. 555 814 711 420 12,329(a)
Stockholders' equity............................................. $ 33,855 $ 37,436 $ 41,662 $ 41,941 $ 37,181
</TABLE>
- ---------------
(a) In October 1996, Cosmetic refinanced its existing short-term note payable
with borrowings under a new revolving credit facility that expires on
October 31, 1999 and, as a result, reclassified its short-term note payable
to long-term debt at September 27, 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF COSMETIC
GENERAL
Cosmetic was founded in 1957, with its initial operations consisting of the
sales of cosmetic products to wholesale customers. At September 27, 1996,
Cosmetic operated 69 stores under the name "The Cosmetic Center" located in the
greater metropolitan market areas of Washington, D.C.; Richmond, Virginia;
Baltimore, Maryland; Chicago, Illinois; Charlotte/Raleigh/Durham, North
Carolina; and Philadelphia, Pennsylvania. Cosmetic sells approximately 25,000
brand name prestige and mass-merchandised cosmetic products.
During the past three fiscal years Cosmetic embarked upon several major
projects which affected the results of operations. These projects included
expansion on a more expedited basis than in the past and the introduction of
hair salons within its retail stores.
EXPANSION
Over the past three fiscal years Cosmetic opened 31 retail stores to add to
its base of 47 retail stores at the end of the 1993 fiscal year, an increase of
66%. During this same time period Cosmetic opened three new geographic market
areas: Charlotte/Raleigh/Durham, N.C.; Philadelphia, Pa.; and Atlanta, Ga.
Generally, new stores do not begin to contribute to the absorption of corporate
overhead until after their second year of operation or until their sales level
has matured. In a new market, where it takes additional time to build name
recognition, the time period to begin to contribute to the absorption of
corporate overhead may be even longer.
Although the Philadelphia, Pa. and North Carolina market areas have
performed to Cosmetic's expectations, the Atlanta, Ga. marketplace was a
disappointment. During the 1996 fiscal year, the Atlanta marketplace suffered an
operating loss of $1.1 million. As a result, on August 4, 1996, Cosmetic closed
its eight retail stores in the Atlanta marketplace and recorded a restructuring
provision of $4.0 million, including the cost of future lease obligations, a
write-off of certain assets and a severance package for its Atlanta employees.
The expected future cash flow requirement of the restructuring provision at
September 27, 1996 is $2.1 million and will be paid over the remaining one- to
four-year terms of the Atlanta leases.
HAIR SALON STRATEGY
Traditionally, the manufacturers of professional hair care products have
allowed their products to be sold by retail hair salons only. Historically,
Cosmetic purchased professional hair care products from secondary sources, and
sales of these products generally accounted for 5% to 6% of Cosmetic's annual
retail sales. Cosmetic's purchases of these products and sale at value prices to
consumers was not looked upon favorably by these manufacturers. With the growth
of Cosmetic over the past three years, sufficient quantities of top selling
professional hair care products became increasingly difficult to purchase
through secondary sources. As a result, Cosmetic decided to add hair salons in
its existing stores as an add-on beauty service and with the anticipation of
developing direct relationships with the manufacturers of professional hair care
products, which required discontinuing sales of professional hair care products
obtained from secondary sources.
In the summer and fall of 1994, Cosmetic opened hair salons in 12 of its 13
new stores in the Pennsylvania, North Carolina and Georgia market areas. In
February 1995, Cosmetic began to retrofit existing stores in its Washington D.C.
and Chicago market areas. As of September 27, 1996, Cosmetic had built or
retrofitted 60 of its 69 stores to include hair salons.
In July 1995, Cosmetic began receiving shipments of professional hair care
products from one of the four major professional hair care manufacturers and
continues to receive such products today. This manufacturer, however, represents
only one-third of the historical 6% of sales volume. The loss of the other 4% of
historical professional hair care product sales has adversely affected retail
sales and profits. Cosmetic is attempting to develop direct relationships with
the other three major manufacturers, though there can be no assurances this will
be achieved or that the one manufacturer will continue to supply Cosmetic.
Although results of operations continue to be affected by costs associated
with the operation of hair salons and lost sales and profits associated with the
discontinuance of professional hair care products from secondary sources,
Cosmetic believes that there may be future benefits to be derived from
maintaining and expanding the arrangement. The gross margin on professional hair
care products purchased on a direct basis is significantly higher than the gross
margin on professional hair care products purchased on a secondary source basis.
In addition, the direct relationship enables Cosmetic to maintain in
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<PAGE>
stock sufficient quantities of professional hair care products of the
manufacturer with which Cosmetic has such relationship. See "The Merger --
Forward-Looking Statements."
RESULTS OF OPERATIONS
Cosmetic's fiscal year ends on the last Friday of September. Fiscal years
for the following discussion ended on September 27, 1996, September 29, 1995 and
September 30, 1994. Fiscal years 1996 and 1995 each consisted of 52 weeks and
fiscal year 1994 consisted of 53 weeks.
FISCAL YEAR ENDED SEPTEMBER 27, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 29,
1995
Consolidated net sales for the year ended September 27, 1996 were $133.8
million, an increase of $1.5 million, or 1.1%, from the $132.3 million in
consolidated net sales for the year ended September 29, 1995.
Retail sales for the year ended September 27, 1996 were $132.1 million, an
increase of $2.4 million, or 1.9%, from the $129.7 million in retail sales for
the year ended September 29, 1995. The increase in retail sales was primarily
attributable to the five stores opened at various dates in fiscal year 1996, the
five stores opened in the second half of fiscal year 1995 which were in
operation for a full year in fiscal year 1996 and comparable store sales
increases in the second half of fiscal year 1996, partially offset by the loss
of sales from closed stores in the Atlanta area. Comparable store retail sales
for the 1996 fiscal year were $124.3 million as compared to $127.6 million for
the 1995 fiscal year, a decrease of $3.3 million. The decrease in comparable
store retail sales is primarily attributable to lost sales as a result of the
severe winter weather on the East Coast during the quarter ended March 29, 1996,
weak retail sales in men's and women's fragrances and the loss of professional
hair care product sales, the latter resulting from Cosmetic's change in methods
of purchasing professional hair care products. See "Hair Salon Strategy."
Cosmetic operated 69 stores at September 27, 1996 as compared to 73 stores at
September 29, 1995.
Wholesale sales for the year ended September 27, 1996 were $1.7 million, a
decrease of $0.9 million, or 34.6%, from the $2.6 million in wholesale sales for
the year ended September 29, 1995. Cosmetic has focused greater attention on its
retail business but continues to serve its remaining market of independent drug
and merchandise stores. Management continues to evaluate the viability of the
wholesale division.
Cost of sales, including buying, occupancy and distribution expense, was
$105.8 million (79.1% of sales) for the year ended September 27, 1996, versus
$105.1 million (79.4% of sales) for the year ended September 29, 1995. The
dollar increase was primarily attributable to cost of sales and occupancy costs
associated with the five stores opened in fiscal year 1996, the five stores
opened in the second half of fiscal year 1995, which were in operation for a
full year in fiscal year 1996, additional buying and distribution expenses to
support the new stores and comparable store sales increases in the second half
of fiscal year 1996. Cost of sales, including buying, occupancy and distribution
expenses, as a percentage of sales were affected positively by gross margin
increases resulting from the direct purchase of professional hair care products.
This percentage gain was partially offset by new stores, whose sales volume has
not yet grown to the level experienced by mature stores, thus having a higher
cost of sales percentage because of occupancy costs.
Selling, general and administrative ("S G & A") expenses were $30.3 million
(22.6% of sales) for the year ended September 27, 1996, versus $27.0 million
(20.4% of sales) for the year ended September 29, 1995. S G & A expenses
increased $3.3 million for fiscal year 1996 versus fiscal year 1995. Of this
increase approximately $2.2 million is associated with stores not in operation
for the comparable time period and approximately $1.7 million is associated with
increased operating expenses of hair salons in salons opened longer than one
year. The increase of new store and hair salon S G & A expenses was partially
offset by decreases of $0.6 million in S G & A expenses at comparable stores and
corporate overhead levels. The increase in S G & A expenses as a percentage of
sales for fiscal year 1996 versus fiscal year 1995 primarily reflects reduced
comparable stores sales volume and that new stores generally have a higher S G &
A as a percentage of sales because their sales volume has not matured.
Interest expense was $1.0 million (0.8% of sales) for the year ended
September 27, 1996, versus $0.7 million (0.5% of sales) for the year ended
September 29, 1995. The increase in interest expense was primarily attributable
to increased borrowings under the credit facility to support fixed asset and
working capital requirements associated with new stores and the retrofit
construction of hair salons in existing stores.
37
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 29, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
Consolidated net sales for the year ended September 29, 1995 were $132.3
million, an increase of $8.7 million, or 7.0%, from the $123.6 million in
consolidated net sales for the year ended September 30, 1994.
Retail sales for the year ended September 29, 1995 were $129.7 million, an
increase of $9.7 million, or 8.1%, from the $120.0 million in retail sales for
the year ended September 30, 1994. The increase in retail sales was primarily
attributable to the 12 stores opened at various dates in fiscal 1995 and the ten
stores opened in the second half of fiscal year 1994 which were in operation for
a full year in fiscal year 1995. Comparable store retail sales for the fiscal
year were $110.4 million as compared to $119.8 million for the 1994 fiscal year,
a decline of $9.4 million of which approximately $1.9 million is attributable to
the extra week in fiscal year 1994. Comparable store sales have also been
adversely affected by a softening in fragrance sales for most of the year and by
the transition in the process of purchasing professional hair care products
described above. Cosmetic operated 73 stores at September 29, 1995 as compared
to 61 stores at September 30, 1994.
Wholesale sales for the year ended September 29, 1995 were $2.6 million, a
decrease of $1.0 million, or 27.8%, from the $3.6 million in wholesale sales for
the year ended September 30, 1994. The decrease in the wholesale business is
attributable to a general softening in retail sales nationwide and a continued
shrinking of the independent drug store market. These market conditions are
expected to continue for the foreseeable future. Cosmetic continues to emphasize
customer service and value as key elements in its efforts to stabilize wholesale
sales. Cosmetic has focused greater attention on its retail business but
continues to serve its remaining market of independent drug and merchandise
stores. Management continues to evaluate the viability of the wholesale
division.
Cost of sales, including buying, occupancy and distribution expense, was
$105.1 million (79.4% of sales) for the year ended September 29, 1995, versus
$96.6 million (78.2% of sales) for the year ended September 30, 1994. The dollar
increase was primarily attributable to cost of sales and occupancy costs
associated with the 12 stores opened in fiscal year 1995, the ten stores opened
in the second half of fiscal year 1994, which were in operation for a full year
in fiscal year 1995, and additional buying and distribution expenses to support
the new stores. Cost of sales including buying, occupancy and distribution
expenses as a percentage of sales increased for the 1995 fiscal year because of
increased buying, occupancy and distribution expenses associated with the
aforementioned new stores, whose sales volume has not yet grown to the level
experienced by mature stores. The percentage was also adversely affected by the
decline in comparable store sales.
S G & A expenses were $27.0 million (20.4% of sales) for the year ended
September 29, 1995, versus $19.9 million (16.1% of sales) for the year ended
September 30, 1994. S G & A expenses increased $7.1 million for fiscal year 1995
versus fiscal year 1994. Of this increase $5.0 million was associated with the
12 stores opened in fiscal year 1995 and the ten stores opened in the second
half of fiscal year 1994. These 22 stores, or 30% of all stores, generated
additional sales of $18.2 million, thus their S G & A expenses as a percentage
of sales were 27.5%, thus increasing S G & A as a percentage of sales. New
stores generally have higher S G & A as a percentage of sales until their sales
volume matures.
S G & A expenses for fiscal year 1995 also included some one-time expenses.
Cosmetic absorbed an $0.8 million payroll expense for salary continuation
benefits under the remaining term of the employment contract of Cosmetic's
Chairman, Louis R. Weinstein, who died on July 8, 1995. This expense was
partially funded by $550,000 of proceeds under a life insurance contract, which
is included in other income. Additionally, Cosmetic absorbed approximately $0.3
million of S G & A expenses, which included a $0.2 million lease termination
fee, on a "close out" store concept which was opened and closed within the 1995
fiscal year.
The remaining increase in S G & A expenses for the fiscal year 1995 was
attributable to payroll and operating expenses associated with the operation of
hair salons and marginal increases of S G & A expenses at comparable stores and
corporate overhead levels. S G & A expenses as a percentage of sales were
adversely affected by the relatively lower sales volume of the 22 stores
discussed above and by the reduced comparable store sales volume for fiscal year
1995.
Interest expense was $0.7 million (0.5% of sales) for the year ended
September 29, 1995, versus $0.2 million (0.1% of sales) for the year ended
September 30, 1994. The increase in interest expense was primarily attributable
to borrowings under the credit facility to support the fixed asset and working
capital requirements associated with new stores and the retrofit construction of
hair salons in existing stores.
The income tax provision for fiscal year 1995 includes a tax benefit of
approximately $0.2 million because the proceeds from the life insurance contract
are not taxable.
38
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cosmetic's working capital was $42.8 million at September 27, 1996 compared
to $33.1 million at September 29, 1995. The ratio of current assets to current
liabilities was 3.1 at September 27, 1996 and 2.0 at September 29, 1995.
Net cash provided by operating activities amounted to $0.8 million for the
fiscal year ended September 27, 1996. The $5.4 million decrease in inventory and
$5.7 million in non-cash expenses, depreciation, amortization and the
restructuring provision were used to fund the loss from operations and other
elements of working capital.
Net cash used by investing activities amounted to $1.0 million for the
fiscal year ended September 27, 1996. The investment is primarily attributable
to the opening of five new stores during the period and completion of the hair
salon retrofit construction.
Net cash used by financing activities amounted to $0.1 million for the
fiscal year ended September 27, 1996. Under Cosmetic's credit facility Cosmetic
had net borrowings of $0.2 million to partially finance fixed asset expenditures
for new stores opened during the period. Cosmetic also repaid capital lease
obligations in the amount of $0.3 million.
Cosmetic had an unsecured credit facility with a bank for a maximum
borrowing of $15 million (the "Facility"). The Facility, which was scheduled to
expire on February 28, 1997, was subject to repayment on demand and accrued
interest was payable monthly, at an annual rate equal to the bank's prime rate
or at LIBOR plus 200 basis points. The Facility required compliance with certain
restrictive covenants including maintenance of minimum tangible net worth. At
September 27, 1996, the Facility had an outstanding balance of $12.2 million at
interest rates ranging from 6.46% to 9.50%. The carrying value of Cosmetic's
debt approximates fair value.
In October 1996, Cosmetic paid the outstanding balance of $14.2 million on
the Facility with borrowings under a new loan and security agreement (the "New
Facility"). Under the New Facility, which expires October 31, 1999, Cosmetic may
borrow the lesser of $25 million or 50% of eligible inventory, as defined in the
New Facility. Borrowings under the New Facility are secured by all of Cosmetic's
assets except for fixed assets. Under the New Facility Cosmetic may borrow at
LIBOR plus 200 basis points or at the bank's prime rate plus 50 basis points.
Cosmetic also pays an unused line fee equal to one-quarter of one percent per
annum. Interest is payable on a monthly basis. If Cosmetic terminates the New
Facility, Cosmetic is obligated to pay a prepayment penalty of $187,500 if the
termination is made before the first anniversary date and $62,500 after the
first anniversary date. Unless the New Facility is terminated, the consent of
the lender will be required to consummate the Merger, and if such consent is not
obtained, Cosmetic will be required to pay the $187,500 prepayment penalty. As a
result of Cosmetic's ability to refinance the prior Facility with the New
Facility, the balance of the Facility was classified as long-term debt in the
accompanying September 27, 1996 balance sheet. The New Facility requires
Cosmetic to be in compliance with a minimum tangible net worth covenant.
Cosmetic's future cash needs without giving effect to the Merger primarily
result from its plan to open additional new stores. Cosmetic's estimated cost of
opening a new store is approximately $0.7 million including $0.5 million for
initial inventory and $0.2 million for leasehold improvements, furnishings and
fixtures, point-of-sale equipment, hair salon equipment and other items.
Cosmetic may open additional stores during the next fiscal year, however, this
would be dependent upon locating the properties and negotiating the economics of
the leases. Cosmetic believes that funds available from the New Facility and
internally generated funds would provide sufficient cash to meet Cosmetic's
needs for the next year.
If the Merger is consummated, the Combined Company's future cash needs
primarily result from the cash required in connection with the proposed Merger,
including funding the Cash Election, refinancing indebtedness of Cosmetic and
PFC, payment of costs and expenses of the Merger, costs to integrate the
operations of Cosmetic and PFC, costs to expand the operations of the Combined
Company and debt service on the Financing. The Combined Company believes that
funds available from the Financing and internally generated funds would provide
sufficient cash to meet the Combined Company's cash needs for the next year.
However, there can be no assurance that funds available from the Financing and
cash flows from operations will be sufficient to meet the Combined Company's
cash requirements. See "The Merger -- Financing" and "The Merger --
Forward-Looking Statements."
SEASONALITY
Cosmetic's business is seasonal, with the highest volume of sales for both
the retail and wholesale divisions occurring during Cosmetic's first fiscal
quarter (October to December).
INFLATION
While inflation has not had, and Cosmetic does not expect it to have, a
material impact upon operating results, there can be no assurance that
Cosmetic's business will not be affected by inflation in the future.
39
<PAGE>
SELECTED FINANCIAL DATA OF PFC
The following selected historical financial data of PFC as of December 31,
1994 and 1995 and for each of the years in the three year period ended December
31, 1995 have been derived from, and should be read in conjunction with, PFC's
audited financial statements and the notes thereto. The selected historical
financial data as of December 31, 1991, 1992 and 1993 and September 30, 1996 and
for the years ended December 31, 1991 and 1992 and for the nine-month periods
ended September 30, 1995 and 1996 are derived from unaudited financial
statements. In the opinion of PFC's management, the unaudited data reflect all
adjustments (which include only normal, recurring adjustments) necessary for a
fair presentation of such data. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of PFC."
<TABLE>
<CAPTION>
NINE MONTHS ENDED,
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $39,255 $44,033 $54,677 $62,674 $72,717 $45,790 $48,970
------- ------- ------- ------- ------- ------- -------
Gross margin.................................... 22,356 21,326 27,041 30,752 34,673 22,025 25,378
Selling, general and administrative expenses.... 20,185 22,174 27,641 31,441 36,500 26,977 28,237
------- ------- ------- ------- ------- ------- -------
Operating income (loss)......................... 2,171 (848) (600) (689) (1,827) (4,952) (2,859)
Interest expense................................ 493 43 914 1,329 2,137 1,958 699
Income taxes.................................... 12 16 17 25 50 45 45
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $ 1,666 $ (907) $(1,531) $(2,043) $(4,014) $(6,955) $(3,603)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C>
BALANCE SHEET DATA:
Working capital................................. $11,281 $20,123 $21,218 $25,782 $30,014
Inventory....................................... 12,020 20,890 22,003 26,701 29,171
Total assets.................................... 15,482 24,853 28,479 37,769 41,337
Due to Revlon (a)............................... -- 8,930 11,681 21,353 9,615
Stockholder's equity............................ $13,448 $13,496 $13,512 $11,332 $28,298
<CAPTION>
AS OF
SEPTEMBER 30,
-------------
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital................................. $30,797
Inventory....................................... 32,686
Total assets.................................... 44,776
Due to Revlon (a)............................... 18,746
Stockholder's equity............................ $21,215
</TABLE>
- ---------------
(a) PFC's working capital and capital expenditure needs have been financed
through interest-bearing obligations that are payable by PFC to Revlon. PFC
has reflected this obligation on a long-term basis as the obligation has not
been repaid as a result of a capitalization of the amount due to Revlon in
September 1995. To the extent debt to Revlon was incurred subsequent to the
capital infusion, PFC anticipates that such balance will be payable, to the
extent of funds available, from operations, and, if and to the extent such
financing is secured and permits such repayment, from long-term third-party
financing.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PFC
RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1995
Net sales were $49.0 million and $45.8 million for the nine months ended
September 30, 1996 and 1995, respectively, an increase of $3.2 million or 6.9%,
primarily as a result of 14 new store openings and comparable store sales
growth, offset in part by sales lost due to five store closings in the ordinary
course of business. Comparable store sales (sales from stores in operation for
the full period in both fiscal periods) were $44.3 million and $43.7 million for
the nine month periods ended September 30, 1996 and 1995, respectively, an
increase of 1.4%.
As a percentage of net sales, cost of sales was 48.2% for the nine-month
period ended September 30, 1996 a decrease from 51.9% for the nine-month period
ended September 30, 1995. Cost of sales as a percentage of net sales decreased
in the 1996 period as a result of increased sales volume of higher margin
products.
As a percentage of net sales, SG&A expenses were 57.7% and 58.9% for the
nine-month periods ended September 30, 1996 and 1995, respectively. The decrease
was a result primarily of lower payroll and benefit expenses and lower occupancy
costs associated with the new stores opened in 1996, offset in part by higher
general and administrative expenditures.
Interest expense was $0.7 million for the nine-month period ended September
30, 1996 and $2.0 million for the nine month period ended September 30, 1995, a
decrease of $1.3 million. The decrease was primarily due to lower average
outstanding intercompany balances due Revlon during the 1996 period compared to
the 1995 period as a result of the capitalization of $24.7 million of
intercompany balances by Revlon in September 1995.
The provision for income taxes was $0.05 million for each of the nine-month
periods ended September 30, 1996 and 1995 and consists solely of state and local
franchise taxes.
FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31,
1994
Net sales were $72.7 million and $62.7 million for 1995 and 1994,
respectively, an increase of $10.0 million or 16.0%, primarily as a result of
the acquisition of substantially all of the assets and liabilities of Colours &
Scents, Inc. ("Colours & Scents") in July 1994, new fragrance bar promotions
which resulted in higher fragrance sales and 18 new store openings, offset in
part by sales lost due to eight store closings in the ordinary course of
business. Comparable store sales were $55.2 million and $52.5 million in 1995
and 1994, respectively, an increase of $2.7 million or 5.1%, primarily as a
result of higher fragrance sales due to the introduction of new fragrance bar
promotions.
As a percentage of net sales, cost of sales was 52.3% for 1995 and 50.9%
for 1994. Cost of sales as a percentage of net sales increased in 1995 as a
result of a higher volume of sales of lower margin products, such as fragrances,
and increased sales volume of lower margin first quality products purchased from
manufacturers other than Revlon.
As a percentage of net sales, SG&A expenses were 50.2% for 1995 and 1994.
The increase of $5.1 million from 1994 to 1995, resulted primarily from higher
payroll expenses and increased rent and occupancy costs associated with new
stores opened in 1995 and 1994.
Interest expense was $2.1 million for 1995 and $1.3 million for 1994, an
increase of $0.8 million. The increase was primarily due to higher average
outstanding intercompany balances due Revlon during the first nine months of
1995. In September 1995, Revlon capitalized $24.7 million in intercompany
balances reducing interest expense in the fourth quarter of 1995.
The provision for income taxes was $0.05 million and $0.03 million for 1995
and 1994, respectively. The increase was attributable to higher state and local
franchise taxes in the 1995 period.
FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31,
1993
Net sales were $62.7 million and $54.7 million for 1994 and 1993,
respectively, an increase of $8.0 million or 14.6%, primarily as a result of the
acquisition of Colours & Scents in July 1994 and 21 other new store openings,
offset in part by sales lost due to six store closings in the ordinary course of
business. Comparable store sales were $45.1 million and $48.2 million in 1994
and 1993, respectively, a decrease of $3.1 million or 6.4%.
41
<PAGE>
As a percentage of net sales, cost of sales was 50.9% for 1994 and 50.5%
for 1993. Cost of sales as a percentage of net sales increased in 1994 as a
result of a higher sales volume of lower margin first quality products purchased
from manufacturers other than Revlon, offset in part by an increase in the sales
volume of certain higher margin products. Products purchased from manufacturers
other than Revlon increased principally as a result of a new supply contract
that was acquired as a part of the acquisition of Colours & Scents.
As a percentage of net sales, SG&A expenses were 50.2% for 1994, an
improvement from 50.6% for 1993, as a result of slightly reduced payroll and
benefits and general and administrative expenses for 1994 compared with 1993.
Interest expense was $1.3 million for 1994 and $0.9 million for 1993, an
increase of $0.4 million. The increase was due to higher average outstanding
intercompany balances due Revlon during 1994 compared to 1993.
The provision for income taxes was $0.03 million and $0.02 million for 1994
and 1993, respectively. The increase was attributable to higher state and local
franchise taxes in 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $4.3 million and $11.3 million
for the nine month periods ended September 30, 1996 and 1995, respectively and
$6.2 million, $2.6 million and $0.9 million for 1995, 1994 and 1993,
respectively. The decrease in the net cash used for operating activities for the
nine months ended September 30, 1996 compared to the nine months ended September
30, 1995 resulted primarily from lower net losses and lower payments for
inventory purchases, offset in part by increased expenditures for payroll and
related benefits. The increase in the net cash used for operating activities for
1995 compared with 1994 and 1994 compared with 1993 resulted primarily from
higher net losses and increased payments for inventory purchases.
Net cash used for investing activities was $2.8 million and $2.3 million
for the nine month periods ended September 30, 1996 and 1995, respectively, and
$3.0 million, $2.0 million and $2.7 million for 1995, 1994 and 1993,
respectively. Net cash used for investing activities for each of the periods
included capital expenditures for new store fixtures and leasehold improvements
at new and existing stores. Net cash used for investing activities for the nine
month period ended September 30, 1996, the nine month period ended September 30,
1995 and the full year 1995 included expenditures for new point-of-sale
registers at PFC's outlet stores and enhancements in PFC's information systems.
Net cash used for investing activities in 1993 also included capital
expenditures for a complete refurbishing of certain existing store locations.
Net cash provided by financing activities was $5.7 million and $11.8
million for the nine month periods ended September 30, 1996 and 1995,
respectively and $9.2 million, $6.4 million and $4.3 million for 1995, 1994 and
1993, respectively and consisted principally of financing provided by Revlon and
certain of its affiliates to PFC for inventory purchases, direct expenses
incurred by Revlon on behalf of PFC and allocated costs charged to PFC by Revlon
for services provided, partially offset by net distributions to Revlon recorded
by PFC in 1994 and 1995.
Without giving effect to the Merger, PFC's principal sources of funds are
expected to be cash flow generated from operations and borrowings from Revlon
and PFC's principal uses of funds are expected to be the payment of operating
expenses, including working capital, capital expenditure requirements and
payments of amounts due to Revlon. Without giving effect to the Merger, PFC
estimates that capital expenditures and leasehold improvements for 1996 will be
approximately $3.5 million primarily for costs associated with new store
openings and upgrades to PFC's management information systems and point-of-sale
registers, of which $2.8 million has been spent through September 30, 1996.
Based upon PFC's current level of operations and anticipated growth in net sales
and earnings as a result of its business strategy, PFC expects that cash flows
from operations and borrowings from Revlon would be sufficient to enable PFC to
meet its anticipated cash requirements for the foreseeable future without giving
effect to the Merger. See "The Merger -- Forward-Looking Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Cosmetic -- Liquidity and Capital Resources."
Pursuant to a Tax Sharing Agreement, PFC may be required to make tax
sharing payments to Revlon, Inc. (which in turn may be required to make tax
sharing payments to Mafco Holdings Inc.) as if PFC (and Revlon, Inc. as the case
may be) were filing separate income tax returns, except that no cash payments
are required by PFC or Revlon, Inc. if and to the extent that Revlon is
prohibited under the Revlon credit agreement from making tax sharing payments to
Revlon, Inc. The Revlon credit agreement currently prohibits Revlon from making
any cash tax sharing payments other than in respect of state income taxes. PFC
anticipates that, as a result of net operating losses and prohibitions under the
Revlon credit agreement, no federal tax payments or payments in lieu of taxes
pursuant to the Tax Sharing Agreement as currently in effect or as amended
pursuant to the second amendment will be required for 1996. See "Agreement with
Revlon -- Tax Sharing Agreement."
42
<PAGE>
SEASONALITY
PFC's business is seasonal, with the highest sales volume for its outlet
stores occurring during the last quarter of the year (October to December).
INFLATION
In general, costs are affected by inflation and the effects of inflation
may be experienced by PFC in future periods. Management believes, however, that
such effects have not been material to PFC during the past three years.
43
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a reverse acquisition.
See "The Merger -- Accounting Treatment." The unaudited pro forma condensed
consolidated balance sheet is based on the individual balance sheets of Cosmetic
and PFC appearing elsewhere in this Proxy Statement/Prospectus and has been
prepared to reflect the Merger as if it had occurred on September 30, 1996. The
unaudited pro forma condensed consolidated statements of operations are based on
the individual statements of operations of Cosmetic and PFC appearing elsewhere
in this Proxy Statement/Prospectus, and combine the results of operations of
Cosmetic for the year ended September 29, 1995 and for the nine-month period
ended September 27, 1996 with those of PFC for the year ended December 31, 1995
and for the nine-month period ended September 30, 1996, as if the Merger had
occurred on January 1, 1995. The unaudited pro forma financial statements should
be read in conjunction with the notes to the unaudited consolidated pro forma
financial information and the separate historical financial statements and notes
thereto of Cosmetic and PFC included elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma financial statements assume that
the Cash Election is made in respect of all outstanding shares and options for
shares with an exercise price of less than $7.63 per share. The other detailed
assumptions used to prepare the unaudited condensed pro forma financial
information are contained in the notes to unaudited pro forma financial
information. The pro forma combined financial data are intended for
informational purposes only and are not necessarily indicative of the financial
position or future results of operations of the Combined Company or of the
financial position or the results of operations of the Combined Company that
would have actually occurred had the Merger been in effect as of the date or for
the periods presented. Final adjustments may differ from the pro forma
adjustments presented herein. See "The Merger -- Forward-Looking Statements."
44
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA PRO
COSMETIC PFC ADJUSTMENTS FORMA
------- ------- ----------- --------
<S> <C>
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 979 $ 1,940 $ $ 2,919
Accounts receivable, net.............................................. 1,860 1,860
Inventories........................................................... 56,479 32,686 89,165
Prepaid expenses and other............................................ 3,808 986 4,794
------- ------- ----------- --------
Total current assets............................................. 63,126 35,612 98,738
Property, plant and equipment, net...................................... 8,407 7,703 16,110
Other assets............................................................ 989 500(b) 1,489
Intangible asset........................................................ 1,461 6,200(a) 4,219
(3,442)(b)
------- ------- ----------- --------
Total assets..................................................... $72,522 $44,776 $ 3,258 $120,556
------- ------- ----------- --------
------- ------- ----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $15,956 $ 2,831 $ $ 18,787
Accrued expenses and other............................................ 4,355 1,984 6,200(a) 16,739
4,200(d)
------- ------- ----------- --------
Total current liabilities........................................ 20,311 4,815 10,400 35,526
Due to Revlon........................................................... 18,746 (15,000)(b) 3,746
Long-term debt -- third parties......................................... 12,329 49,749(b) 49,858
(12,220)(b)
Other long-term liabilities............................................. 2,701 2,701
Stockholders' equity:
Class A common stock, $.01 par value; authorized 5,000,000 shares; 27 (27)(b)
issued and outstanding 2,713,354 shares............................
Class B common stock, $.01 par value; authorized 5,000,000 shares; 16 (16)(b)
issued and outstanding 1,582,780 shares............................
Class C common stock, $.01 par value; authorized 40,000,000 shares; 101(b) 101
issued and outstanding 10,073,390 shares...........................
Additional paid-in capital............................................ 21,386 26,543 (22,029)(b) 38,152
(21,386)(b)
15,752(b)
21,328(b)
(3,442)(b)
Retained earnings (Accumulated deficit)............................ 15,752 (5,328) (15,752)(b) (9,528)
(4,200)(d)
------- ------- ----------- --------
Total stockholders' equity....................................... 37,181 21,215 (29,671) 28,725
------- ------- ----------- --------
Total liabilities and stockholders' equity....................... $72,522 $44,776 $ 3,258 $120,556
------- ------- ----------- --------
------- ------- ----------- --------
</TABLE>
45
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
The following assumptions used in determining the pro forma adjustments to
the historical financial position give effect to the reverse purchase accounting
for the acquisition of Cosmetic by PFC, the issuance of Cosmetic Class C common
stock and the Financing as follows:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
(a) Purchase accounting to reflect the fair value of Cosmetic:
Increase in Intangible assets due to the additional excess in cost over estimated fair value of the net
assets of Cosmetic..................................................................................... $ 6,200
Increase in Accrued expenses and other to reflect purchase accounting and accruals for transaction
costs.................................................................................................. (6,200)
----------
$ --
----------
----------
(b) Adjustment for the issuance of PFC common stock in exchange for Cosmetic Class C common stock
and borrowings under the Financing to fund the Cash Election:
Decrease in Intangible assets due to the excess of book value of Cosmetic over fair value of Cosmetic
(see below)............................................................................................ $ (3,442)
Increase in Long-term debt -- third parties due to borrowings under the Financing to fund the Cash
Election ($20,929), refinance existing Long-term debt -- third parties ($12,220), repay Due to Revlon
($15,000) and to pay certain costs of the Merger and the Financing ($1,600)............................ (49,749)
Increase in Other assets due to costs incurred to effect the Financing................................... 500
Repayment of PFC's Due to Revlon with proceeds from the Financing........................................ 15,000
Repayment of Cosmetic's Long-term debt - third parties with proceeds from the Financing.................. 12,220
Elimination of Cosmetic Class A common stock in connection with the Merger............................... 27
Elimination of Cosmetic Class B common stock in connection with the Merger............................... 16
Issuance of Cosmetic Class C common stock in connection with the Merger.................................. (101)
Decrease in Additional paid-in capital to reflect the cost of the Cash Election ($20,929) and other costs
of the Merger ($1,100)................................................................................. 22,029
Decrease in Cosmetic Additional paid-in capital to reflect its elimination in the Merger................. 21,386
Increase in Additional paid-in capital due to elimination of the Cosmetic's Retained earnings............ (15,752)
Increase in Additional paid-in capital due to issuance of Class C common stock in connection with the
Merger................................................................................................. (21,328)
Decrease in Additional paid-in capital to reflect the adjustment to fair value of the net assets of
Cosmetic............................................................................................... 3,442
Decrease in Cosmetic's Retained earnings to reflect its elimination in the Merger........................ 15,752
----------
$ --
----------
----------
(c) The excess of book value of Cosmetic over the fair value of Cosmetic is determined as follows:
Cost of Cosmetic (assumes a value of $7.63 per share to the extent of Revlon's
ownership interest)................................................................................... $ 12,810
Cosmetic book value...................................................................................... (37,181)
Less treasury stock acquired and options cancelled in the Cash Election............................... 20,929
----------
$ (3,442)
----------
----------
(d) Additional non-recurring expenses expected to be incurred after the Merger to consolidate overhead expenses
and eliminate duplicative functions...................................................................... $ (4,200)
----------
----------
</TABLE>
46
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO
COSMETIC PFC ADJUSTMENTS FORMA
--------- ------- ----------- ----------
<S> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales................................................................. $ 132,304 $72,717 $ -- $ 205,021
Cost of sales............................................................. 105,094 38,044 -- 143,138
--------- ------- ----------- ----------
Gross margin.............................................................. 27,210 34,673 -- 61,883
Selling, general and administrative expenses.............................. 27,033 36,500 (3,991)(a) 59,542
--------- ------- ----------- ----------
Operating income (loss)................................................... 177 (1,827) 3,991 2,341
Other (income) expense.................................................... (670) -- 250(b) (420)
Interest expense.......................................................... 725 2,137 2,823(c) 5,685
--------- ------- ----------- ----------
Income (loss) before income taxes......................................... 122 (3,964) 918 (2,924)
(Benefit) provision for income taxes...................................... (157) 50 -- (107)
--------- ------- ----------- ----------
Net income (loss)......................................................... $ 279 $(4,014) $ 918 $ (2,817)
--------- ------- ----------- ----------
--------- ------- ----------- ----------
Income (loss) per common and common equivalent shares..................... $ 0.06 $ (0.28)
--------- ----------
--------- ----------
Weighted average shares outstanding....................................... 4,358,339 10,135,595(d)
--------- ----------
--------- ----------
</TABLE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO
COSMETIC PFC ADJUSTMENTS FORMA
--------- ------- ----------- ----------
<S> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales................................................................. $ 92,215 $48,970 $ $ 141,185
Cost of sales............................................................. 73,341 23,592 -- 96,933
--------- ------- ----------- ----------
Gross margin.............................................................. 18,874 25,378 -- 44,252
Selling, general and administrative expenses.............................. 22,622 28,237 (2,993)(a) 47,866
Restructuring charges..................................................... 4,024 -- 4,024
--------- ------- ----------- ----------
Operating loss............................................................ (7,772) (2,859) 2,993 (7,638)
Other (income) expense.................................................... (66) 188(b) 122
Interest expense.......................................................... 714 699 2,117(c) 3,530
--------- ------- ----------- ----------
Loss before income taxes.................................................. (8,420) (3,558) 688 (11,290)
(Benefit) provision for income taxes...................................... (2,930) 45 (2,885)
--------- ------- ----------- ----------
Net loss.................................................................. $ (5,490) $(3,603) $ 688 $ (8,405)
--------- ------- ----------- ----------
--------- ------- ----------- ----------
Loss per common and common equivalent shares.............................. $ (1.28) $ (0.83)
--------- ----------
--------- ----------
Weighted average shares outstanding....................................... 4,295,062 10,072,318(d)
--------- ----------
--------- ----------
</TABLE>
47
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
The following assumptions used in determining the pro forma adjustments to
the historical financial position give effect to the reverse purchase accounting
for the acquisition of Cosmetic by PFC, the issuance of Cosmetic Class C common
stock and the Financing as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31, NINE MONTHS ENDED
1995 SEPT. 30, 1996
----------- -----------------
<S> <C>
(DOLLARS IN THOUSANDS)
(a) The adjustment to selling, general and administrative expenses results from:
The effect of the consolidation of overhead expenses and elimination of
duplicative functions, including those of distribution, information systems,
human resources, finance, management, merchandising and other................... $ 4,600 $ 3,450
The additional amortization of intangibles resulting from purchase costs incurred
in the Merger................................................................... (69) (52)
The additional depreciation of capital expenditures made to obtain the above
mentioned expense reductions.................................................... (540) (405)
----------- -----------------
$ 3,991 $ 2,993
----------- -----------------
----------- -----------------
(b) Amortization of costs incurred to effect the Financing............................... $ (250) $ (188)
----------- -----------------
----------- -----------------
(c) The adjustment to interest expense results from debt incurred to complete the Cash
Election and the Merger and fund the consolidation of overhead expenses and
elimination of duplicative functions referred to in note(a) above................. $ (2,823) $ (2,117)
----------- -----------------
----------- -----------------
(d) The adjustment to common shares outstanding results from the following transactions
both as if they had taken place as of the beginning of the period:
Shares acquired in the Cash Election........................................... (2,702,079) (2,702,079)
Shares issued in the Merger.................................................... 8,479,335 8,479,335
----------- -----------------
5,777,256 5,777,256
----------- -----------------
----------- -----------------
</TABLE>
48
<PAGE>
THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides, among other things, for the Merger of PFC
with and into Cosmetic, with Cosmetic remaining as the surviving company. The
Merger will become effective at the Effective Time, which is currently expected
to occur promptly following the receipt of stockholder approval at the Meeting.
The following description of the Merger Agreement is qualified by reference to
the complete text of the Merger Agreement, which is incorporated by reference
herein and attached hereto as Annex I.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, each share of Cosmetic Class A and Class B common
stock outstanding immediately before the Effective Time shall be converted into
the right to receive one share of Cosmetic Class C common stock or, at the
election of each record stockholder and subject to the limitation discussed
below, cash in the amount of $7.63 per share.
The Merger Agreement also provides that each option to purchase Cosmetic
Class A or Class B common stock outstanding immediately prior to the Effective
Time will, after the Effective Time, be exercisable for the same number of
shares of Cosmetic Class C common stock, with the same exercise price and
expiration date as such option was exercisable immediately prior to the
Effective Time; PROVIDED, HOWEVER, that each holder of an option that has an
exercise price of less than $7.63 per share can elect, subject to the limitation
discussed below, to receive, in return for cancellation of such option, cash in
an amount equal to the difference between $7.63 and the exercise price of such
option.
The Cash Election is subject to the limitation that not more than 2,829,065
shares of common stock, including shares of outstanding Cosmetic Class A and
Class B common stock and shares subject to outstanding options, will be
exchangeable for cash pursuant to the Cash Election. To the extent that the
aggregate shares and options as to which a Cash Election has been made exceed
the Limit, each stockholder's and optionholder's Cash Election will be reduced
pro rata. The Principal Stockholders have agreed to elect to make the Cash
Election for all of their 1,392,723 shares of Cosmetic Class A and Class B
common stock and 41,000 options that have an exercise price of less than $7.63
per share.
The sole share of PFC common stock outstanding at the Effective Time will
be converted into 8,479,335 shares of Cosmetic Class C common stock. The
conversion ratio has been determined by negotiations among Cosmetic and Revlon
and may not be indicative of the value of PFC. As a result of the Principal
Stockholders' agreement to make the Cash Election, such shares will represent at
least 74% of the Cosmetic Class C common stock outstanding immediately after the
Merger and will represent approximately 84% of such shares if, in addition to
the Principal Stockholders' shares and options, the Cash Election is made in
respect of all other outstanding shares and options for shares with an exercise
price of less than $7.63 per share. Accordingly, if other persons holding more
than 1,395,342 shares and options for shares that have a price of less than
$7.63 per share elect to receive cash, all holders who have made the Cash
Election will be subject to proration.
CASH ELECTION
Cosmetic record stockholders who wish to make the Cash Election must
complete, sign and return the enclosed form of election to the Exchange Agent
prior to 5:00 p.m., New York City time, on the business day immediately
preceding the Meeting. Stockholders who are not holders of record and who wish
to make the Cash Election must have the broker, bank or other person that holds
their shares make the Cash Election for them. Stockholders who do not make the
Cash Election or do not comply with the Cash Election procedure will receive
Cosmetic Class C common stock and will not receive any cash in the Merger.
Stockholders of record who make the Cash Election may revoke the election by
submitting written notice to the Exchange Agent prior to 5:00 p.m., New York
City time, on the business day immediately preceding the Meeting.
EXCHANGE OF STOCK CERTIFICATES
As of the Effective Time, each certificate formerly representing Cosmetic
Class A or Class B common stock ("Cosmetic Certificates") shall be deemed for
all purposes to evidence ownership of the right to receive Cosmetic Class C
common stock and/or cash as provided in the Merger Agreement until surrendered
to the Exchange Agent.
As soon as practicable after the Effective Time, a form of letter of
transmittal and instructions will be mailed to the holders of record of Cosmetic
Certificates to be used by such holders in forwarding Cosmetic Certificates to
the Exchange Agent. Each Stockholder will be required to return a properly
completed transmittal letter, together with any Cosmetic Certificates listed on
the transmittal letter, to the Exchange Agent to receive shares of Cosmetic
Class C common stock and, if
49
<PAGE>
applicable, cash as provided herein. STOCKHOLDERS SHOULD NOT SEND COSMETIC
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY RECEIVE A TRANSMITTAL LETTER.
On and after the Effective Time, upon surrender of a Cosmetic Certificate
for cancellation to the Exchange Agent, subject to the effect of applicable
laws, there shall be delivered to the holder of such Cosmetic Certificate a
certificate for such holder's Cosmetic Class C common stock and, if applicable,
cash as provided herein. From and after the Effective Time, the holders of
Cosmetic Certificates shall cease to have any rights with respect to such stock,
and their sole rights shall be to receive Cosmetic Class C common stock and, if
applicable, cash as provided herein. No interest will be paid or will accrue on
any cash payable under the Merger Agreement.
No fractional shares of Cosmetic Class C common stock will be issued as a
result of the Merger and the Cash Election. Each holder of a fractional interest
in Cosmetic Class C common stock will be entitled to receive a cash payment in
lieu of such fractional amount equal to the fraction of $7.63 the fractional
share represents. As soon as practicable after the determination of the amount
of cash, if any, to be paid to the Cosmetic stockholders with respect to any
fractional share interests and upon surrender of the Cosmetic Certificates, the
Exchange Agent shall distribute in cash the amount payable to such fractional
holder.
CONDITIONS TO THE MERGER
The Merger is subject to certain customary conditions, some of which may be
waived by Cosmetic and/or Revlon to the extent the Merger Agreement provides
that such condition is for their or its benefit.
The obligations of Cosmetic, Revlon and PFC are subject to the conditions,
among others, that (i) the Merger Agreement shall have been approved by the
holders of a majority of the Cosmetic Class B common stock, (ii) no statute,
rule, regulation, order, decree or injunction shall have been enacted or entered
which restrains, enjoins or otherwise prohibits the consummation of the Merger,
(iii) the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act shall have been terminated or expired, (iv) the registration
statement of which this Proxy Statement/Prospectus is part shall not be the
subject of a stop order or proceeding seeking a stop order and any material
"blue sky" or other state securities laws shall have been complied with, (v)
Legg Mason shall not have modified or withdrawn its opinion in a manner
unfavorable to the adoption of the Merger Agreement or the consummation of the
Merger and (vi) the Combined Company shall have available to it proceeds of the
Financing on terms satisfactory to Cosmetic and Revlon of not less than $50
million.
The obligations of Cosmetic are subject to the conditions, among others,
that (i) the representations and warranties of Revlon and PFC set forth in the
Merger Agreement are accurate, unless such failure shall not have a material
adverse effect (as defined in the Merger Agreement), (ii) Revlon and PFC shall
have performed their obligations under the Merger Agreement in all material
respects, (iii) PFC shall not have suffered a material adverse change in its
financial condition, business or results of operations, (iv) Revlon and PFC
shall have obtained all necessary material governmental and third-party consents
and approvals, the failure to obtain which would have a material adverse effect,
(v) Revlon shall have entered into the Holmdel Lease (as defined herein) and PFC
Employee Store Leases (as defined herein), (vi) Revlon shall have entered into
the Services Agreement (as defined herein) and the Supply Agreement (as defined
herein) and (vii) Cosmetic shall have received certain legal opinions from
counsel to Revlon and PFC.
The obligations of Revlon and PFC are subject to the conditions, among
others, that (i) the representations and warranties of Cosmetic set forth in the
Merger Agreement are accurate, unless such failure shall not have a material
adverse effect (as defined in the Merger Agreement), (ii) Cosmetic shall have
performed its obligations under the Merger Agreement in all material respects,
(iii) Cosmetic shall not have suffered a material adverse change in its
financial condition, business or results of operations, (iv) Cosmetic shall have
obtained all necessary material governmental and third-party consents and
approvals, the failure to obtain which would have a material adverse effect, (v)
Cosmetic shall have entered into the Registration Rights Agreement (as defined
herein), (vi) Cosmetic shall have entered into the Holmdel Lease and PFC
Employee Store Leases, (vii) Cosmetic shall have entered into the Services
Agreement and the Supply Agreement, (viii) Cosmetic shall have entered into the
Employment and Non-Competition Agreements with Mark S. Weinstein and Anita J.
Weinstein, the Consulting and Non-Competition Agreement with Susan K. Magenheim
and the amendment to the Employment Agreement with Ben Kovalsky, (ix) Revlon and
PFC shall have received certain legal opinions from counsel to Cosmetic, (x) the
Principal Stockholders shall not have defaulted in the performance of their
obligations under the Stockholders Agreement, (xi) certain Cosmetic directors
and officers shall have resigned, (xii) certain amendments to the 1991 Option
Plan (as defined herein) and option agreements shall have been adopted and
(xiii) the Cosmetic 1997 Stock Option Plan shall have been adopted and approved
by the holders of the Cosmetic Class B common stock.
50
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties by Cosmetic,
PFC and Revlon relating to, among other things, (i) due incorporation and good
standing and similar corporate matters; (ii) the respective capital structures
of Cosmetic and PFC; (iii) the authorization, validity and enforceability of the
Merger Agreement; (iv) governmental authorizations required to effect the Merger
and absence of conflicting agreements and documents; (v) the absence of material
changes; (vi) the absence of undisclosed liabilities; (vii) the absence of
certain defaults and compliance with applicable laws; (viii) the absence of
claims and litigation; (ix) title to assets; (x) properties and other assets;
(xi) contracts; (xii) intellectual property; (xiii) employment agreements; (xiv)
employee benefit plans; (xv) labor relations; (xvi) taxes; (xvii) insurance
coverage; (xviii) environmental matters; (xix) related party transactions; (xx)
the absence of false or misleading statements in the Proxy Statement/Prospectus;
(xxi) broker's fees; and (xxii) the absence of false or misleading statements in
the Merger Agreement and related schedules. The Merger Agreement contains
further representations and warranties by Cosmetic concerning (i) the accuracy
of documents it has filed with the SEC; (ii) the compliance of the Proxy
Statement/Prospectus with applicable provisions of the securities laws; (iii)
the vote required to approve the Merger; (iv) the absence of appraisal rights;
(v) compliance with state takeover statutes; (vi) the receipt of the Legg Mason
Opinion; and (vii) the recommendation of the Cosmetic Board. The Merger
Agreement contains further representations and warranties by PFC and Revlon
concerning the accuracy of PFC's financial statements. Certain of the
representations and warranties are subject to exceptions and limitations.
Cosmetic stockholders are urged to read the Merger Agreement in its entirety.
The representations and warranties contained in the Merger Agreement will
not survive beyond the Effective Time.
CONDUCT OF BUSINESS PRIOR TO MERGER
Pursuant to the Merger Agreement, Cosmetic and PFC have each agreed that,
prior to the Merger, each of them will conduct its respective operations only in
the ordinary course of business, consistent with past practices and will use its
best efforts to preserve its respective businesses and its respective
relationships with its officers, employees and other persons having business
relationships with it. Each has agreed that, without the consent of the other,
it will not, among other things, (i) amend its Certificate of Incorporation or
bylaws; (ii) issue securities (except, in the case of Cosmetic, pursuant to
outstanding stock options and except for the grant of 1,000 options to purchase
Cosmetic Class A common stock at an exercise price of 100% of fair market value
(as defined in the 1991 Option Plan) of the Cosmetic Class A common stock on the
date of issuance of the options, and the grant of 20,000 options to purchase
Cosmetic Class A common stock at an exercise price of not less than 110% of fair
market value of the Cosmetic Class A common stock on the date of the options);
(iii) pay any dividend or acquire its securities; (iv) incur debt (except under
certain existing arrangements), make loans or mortgage assets; (v) enter into
new or alter existing employee compensation or benefit agreements or
arrangements; (vi) pay any claims or liabilities (other than in the ordinary
course of business); (vii) make capital expenditures (except pursuant to
existing capital expenditure plans) or acquire or dispose of material assets
(except in the ordinary course of business); (viii) make tax elections or
compromise tax liabilities; (ix) change accounting practices; or (x) enter into,
amend or terminate contracts (unless immaterial or in the ordinary course of
business). Certain of these provisions are subject to exceptions and
limitations. Cosmetic stockholders are urged to read the Merger Agreement in its
entirety.
CERTAIN COVENANTS
In the Merger Agreement, Cosmetic has agreed that it will, among other
things, (i) prepare and file this Proxy Statement/Prospectus with the SEC; (ii)
cause a meeting of the holders of the Cosmetic Class B common stock to be duly
called and held; (iii) use its best efforts to cause the Cosmetic Class C common
stock to be listed on the Nasdaq National Market; and (iv) maintain in effect
all of its present insurance policies.
Cosmetic and PFC have agreed to provide each other, upon reasonable notice,
access to the other's facilities, books, records, employees and other
representatives and to keep such information confidential. Cosmetic, PFC and
Revlon have agreed to use commercially reasonable efforts to take all actions
necessary, proper or advisable to consummate the transactions contemplated by
the Merger Agreement as soon as practicable, including obtaining all required
consents and approvals and making all required filings and applications with
governmental agencies, and not to take any action or fail to take any action
that is reasonably likely to make any representation or warranty in the Merger
Agreement untrue or incorrect as of the date when made or as of any future date
or that could prevent the satisfaction of any condition to closing set forth in
the Merger Agreement. Cosmetic and Revlon have agreed to promptly inform the
other party of material changes in the business of Cosmetic or PFC,
respectively, and of the happening of any event that would cause any
representation or warranty of Cosmetic, Revlon or PFC set forth in the Merger
Agreement to be untrue.
51
<PAGE>
Revlon has agreed to use commercially reasonable efforts, subject to normal
conditions, to arrange the Financing, and Cosmetic has agreed to provide all
necessary cooperation in connection with the arrangement of the Financing.
Cosmetic has agreed that Cosmetic, its subsidiaries and its affiliates,
officers, directors, employees, representatives and agents will not solicit,
engage in negotiations, provide information to or otherwise cooperate with any
person or entity that expresses an interest in acquiring all or a substantial
part of any class of the securities, business or assets of Cosmetic nor will
they grant any proxy, option or other similar right to any third person or
entity in connection with a transaction inconsistent with the Merger. The Merger
Agreement further provides that nothing contained therein shall prohibit the
Cosmetic Board from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal in writing to acquire Cosmetic or substantially all of its assets on
terms which, in an exercise of their fiduciary duty after the consideration of
advice from Cosmetic's legal and financial advisors, a majority of Cosmetic's
directors determines is likely to be more beneficial to the holders of Cosmetic
common stock than the Merger. This proviso, however, does not permit Cosmetic to
(i) terminate the Merger Agreement, (ii) enter into an agreement with respect to
a Cosmetic Center Alternate Transaction (as defined below, see " -- Expenses")
prior to the termination of the Merger Agreement or (iii) affect any other
obligation under the Merger Agreement.
Revlon and PFC have agreed that Revlon, PFC and Revlon's affiliates,
officers, directors, employees, representatives and agents will not solicit,
engage in negotiations, provide information to or otherwise cooperate with any
person or entity that expresses an interest in acquiring all or a substantial
part of any class of the securities, business or assets of PFC nor will Revlon
or PFC grant any proxy, option or other similar right to any third person or
entity in connection with a transaction inconsistent with the Merger.
TERMINATION; AMENDMENT; WAIVER
The Merger Agreement may be terminated at any time prior to the Effective
Time (i) by mutual agreement of Cosmetic and Revlon; (ii) by Cosmetic or Revlon
if the Merger has not occurred before March 17, 1997, unless the failure to
consummate the Merger by such date is due to the action or failure to act of the
party seeking to terminate the Merger Agreement; (iii) by Cosmetic or Revlon if
any governmental entity of competent jurisdiction shall have enacted, entered or
enforced a statute, rule, regulation, order, decree or injunction which
restrains, enjoins or otherwise prohibits the consummation of the Merger; (iv)
by Revlon if the Cosmetic Board withdraws or modifies its recommendation that
the Cosmetic stockholders approve the Merger Agreement in a manner not favorable
to the adoption of the Merger Agreement or the consummation of the Merger; or
(v) by Cosmetic or Revlon if the Merger Agreement is not approved by the holders
of a majority of the outstanding Cosmetic Class B common stock.
The Merger Agreement may be amended by written agreement of each of the
parties, PROVIDED that, in accordance with the General Corporation Law of
Delaware, after the approval of the Cosmetic stockholders no amendment may be
made which changes the form or decreases the consideration per share to be paid
in the Merger or which changes any of the terms or conditions of the Merger
Agreement if such change would adversely affect the rights of such stockholders
without the further approval of such stockholders. In addition, each party may
at any time waive the other party's compliance with certain terms and conditions
of the Merger Agreement.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expenses, except as provided
below and except that the filing fee under the Hart-Scott-Rodino Antitrust
Improvements Act shall be paid 20% by Cosmetic and 80% by PFC.
If (a)(i) Cosmetic shall enter into, or publicly announce its intent to
enter into an agreement in principle, letter of intent or definitive agreement
with anyone other than Revlon and its affiliates with respect to any sale,
merger or other similar transaction involving Cosmetic, any class of its equity
securities or all or substantially all of its assets, (ii) the Cosmetic Board
(A) recommends or approves that Cosmetic's stockholders sell shares of any class
of Cosmetic's equity securities or all or substantially all of Cosmetic's assets
to another person or group, (B) recommends or approves any Cosmetic Center
Alternate Transaction (as defined below) to another person or group or (C)
withdraws or modifies in a manner adverse to Revlon its support for the Merger
(other than due to circumstances regarding PFC which could reasonably be
expected to have a material adverse affect on PFC) or (iii) Cosmetic breaches in
any material respect any of its obligations under the Merger Agreement, or (b)
any Cosmetic Center Alternate Transaction is consummated during the 90-day
period following the later of March 17, 1997 or the termination of the Merger
Agreement in accordance with its terms, unless the Merger
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<PAGE>
Agreement is terminated by Revlon (other than due to a material breach by
Cosmetic of its obligations under the Merger Agreement or a material breach by
the Principal Stockholders of their obligations under the Stockholders
Agreement) or as a result of the failure of a condition to either party's
obligation to close under the Merger Agreement (other than due to a material
breach by Cosmetic of its obligations under the Merger Agreement or a material
breach by the Principal Stockholders of their obligations under the Stockholders
Agreement) (the later of such dates being the "Cosmetic Center Termination
Date"), Cosmetic shall pay to Revlon within two business days after such event,
an amount equal to its documented fees and expenses in connection with the due
diligence, preparation and negotiation of documents and preparation of PFC
financial statements related to the Merger, up to a maximum of $1 million (the
"Revlon Expense Reimbursement Fee"). The events described in (a)(i), (a)(ii) and
(a)(iii) are referred to as "Cosmetic Center Triggering Events," and the events
described in (a)(i), (a)(ii)(A) and (a)(ii)(B) are referred to as a "Cosmetic
Center Alternate Transaction."
If (a)(i) Revlon or PFC shall enter into, or publicly announce its intent
to enter into an agreement in principle or definitive agreement with anyone
other than Cosmetic and its affiliates with respect to any sale, merger or other
similar transaction involving PFC, any of its equity securities or all or
substantially all of its assets, (ii) Revlon's or PFC's board of directors (A)
recommends or approves that PFC's stockholder sell shares of PFC's equity
securities or all or substantially all of PFC's assets to another person or
group, (B) recommends or approves any PFC Alternate Transaction (as defined
below) or (C) withdraws or modifies in a manner adverse to Cosmetic its support
of Cosmetic's proposal (other than due to circumstances regarding Cosmetic which
could reasonably be expected to have a material adverse affect on Cosmetic),
(iii) Revlon or PFC sells or agrees to sell any shares of PFC's equity
securities to any group other than Cosmetic, or (iv) Revlon or PFC breaches in
any material respect any of their respective obligations under the Merger
Agreement, or (b) any PFC Alternate Transaction is consummated during the 90-day
period following the later of March 17, 1997 or the termination of the Merger
Agreement in accordance with its terms, unless the Merger Agreement is
terminated by Cosmetic (other than due to a material breach by Revlon or PFC) or
as a result of the failure of a condition to either party's obligation to close
under the Merger Agreement (other than due to a material breach by Revlon or
PFC) (the later of such dates being the "Revlon Termination Date"), Revlon shall
pay Cosmetic within two business days after such event an amount equal to its
documented fees and expenses in connection with the due diligence, preparation
and negotiation of documents and preparation of Cosmetic financial statements
related to the Merger, up to a maximum of $1 million. The events described in
(a)(i), (a)(ii), (a)(iii) and (a)(iv) are referred to as "Revlon Triggering
Events," and the events described in (a)(i), (a)(ii)(A), (a)(ii)(B) and (a)(iii)
are referred to as a "PFC Alternate Transaction."
TERMINATION FEE
In addition to the foregoing expense reimbursement provisions, the Merger
Agreement also provides that if Cosmetic shall consummate any Cosmetic Center
Alternate Transaction at any time prior to the Cosmetic Center Termination Date
or during the 90-day period immediately following the Cosmetic Center
Termination Date, Cosmetic shall pay to Revlon on the date of consummation of
such Cosmetic Center Alternate Transaction a break-up fee of $1 million (the
"Cosmetic Center Break-up Fee").
If Revlon or PFC shall consummate any PFC Alternate Transaction at any time
prior to the Revlon Termination Date or during the 90-day period immediately
following the Revlon Termination Date, Revlon shall pay to Cosmetic on the date
of consummation of such PFC Alternate Transaction a break-up fee of $1.25
million (the "Revlon Break-up Fee").
THE STOCKHOLDERS AGREEMENT
Concurrent with the execution of the Merger Agreement, the Principal
Stockholders and Revlon entered into the Stockholders Agreement. At December 9,
1996, the Principal Stockholders in the aggregate own approximately 23% of the
outstanding Cosmetic Class A common stock and approximately 48% of the
outstanding Cosmetic Class B common stock.
Pursuant to the Stockholders Agreement, the Principal Stockholders have
agreed to elect to make the Stockholder Cash Election for all of their Cosmetic
Class A and Class B common stock and to make the Option Cash Election with
respect to each stock option held by each Principal Stockholder that has an
exercise price of less than $7.63 per share. The Principal Stockholders also
agreed to cancel at or prior to the Effective Time certain options expiring on
January 15, 1997 exercisable for an aggregate of 20,000 shares of Cosmetic Class
A common stock.
The Principal Stockholders have agreed that neither they nor their
representatives or agents shall solicit, engage in negotiations, provide
information to or otherwise cooperate with any person or entity that expresses
an interest in acquiring all or a substantial part of any class of the
securities, business or assets of Cosmetic nor will they grant any proxy, option
or
53
<PAGE>
other similar right to any third person or entity in connection with a
transaction inconsistent with the Merger. In addition, the Principal
Stockholders agreed that they will not sell, pledge, agree to sell or pledge or
otherwise dispose of any of their shares of any class of Cosmetic's securities
to any third person, and with respect to any Stockholder Alternate Transaction
(as defined below) or Cosmetic Center Alternate Transaction, each of the
Principal Stockholders will vote against any such Stockholder Alternate
Transaction or Cosmetic Center Alternate Transaction and, if available, will
exercise appraisal rights with respect to their shares. A "Stockholder Alternate
Transaction" is defined as a sale or agreement to sell by any one of the
Principal Stockholders any shares of any class of the outstanding equity
securities or securities convertible into equity securities of Cosmetic to any
person or group other than Revlon or its affiliates.
If (a) any Stockholder Triggering Event or Cosmetic Center Triggering Event
occurs prior to the termination of the Merger Agreement in accordance with its
terms or (b) any Stockholder Alternate Transaction or Cosmetic Center Alternate
Transaction is consummated prior to the Cosmetic Center Termination Date, each
Principal Stockholder agrees, jointly and severally, to pay Revlon within two
business days after such event the Revlon Expense Reimbursement Fee (without
duplication of any amounts in respect of expense reimbursement paid to Revlon by
Cosmetic pursuant to the Merger Agreement). A "Stockholder Triggering Event"
shall have occurred if any of the Principal Stockholders breach any of its
obligations under the Stockholders Agreement in any material respect or Cosmetic
breaches any of its obligations under the Merger Agreement in any material
respect.
If Cosmetic should consummate any Cosmetic Center Alternate Transaction or
any Principal Stockholder shall consummate a Stockholder Alternate Transaction
prior to the Cosmetic Center Termination Date or during the 90-day period
immediately following the Cosmetic Center Termination Date, the Principal
Stockholders agree to pay to Revlon a break-up fee equal to 25% of the
difference between (i) the value of the consideration paid to the Principal
Stockholders in such Cosmetic Center Alternate Transaction or such Stockholder
Alternate Transaction, as the case may be, with respect to all of their shares
minus (ii) the product of (A) the number of shares held by the Principal
Stockholders multiplied by (B) $7.63 (the "Principal Stockholders Break-Up
Fee").
If (i) at any meeting of Cosmetic stockholders held for the purpose of
voting on the Merger, the Principal Stockholders do not vote in favor of the
Merger or (ii) the Principal Stockholders vote in favor of any Stockholder
Alternate Transaction or any Cosmetic Center Alternate Transaction prior to the
Cosmetic Center Termination Date, the Principal Stockholders agree to pay Revlon
a fee of $1 million, provided that if the Principal Stockholders Break-Up Fee is
payable subsequently, the $1 million payable would be credited against such
Principal Stockholders Break-Up Fee.
Pursuant to the Stockholders Agreement, Principal Stockholders holding at
least 25% of all Cosmetic Class C common stock held by the Principal
Stockholders will be entitled to demand on one occasion that Cosmetic file a
registration statement under the Securities Act for the sale of their Cosmetic
Class C common stock. The Principal Stockholders will also be entitled to
include their Cosmetic Class C common stock in certain registration statements
filed for the benefit of Cosmetic. Cosmetic will bear all expenses of such
registration statements, except for fees and expenses of counsel for the
Principal Stockholders and underwriters' discounts, fees and expenses.
The Stockholders Agreement provides that for three years from the
consummation of the Merger, the Principal Stockholders will agree to vote all of
their Cosmetic Class C common stock in favor of Revlon's nominees for director
so that Revlon will at all times maintain representation on the Combined Company
Board equal to Revlon's percentage ownership of Cosmetic Class C common stock,
but not less than seven board seats, including two independent directors, and
Revlon will agree to vote its shares in favor of the Principal Stockholders'
nominees for director equal to their aggregate percentage ownership of Cosmetic
Class C common stock, after giving effect to the Merger and the Cash Election,
but not less than one nor more than two board seats.
AGREEMENTS WITH REVLON
At the Effective Time, the Combined Company and Revlon (or with respect to
the employee stores located in Edison, New Jersey, Holdings) will enter into the
following agreements:
HOLMDEL LEASE
At the Effective Time, the Combined Company will enter into a lease with
Revlon for the retail store and office, warehouse and distribution facility that
PFC currently occupies in Holmdel, New Jersey for a period of up to five years
at a base rental of $395,250 per annum plus its proportionate share (17.2%) of
operating and tax expense escalations, which it is estimated will aggregate
approximately $342,000 for the full year in 1997 (the "Holmdel Lease"). The
Holmdel Lease can be
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<PAGE>
terminated by the Combined Company upon 60 days' prior notice for any reason and
can be terminated by Revlon upon 180 days' prior notice if (i) Revlon accepts an
offer to sell or lease the facility to a third party or ceases or substantially
reduces operations at the facility; (ii) Revlon or any of its affiliates no
longer have the power to vote, directly or indirectly, a majority of the voting
power of outstanding shares of the Combined Company; (iii) if all or
substantially all of Combined Company's assets are sold to any person other than
an affiliate of Revlon or (iv) an agreement is entered into by Revlon that would
result in either (ii) or (iii).
PFC EMPLOYEE STORE LEASES
The Combined Company will continue to occupy the PFC employee stores
located in Edison (currently two employee stores that may be consolidated) and
Irvington, New Jersey; Oxford, North Carolina; and Phoenix, Arizona pursuant to
leases with terms of one year at an annual rent of $73,150, $20,064, $27,500 and
$18,200, respectively, for the first year, with the option to renew for nine
additional one-year periods with rent increases of 5% of the annual base rent
for each renewal year (the "PFC Employee Store Leases"). Operating costs are
included in the rent. During the first year of the terms, the PFC Employee Store
Leases would not be able to be terminated except that if at any time during the
term Revlon enters into an agreement with a non-affiliate for the sale or lease
of the facility in which a store is located, Revlon may terminate the relevant
lease upon notice effective the earlier to occur of five business days before
the closing of such sale or lease transaction, or 180 days following the giving
of such notice. In addition, at any time during the term either party may
terminate the applicable lease if Revlon ceases or substantially diminishes its
operations in the portion of a building in which a store is located (a
"Cessation of Operations"). If a Cessation of Operations occurs, Revlon may
terminate the lease upon 120 days' notice, except that if the termination date
would fall during the period between Thanksgiving and December 31, the
termination date automatically will become the first business day following
December 31. If a Cessation of Operations occurs, the Combined Company may
terminate upon at least 90 days' prior notice. After the first year of the
leases, the Combined Company may terminate at any time upon at least 90 days'
prior notice. Revlon may terminate at any time after the second anniversary of
the date of the leases if (i) Revlon or any of its affiliates no longer have the
power to vote, directly or indirectly, a majority of the voting power of
outstanding shares of the Combined Company; (ii) all or substantially all of the
Combined Company's assets are sold to any person other than an affiliate of
Revlon or (iii) an agreement is entered into by Revlon that would result in
either (i) or (ii). If Revlon exercises such termination right after the second
year of the leases but before the beginning of the fifth year, Revlon must give
at least one year's notice. Thereafter, Revlon may terminate in such event on
180 days' notice. Revlon is not obligated to terminate any or all of the leases
in such event, but may choose to retain the Combined Company as a tenant in one
or more locations. At the Effective Time, the Combined Company will also
sublease the New York employee store from Revlon at an annual rent of
approximately $99,000, which includes such store's share of operating and tax
escalations and which is subject to escalation each year. The sublease expires
in December 2004. If Revlon or one of its affiliates no longer owns 50% or more
of the voting stock of the Combined Company, the consent of Revlon's landlord to
the sublease must be sought to permit continuation of the sublease. The landlord
is not affiliated with Revlon and no assurance can be given that such consent
will be forthcoming. If Revlon terminates the Supply Agreement with the Combined
Company and does not agree to supply products for resale at the New York
employee store, the Combined Company may terminate the sublease on 90 days'
prior notice. The lease for the employee store located in Apex, North Carolina,
which is with a third party and provides for a fixed annual rent of $17,444,
including such store's share of operating and tax expense escalation, and which
expires April 2000, will be assigned by a subsidiary of Revlon to the Combined
Company at the Effective Time.
SERVICES AGREEMENT
Revlon and the Combined Company will enter into a services agreement at the
Effective Time pursuant to which Revlon will provide services, including
executive, treasury, legal, human resources, accounting, tax, real estate,
management information services, corporate information services, including
investor relations, risk management, participation in Revlon's insurance and
self-insurance programs and warehouse and distribution services (collectively,
the "Services"), as and to the extent requested by the Combined Company (the
"Services Agreement"). The Combined Company will pay Revlon the actual cost
incurred by Revlon in providing the Services. To the extent the Services are
secured from third party providers such as insurance carriers or outside
advisors such as lawyers and accountants, the Combined Company will pay to
Revlon that portion of the amounts due to such third party providers as is
allocable to the Services purchased for and provided to or for the benefit of
the Combined Company. Additionally, the Combined Company will reimburse Revlon
for all other reasonable out-of-pocket expenses incurred by Revlon in providing
the Services, including any severance to Revlon employees who provide Services
in the event the Combined Company determines to terminate any such Services.
Such payments shall be
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<PAGE>
made within ten working days of the invoice therefor. The Services Agreement or
any severable part thereof may be terminated by either party on 180 days'
notice. In addition, if at any time Revlon together with its affiliates no
longer have the power to vote, directly or indirectly, a majority of the voting
power of outstanding shares of the Combined Company or if all or substantially
all of the Combined Company's assets are sold to any person other than an
affiliate, Revlon may terminate the Services Agreement upon 30 days' prior
notice.
SUPPLY AGREEMENT
Revlon and the Combined Company will enter into a purchase and supply
agreement (the "Supply Agreement") at the Effective Time for a term of at least
two and a maximum of four years pursuant to which Revlon would agree to supply
to the Combined Company for resale only in the Cosmetic division's retail
stores, and not for wholesale distribution, first quality Revlon products and
excess Revlon products, and for resale only in the PFC division retail stores,
discontinued and returned Revlon products (subject in all cases to the
availability of product). Payments shall be made within 30 days net of shipment.
The Supply Agreement provides that Revlon may terminate the agreement effective
at any time after the second anniversary of the Merger on one year's notice if
Revlon together with its affiliates no longer have the power to vote, directly
or indirectly, a majority of the voting power of outstanding shares of the
Combined Company or if all or substantially all of the Combined Company's assets
are sold to any person other than an affiliate.
TAX SHARING AGREEMENT
Revlon and PFC are, and after the Effective Time, Revlon and, assuming
Revlon owns more than 80% of the Cosmetic Class C common stock, the Combined
Company will be, for federal income tax purposes, included in the affiliated
group of which Mafco Holdings Inc. ("Mafco Holdings") is the common parent. As a
result, Revlon's and the Combined Company's federal taxable income and loss will
be included in such group's consolidated tax return filed by Mafco Holdings.
Revlon and the Combined Company also may be included in certain state and local
tax returns of Mafco Holdings or its subsidiaries.
In June 1992, Mafco Holdings, Holdings, Revlon, Inc. (Revlon's parent),
Revlon and certain of Revlon's subsidiaries, including PFC entered into a tax
sharing agreement (as amended by the second amendment, the "Tax Sharing
Agreement"), pursuant to which Mafco Holdings has agreed to indemnify Revlon,
Inc. and Revlon against federal, state or local income tax liabilities of the
consolidated or combined group of which Mafco Holdings (or a subsidiary of Mafco
Holdings other than Revlon, Inc. and Revlon or its subsidiaries) is the common
parent for taxable periods beginning on or after January 1, 1992 during which
Revlon, Inc., Revlon or a subsidiary of Revlon is a member of such group.
Revlon, Inc. has agreed to pay Revlon its share of any payment received by
Revlon, Inc. from Mafco Holdings under the Tax Sharing Agreement and Revlon has
agreed to pay to each of its subsidiaries, including PFC, its share of any
payment received by Revlon from Revlon, Inc. under the Tax Sharing Agreement.
Pursuant to the Tax Sharing Agreement, for all taxable periods beginning on or
after January 1, 1992, Revlon will pay to Revlon, Inc., which in turn will pay
to Mafco Holdings, amounts equal to the taxes that such corporation would
otherwise have to pay if it were to file separate federal, state or local income
tax returns (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the consolidated or
combined tax liability relating to any such period which is attributable to
Revlon), except that Revlon will not be entitled to carry back any losses to
taxable periods ending prior to January 1, 1992. No payments are required by
Revlon or Revlon, Inc. if and to the extent Revlon is prohibited under the
Revlon credit agreement from making cash tax sharing payments to Revlon, Inc.
The Revlon credit agreement prohibits Revlon from making cash tax sharing
payments other than in respect of state and local income taxes.
Pursuant to the Tax Sharing Agreement, each of the subsidiaries of Revlon,
including PFC, has agreed to pay to Revlon an amount equal to its liability for
federal, state and local income taxes (including estimated taxes), if any. Since
the payments to be made by subsidiaries of Revlon, including PFC, to Revlon
under the Tax Sharing Agreement will be determined by the amount of taxes that
such subsidiaries would otherwise have to pay if they were to file separate
federal, state or local income tax returns, the Tax Sharing Agreement will
benefit Revlon to the extent Revlon can offset the taxable income generated by
such subsidiaries, including PFC, against losses and tax credits generated by
Revlon and its other subsidiaries. PFC anticipates that, as a result of
anticipated operating losses, no significant federal tax payments or payments in
lieu of taxes pursuant to the Tax Sharing Agreement will be required by PFC for
1997. At the Effective Time, assuming Revlon owns 80% or more of the Combined
Company, the Combined Company will become a party to the Tax Sharing Agreement.
REGISTRATION RIGHTS AGREEMENT
The Combined Company will enter into a registration rights agreement with
Revlon pursuant to which Revlon will be entitled to demand on three occasions
that the Combined Company file a registration statement under the Securities Act
in
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<PAGE>
connection with the sale of Revlon's Cosmetic Class C common stock and will also
be entitled to include such shares in certain registration statements filed for
the benefit of the Combined Company (the "Registration Rights Agreement"). The
Combined Company will bear all expenses of such registration statements, except
for fees and expenses of counsel for Revlon and underwriters' discounts, fees
and expenses.
THE MEETING
This Proxy Statement/Prospectus is being furnished to holders of Cosmetic
Class A and Class B common stock in connection with the solicitation of proxies
by the Cosmetic Board from the holders of the Cosmetic Class B common stock for
use at the Meeting. This Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to Cosmetic stockholders on or about January ,
1997. This Proxy Statement/Prospectus also constitutes Cosmetic's Annual Report
with respect to the fiscal year ended September 27, 1996.
COSMETIC'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SEC WILL BE
FURNISHED WITHOUT CHARGE TO COSMETIC STOCKHOLDERS UPON WRITTEN REQUEST TO MR.
BRUCE E. STROHL, THE COSMETIC CENTER, INC., 8839 GREENWOOD PLACE, SAVAGE,
MARYLAND 20763.
TIME AND PLACE; PURPOSES
The Meeting will be held at , Maryland, on February , 1997,
starting at 10:00 a.m., Eastern Standard Time. At the Meeting, holders of
Cosmetic Class B common stock will be asked to approve (i) the Merger Agreement,
including the Class C Amendment and the appointment of nine directors at the
Effective Time, (ii) the Board Amendment, (iii) the election of two members of
the Cosmetic Board (who will be replaced in connection with the appointment of
nine directors upon consummation of the Merger) and (iv) the approval of the
Cosmetic 1997 Stock Option Plan.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The Cosmetic Board has fixed the close of business on January , 1997 as
the record date for the determination of Cosmetic Class B stockholders entitled
to notice of and to vote at the Meeting. Accordingly, only holders of record of
Cosmetic Class B common stock at the close of business on January , 1997 are
entitled to notice of and to vote at the Meeting. At the close of business on
January , 1997, there were shares of Cosmetic Class B common stock
outstanding. Holders of Cosmetic Class A common stock are not entitled to vote
at the Meeting.
The Cosmetic Class B common stock is the only class of securities entitled
to vote at the Meeting, and each share of Cosmetic Class B common stock is
entitled to one vote on each matter properly submitted to a vote at the Meeting.
The presence at the Meeting in person or by properly executed proxies of the
holders of a majority of the outstanding Cosmetic Class B common stock is
necessary to constitute a quorum for the transaction of business at the Meeting.
The affirmative vote of a majority of the outstanding Cosmetic Class B
common stock is required to approve the Merger Agreement (including the Class C
Amendment). Approval of the Board Amendment requires the affirmative vote of at
least 80% of the outstanding Cosmetic Class B common stock, and the election of
the directors and the approval of the Cosmetic 1997 Stock Option Plan requires
the affirmative vote of a majority of the Cosmetic Class B common stock present
and voting at the Meeting.
The Principal Stockholders and their family members, who in the aggregate
beneficially own or control more than 51% of the outstanding Cosmetic Class B
common stock as of the record date, have advised Cosmetic that they intend to
vote their shares in favor of the Merger Agreement, the Board Amendment, the
election of the directors and the approval of the Cosmetic 1997 Stock Option
Plan. Accordingly, the approval of the Merger Agreement, the election of the
directors and the approval of the Cosmetic 1997 Stock Option Plan (but not the
Board Amendment) are assured without the vote of any other stockholder.
PROXIES
All shares of Cosmetic Class B common stock represented by properly
executed proxies received prior to or at the Meeting and not revoked will be
voted at the Meeting in accordance with the instructions indicated in such
proxies. If no instructions are indicated in a properly executed proxy, such
proxy will be voted FOR the approval of the Merger Agreement (including the
Class C Amendment), the Board Amendment, the election of directors and the
Cosmetic 1997 Stock Option Plan. A properly executed proxy marked "abstain,"
although counted for the purposes of determining whether there is a quorum and
for purposes of determining the aggregate voting power and number of shares
represented and entitled to vote at
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the Meeting, will not be voted. Accordingly, because the affirmative vote of a
majority of the outstanding Cosmetic Class B common stock is required for
approval of the Merger Agreement (including the Class C Amendment) and the
affirmative vote of 80% of the outstanding Cosmetic Class B common stock is
required for approval of the Board Amendment, a proxy marked "abstain" will have
the effect of a vote against such proposals. Shares represented by "broker
non-votes" (that is, shares held by brokers or nominees which are represented at
the Meeting but with respect to which the broker or nominee is not authorized to
vote on a particular proposal) will be counted for purposes of determining
whether there is a quorum at the Meeting. Brokers and nominees are precluded
from exercising their voting discretion with respect to the approval of the
Merger Agreement or the Board Amendment and therefore, absent specific
instructions from the beneficial owner of such shares, are not authorized to
vote such shares with respect to the approval of the Merger Agreement or the
Board Amendment. Because the affirmative vote of a majority of the outstanding
Cosmetic Class B common stock is required for the approval of the Merger
Agreement and the affirmative vote of 80% of the outstanding Cosmetic Class B
common stock is required for approval of the Board Amendment, a "broker
non-vote" will have the effect of a vote against the Merger Agreement and the
Board Amendment.
A stockholder who has executed and returned a proxy may revoke it at any
time before it is voted by delivering to Cosmetic's Secretary a signed notice of
revocation or a signed proxy bearing a later date or by attending the Meeting
and voting in person. Attendance at the Meeting will not in itself constitute
the revocation of a proxy.
The Cosmetic Board is not aware of any business to be acted upon at the
Meeting other than as described in this Proxy Statement/Prospectus. If, however,
other matters are properly brought before the Meeting, or any adjournment or
postponement thereof, the persons appointed as proxies will have discretion to
vote or to act thereon according to their best judgment. Such adjournments or
postponements may be for the purpose of soliciting additional proxies.
The cost of soliciting proxies will be paid by Cosmetic. In addition to
solicitation by mail, arrangements will be made with banks, brokerage houses and
other custodians, nominees and fiduciaries to send proxy materials to beneficial
owners, and Cosmetic will reimburse them for their reasonable expenses in so
doing. To the extent necessary to ensure sufficient participation at the
Meeting, Cosmetic's directors, officers and regular employees, without extra
compensation, may request by telephone or telegram the return of proxy cards.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR COSMETIC CLASS A COMMON STOCK AND CLASS B COMMON STOCK WILL BE
MAILED BY COSMETIC TO COSMETIC STOCKHOLDERS OF RECORD ON FEBRUARY , 1997 AS
SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
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BUSINESS OF COSMETIC
GENERAL
Cosmetic is primarily engaged in the retail sale of a wide range of brand
name cosmetics, fragrances, beauty aids and related items (sometimes referred to
herein as "cosmetic products"). Cosmetic believes that it is one of the leading
specialty retailers of cosmetic products in the United States and that its
stores offer a larger selection of cosmetic products than other retailers in
Cosmetic's market areas.
Historically, the primary retailers of cosmetic products have been
department stores, drug stores and discount stores. Department stores offer
primarily higher priced prestige items, usually at the manufacturers' suggested
retail prices. Traditional drug stores generally offer lower priced,
mass-merchandised items and a limited selection of prestige items, typically at
the manufacturers' suggested retail prices. Discount stores feature lower
prices, but generally only offer mass-merchandised cosmetic products. Cosmetic
believes that the traditional industry marketing practices present an
opportunity for a specialty retailer and that its distinctive combination of
value pricing, breadth and depth of product selection, customer service,
strategic store concentration and aggressive marketing creates a competitive
advantage over other cosmetic product retailers.
RETAIL DIVISION
Cosmetic's retail speciality stores sell cosmetic products. Cosmetic's
stores, which operate under the name "The Cosmetic Center(Register mark)", are
located in the metropolitan areas of Washington, D.C.; Richmond, Virginia;
Baltimore, Maryland; Chicago, Illinois; Charlotte/Raleigh/Durham, North
Carolina; and Philadelphia, Pennsylvania.
Cosmetic's retail division operated 69 specialty stores under the name "The
Cosmetic Center(Register mark)" as of September 27, 1996. The stores offer a
broad selection of approximately 25,000 brand name prestige and
mass-merchandised cosmetic products, including items in different sizes and
colors, for women, men and children at everyday prices generally ranging from
10% to 50% below the manufacturers' suggested retail prices, with most items
priced from 10% to 20% below such prices. Cosmetic features advertised items
priced up to 70% below the manufacturers' suggested retail prices. The stores'
merchandise includes, among other things, perfume, cologne, after-shave, makeup,
lipstick, eyeshadow, nail polish, skin care and treatment products, shampoo,
hair color, hair spray, soap, bath and body products, sun tan products, eye care
products, hair dryers, curling irons, hosiery, cosmetic accessories and novelty
items.
Cosmetic's retail division operates hair salons in 60 of its 69 specialty
stores. The Salon at The Cosmetic Center ("The Salon") emphasizes quality
haircutting and manicure services at moderate prices for the entire family. The
Salon offers the following major services: shampooing, conditioning, haircutting
and styling, hair coloring and permanent waving. Some stores also offer manicure
services. In addition to professional services, The Salon sells various
professional hair and nail care products.
Stores are open every day of the year (except Easter, Thanksgiving and
Christmas) generally from 10:00 a.m. to 9:00 p.m., Monday through Friday; 10:00
a.m. to 7:00 p.m. on Saturday; and 11:00 a.m. to 6:00 p.m. on Sunday. The Salon
hours generally are shorter. The stores range in size from approximately 5,000
to 10,000 square feet and are designed to provide a combination of full-service
and self-service shopping. Merchandise is generally displayed on mirror backed
wall displays, color-coordinated aisle shelving units and in lighted, mirrored
showcases in accordance with a detailed, standardized shelving plan. Products
are displayed by department, manufacturer and size, permitting departments to
expand or contract rapidly in response to changes in customer demand. Store
interiors generally include wall-to-wall carpeting, color-coordinated custom
designed fixtures, recessed and track lighting and background music.
Each store is supervised by a management team comprised of a store manager
and a minimum of two assistant managers. Store management personnel receive
bonuses based on achievement of sales and expense control objectives by their
respective stores. Store staffing includes full service sales personnel familiar
with Cosmetic's multiple product lines and other hourly employees. Managers,
assistant managers and sales personnel from time to time receive training about
the cosmetic products sold by Cosmetic.
Control over store operations is the responsibility of Cosmetic's vice
president of retail operations, one regional manager and six district managers.
It is company policy for the district managers to visit each store at least
weekly to ensure the quality of merchandise presentation, proper staffing and
adherence to company standards.
Approximately 61% of Cosmetic's sales are made for cash with the balance
under major credit card plans for which Cosmetic assumes no credit risk. The
stores accept the return of merchandise.
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ATLANTA, GEORGIA MARKETPLACE
Cosmetic closed its eight retail stores in the Atlanta, Georgia marketplace
effective August 4, 1996. As a result, in the fourth quarter of the fiscal year
ended September 27, 1996, Cosmetic recorded a restructuring provision of
approximately $4.0 million. The restructuring provision included the cost of
future lease obligations, a write off of certain assets and a severance package
for its Atlanta employees. The expected future cash requirement of the
restructuring provision at September 27, 1996 is approximately $2.1 million and
will be paid over the remaining one to four year terms of the Atlanta leases.
WHOLESALE DIVISION
Cosmetic's wholesale division, through Cosmetic's wholly owned subsidiary,
M. Steven Cosmetic Company, Inc., distributes cosmetic products to independent
drug stores and regional retail chains throughout the United States. The
division mails a catalog twice a year to all of its customers and once a year,
before the Christmas season, to selected independent drug stores and regional
retail chains. It also sends out a flyer several times a year featuring special
promotional items. The wholesale division uses a telemarketing staff to solicit
orders from independent drug stores and regional retail chains via a toll-free
telephone number, as well as by mail. Independent sales representatives working
on a commission basis also service many independent drug stores.
DISTRIBUTION DIVISION
Cosmetic's distribution division, through Cosmetic's wholly owned
subsidiary Courtney Brooke, Inc., purchases cosmetic products produced by
manufacturers pursuant to Courtney Brooke's specifications for sale under the
"Courtney Brooke(Register mark)" label. These products are sold in Cosmetic's
stores, by Cosmetic's wholesale division and to a small extent by independent
sales representatives.
RETAIL STORES
The following table summarizes the number of stores opened, net of closed
stores, by fiscal year by metropolitan market area as of September 27, 1996.
<TABLE>
<CAPTION>
WASHINGTON CHICAGO BALTIMORE RICHMOND NORTH PHILA.
FISCAL YEAR TOTAL D.C. IL MD VA CAROLINA PA
- --------------------------------------------- ----- ---------- ------- --------- -------- -------- ------
<S> <C>
1986 (and prior)............................. 10 8 2
1987......................................... 6 2 1 3
1988......................................... 5 4 1
1989......................................... 4 4
1990......................................... 4 2 2
1991......................................... 5 2 3
1992......................................... 5 3 1 1
1993......................................... 8 3 3 1 1
1994......................................... 14 2 2 1 3 2
1995......................................... 12 4 1 2 3
1996......................................... (4) 1 1
-- -- -- -- -- --
-----
69 27 21 6 4 5 6
<CAPTION>
ATLANTA
FISCAL YEAR GA
- --------------------------------------------- -------
<S> <C>
1986 (and prior).............................
1987.........................................
1988.........................................
1989.........................................
1990.........................................
1991.........................................
1992.........................................
1993.........................................
1994......................................... 4
1995......................................... 2
1996......................................... (6)
--
0
</TABLE>
In fiscal year 1996, Cosmetic opened five stores, two in Georgia and one
each in Illinois, Pennsylvania and the Washington, D.C. metropolitan market
area, and closed nine stores, eight in Georgia and one in Illinois. Cosmetic may
open additional stores in fiscal year 1997. The opening of additional stores
will be subject to a number of factors, including general economic and business
conditions affecting consumer purchases, the availability of suitable store
sites and the procurement of acceptable leases.
PURCHASING
In purchasing merchandise, Cosmetic generally seeks to obtain purchases
based on the most favorable combination of prices, quantities and merchandise
selection available and, accordingly, the extent and nature of Cosmetic's
purchases from various vendors change constantly. For the 1996 fiscal year,
Cosmetic estimates that approximately 82% of its cosmetic products were
purchased directly from manufacturers and their representatives (primary
sources) and approximately 18% were purchased from wholesalers and retailers
(secondary sources). Over the last several years, the percentage purchased from
primary sources has increased from approximately 40% in fiscal year 1985 to its
current level. Cosmetic purchases merchandise from approximately 560 vendors.
For the 1996 fiscal year, more than $100,000 of purchases were made from each of
approximately 155 different vendors. The three largest primary source vendors
accounted for approximately 10%, 8%
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and 4%, respectively, of total purchases. The largest secondary source vendor
accounted for approximately 2% of total purchases. For fiscal 1996 and fiscal
1995, Cosmetic's purchases from Revlon accounted for 10% and 8% of total
purchases, respectively. As is customary in the cosmetic product industry,
Cosmetic has no long-term or exclusive contract with any vendor. Although the
loss of any one of the vendors referred to above could have a short-term
material adverse effect on Cosmetic, Cosmetic believes that it would not have a
material adverse effect on Cosmetic's long-term operations because Cosmetic
believes that alternative sources of supply would be available.
Some of the cosmetic products purchased by Cosmetic from its secondary
sources may include cosmetic products that were originally sold to department
stores and other retailers. From time to time, certain manufacturers have taken
actions to prohibit or restrict the resale of such products by department stores
and other retailers. Some of the cosmetic products purchased by Cosmetic from
its secondary sources also may include products subject to copyright, trademark,
trade dress and patent rights, either manufactured in foreign countries or
manufactured in the United States and sold to foreign distributors.
Periodically, litigation and administrative proceedings have been instituted,
and federal legislation has been proposed but seeking to halt or restrict the
importation of such merchandise. Cosmetic believes that in the event of any
prohibition or restriction on the importation of foreign market merchandise or
the resale of such merchandise, Cosmetic could obtain alternative sources for
most of its cosmetic products. In addition, certain manufacturers have not been
willing to sell products to retailers who sell merchandise received from
secondary sources or who offer value pricing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Hair Salon
Strategy."
INVENTORY AND DISTRIBUTION MANAGEMENT
Cosmetic's retail and wholesale divisions are served from a 103,000-square
foot distribution center located in Savage, Maryland. Cosmetic believes that the
distribution center, which opened in September 1990, has the capacity to service
approximately 100 specialty retail stores as well as Cosmetic's wholesale
operations. Cosmetic uses a computerized inventory control and reporting system
which utilizes sales data collected by an electronic point-of-sale system at
each store, integrates data from Cosmetic's operations and is a key element in
Cosmetic's planning, purchasing and distribution decisions. The computer system
prepares price labels and picking orders and provides for automated reordering,
minimum and maximum stocking levels and optimum order quantities based on sales.
The system also permits analysis of sales data based on product groups, items
and manufacturers so that Cosmetic may respond rapidly to changes in sales
patterns. Cosmetic believes that the automated stock replenishment system
provides Cosmetic with a competitive advantage by reducing store personnel
expenses and enabling store personnel to focus on customer service.
Products delivered to Cosmetic's stores are generally marked with
Cosmetic's selling price, as well as the manufacturer's suggested retail price,
and are delivered to the stores in company-operated trucks. Deliveries generally
are made once a week, with more frequent deliveries during the six-week
Christmas season. Frequent deliveries permit the stores to minimize storage
space, increasing the space used for display and sale of merchandise.
Merchandise for wholesale customers is shipped by common carriers.
Cosmetic currently uses an IBM Model AS400 Model F70 which was upgraded in
January 1994. In fiscal years 1993 and 1994, Cosmetic upgraded its point-of-sale
system in all of its stores to provide greater data processing and analysis
capacity.
ADVERTISING
Cosmetic's retail division traditionally uses newspaper print and insert
advertising in major metropolitan newspapers in Cosmetic's market areas.
Cosmetic may seasonally supplement its advertising program with radio and
television advertising. To increase store traffic and sales, Cosmetic features
advertised items priced up to 70% below the manufacturers' suggested retail
prices. The wholesale division relies primarily on telemarketing, catalogs and
flyers for sales promotion. Cosmetic has been able to obtain cooperative
advertising allowances from some of its vendors. Cosmetic groups its stores in
selected market areas, among other reasons, to obtain economies of scale on
advertising expenditures.
TRADE NAMES AND SERVICE MARKS
Cosmetic's stores use the trade name and service mark "The Cosmetic
Center(Register mark)." Cosmetic has registered "The Cosmetic Center(Register
mark)" as a service mark with the United States Patent and Trademark Office and
with the State of Maryland. In some states, however, other businesses may use
similar names and Cosmetic's rights to open new stores under the name "The
Cosmetic Center(Register mark)" may be limited in such states. Cosmetic uses the
slogan "A Beautiful Way to Save(Register mark)" in all of its retail
advertising, for which it has obtained registration with the United States
Patent and Trademark Office. Cosmetic purchases
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cosmetic products produced by manufacturers for sale under Cosmetic's "Courtney
Brooke(Register mark)" and "Biny (Bullet) Biny(Register mark)" labels. Cosmetic
has obtained federal registration for the "Courtney Brooke(Register mark)" mark
and the "Biny (Bullet) Biny(Register mark)" mark for substantially all of those
classes of goods sold under the "Courtney Brooke(Register mark)" mark and the
"Biny (Bullet) Biny(Register mark)" mark.
EMPLOYEES
At September 27, 1996, Cosmetic had approximately 1,630 employees, of whom
830 were full-time and 800 were part-time. Cosmetic pays wages and salaries and
provides fringe benefits which it believes are competitive with those of its
competitors in its geographic market areas. None of Cosmetic's employees are
covered by a collective bargaining agreement and no work stoppages have been
experienced. Cosmetic believes that its relationship with its employees is
satisfactory.
LEGAL PROCEEDINGS
From time to time, Cosmetic is involved in various routine legal
proceedings incident to the ordinary course of its business. Cosmetic believes
that the outcome of all pending legal proceedings in the aggregate is unlikely
to have a material effect on its business.
COMPETITION
The retail and wholesale cosmetic product business and professional salon
services business are very competitive. Cosmetic's retail competitors include
department stores, independent drug stores, national and regional drug chains,
discount stores, other retail stores, large and small professional hair salon
chains, and independently owned salons. Some of these competitors sell cosmetic
products and professional hair services at discount prices, and many are part of
large national or regional chains that have substantially greater resources and
name recognition than Cosmetic. Cosmetic's stores compete on the basis of
selling price, merchandise selection and variety, customer service, store
location and ambiance. Cosmetic believes that its distinctive combination of
value pricing, breadth and depth of product selection, customer service,
strategic store concentration, and aggressive marketing provides a strong basis
for competition with other cosmetic product retailers. However, there can be no
assurance that others using a similar approach will not become competitors of
Cosmetic.
Cosmetic's wholesale division competes directly with other cosmetic
wholesalers nationwide. Some of these wholesalers have substantially greater
resources than Cosmetic. Cosmetic's wholesale division competes on the basis of
merchandise selection and availability, selling price and rapid delivery.
STORE PROPERTIES
Cosmetic's stores range in size from approximately 5,000 to 10,000 square
feet, with the average store comprising 6,200 square feet. All of Cosmetic's
stores operate under leases with the initial term expiring at varying dates
until January 2006. The average remaining initial term of the store leases is
approximately four years. Certain of the leases contain renewal options up to
fifteen years, with the average renewal term being five years. The base rental
rates on leases average approximately $14.09 per square foot. Substantially all
of Cosmetic's leases provide for additional rents equal to a percentage of sales
above a certain minimum level. Sixteen of Cosmetic's leases terminate within the
next two years. Cosmetic believes it will be able to negotiate new leases for
these properties or lease other space in the vicinity of the current locations.
Cosmetic leases a store in an industrial park from a partnership in which Anita
J. Weinstein, vice chairman, vice president, secretary and director of Cosmetic,
holds a 35.67% limited partnership interest. See "Business -- Retail Stores" for
information as to the number of stores and market areas.
DISTRIBUTION CENTER AND CORPORATE HEADQUARTERS
All of Cosmetic's stores are served by a 103,000-square foot distribution
center and corporate headquarters located in Savage, Maryland. This facility is
leased by Cosmetic subject to a lease agreement expiring in September 2000, with
a five-year renewal option. All support services for the stores are centralized
in the facility, including purchasing, data processing, advertising and general
administration. The distribution center supplies all of the merchandise
requirements of Cosmetic's stores. Cosmetic believes that this facility
currently can service approximately 100 specialty retail stores as well as
Cosmetic's wholesale operations, and that its store locations, distribution
center and inventory are adequately covered by insurance. It is anticipated that
Cosmetic's and PFC's distribution operations will be combined at the Maryland
facility and that additional warehouse and distribution space will be secured.
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BUSINESS OF PFC
GENERAL
PFC operates a chain of retail stores that sell a wide range of excess,
returned and discontinued, as well as certain first quality, brand name
cosmetics, fragrances and health and beauty products at discounted prices. As of
October 31, 1996, PFC operated 194 stores located principally in outlet malls in
41 states.
PFC's stores, which operate under the names Prestige Fragrance & Cosmetics,
Colours & Scents, Visage and The Cosmetic Warehouse, offer a broad selection of
brand name prestige and mass-merchandised cosmetic products, including face
makeup, lip makeup, nail enamel, eye makeup, skin care and treatment products,
bath and body products, shampoo, hair color, hair spray, soap, perfume, cologne,
after-shave and cosmetic accessories. PFC stores stock mass, specialty and
department store brands of certain major manufacturers, including Revlon. Since
the stores operating under the name Prestige Fragrance & Cosmetics, as well as
six of the stores that operate under the name Colours & Scents (the "Prestige
Fragrance & Cosmetics stores"), principally sell excess, returned and
discontinued items in the outlet store environment, they do not compete directly
with the retailers who generally purchase first quality products from these same
manufacturers. Rather, the Prestige Fragrance & Cosmetics stores provide an
outlet for major cosmetic manufacturers to sell their excess and returned
products. The other 23 stores operating under the name Colours & Scents (the
"Colours & Scents stores") principally carry first quality prestige brand
fragrances and cosmetics normally carried in department stores at substantial
discounts from department store prices. Colours & Scents stores also operate in
the outlet mall environment and as such provide an outlet for prestige brand
manufacturers to sell their surplus and overstocked first quality merchandise. A
wholly owned subsidiary of Revlon, PFC was acquired by Revlon's predecessor in
1987 as part of the acquisition of the Charles of the Ritz business from Yves
St. Laurent.
STORE LOCATIONS
As of October 31, 1996, of PFC's 194 stores, 162 were Prestige Fragrance &
Cosmetics stores, 23 were Colours & Scents stores, one was operated under the
name Visage, one was operated under the name The Cosmetic Warehouse and seven
were employee stores that sell principally to employees of Revlon and its
affiliates and are also open to the general public. The Prestige Fragrance &
Cosmetics stores are located in 41 states, with 15 located in California, 16
located in Florida and 13 located in Texas. PFC acquired 20 Colours & Scents
stores in 1994. The Colours & Scents stores are located throughout the United
States, with six stores in California. The employee stores are located in New
York, New Jersey, Arizona and North Carolina. The Visage and The Cosmetic
Warehouse stores are located in Florida.
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The table below indicates the states in which PFC operated stores as of
October 31, 1996:
<TABLE>
<CAPTION>
VISAGE AND THE
PRESTIGE FRAGRANCE COLOURS COSMETIC EMPLOYEE
LOCATION &COSMETICS & SCENTS WAREHOUSE STORES
- -------------------------------------------------------------------- ------------------ -------- -------------- --------
<S> <C>
Alabama............................................................. 2
Arizona............................................................. 3 1 1
California.......................................................... 15 6
Colorado............................................................ 3 2
Connecticut......................................................... 2
Delaware............................................................ 1
Florida............................................................. 16 2 2
Georgia............................................................. 8 1
Hawaii.............................................................. 1
Idaho............................................................... 2
Illinois............................................................ 4
Indiana............................................................. 5
Iowa................................................................ 2
Kansas.............................................................. 2
Kentucky............................................................ 5
Louisiana........................................................... 3
Maine............................................................... 1
Massachusetts....................................................... 1 1
Michigan............................................................ 3
Minnesota........................................................... 2
Mississippi......................................................... 2
Missouri............................................................ 5
Nebraska............................................................ 2
Nevada.............................................................. 3
New Hampshire....................................................... 2
New Jersey.......................................................... 2 3
New Mexico.......................................................... 2 1
New York............................................................ 6 1 1
North Carolina...................................................... 6 2
Ohio................................................................ 2 1
Oklahoma............................................................ 1
Oregon.............................................................. 3
Pennsylvania........................................................ 5 1
South Carolina...................................................... 5
Tennessee........................................................... 8 1
Texas............................................................... 13 2
Utah................................................................ 3
Vermont............................................................. 1
Virginia............................................................ 3 1
Washington.......................................................... 6 1
Wisconsin........................................................... 2
-- -- --
---
Totals.............................................................. 162 23 2 7
-- -- --
-- -- --
---
---
</TABLE>
STORE OPERATIONS AND MANAGEMENT
Each PFC retail store is open every day of the year (except Easter,
Thanksgiving, Christmas and New Year's Day) generally from 10:00 a.m. to 8:00
p.m., Monday through Friday, 10:00 a.m. to 7:00 p.m. on Saturday and 11:00 a.m.
to 6:00 p.m. on Sunday. The Prestige Fragrance & Cosmetics stores and the PFC
employee stores generally range in size from 900 square feet to 3,000 square
feet with an average store size of approximately 1,650 square feet. The Colours
& Scents stores generally range in size from 900 square feet to 2,600 square
feet with an average store size of approximately 1,300 square
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feet. All Prestige Fragrance & Cosmetics stores are designed for both
full-service salesperson assisted and self-service shopping, while most of the
Colours & Scents stores are full-service only. Merchandise is generally
displayed by manufacturer within product lines. The stores have attractive
interiors, which generally include wall-to-wall carpeting or ceramic tile
flooring, color-coordinated custom designed displays and recessed and track
lighting.
Each store location is staffed with trained sales personnel who are
familiar with the merchandise and its features and benefits. Sales management
personnel are compensated on a salary plus incentive bonus basis. Each store on
average has five employees, including a manager, assistant manager and three
assistants. Stores are grouped into 15 geographic districts, which are in turn
grouped into four regions. District managers generally seek to visit stores
within their districts approximately twice monthly to review merchandise levels
and presentation, store appearance, personnel performance, expense control,
security and adherence to PFC standards and operating procedures. The district
managers report to four regional managers who in turn report to the vice
president of store operations.
Generally, approximately 65% of purchases at PFC's retail stores are made
by cash or check, with the balance made by major credit cards, for which PFC
assumes no credit risk. The stores generally accept the return of merchandise
within 14 days of purchase, if accompanied by a valid store receipt. If
merchandise is returned within 14 days without a receipt the customer can obtain
a store credit.
INFORMATION SYSTEMS
PFC is in the process of significantly upgrading its information systems.
When implemented, these systems are designed to track buyers' orders, warehouse
receipts, shipment to stores, inventories, markdowns, store sales and individual
item performance. As part of this upgrade, perpetual inventory management
information systems have been installed in all PFC stores and are scheduled to
be implemented beginning in early 1997. Point-of-sale information systems have
been installed and implemented in all PFC stores. These systems are designed to
allow PFC to merge data from the various phases of PFC's operations without
manual input. Although historically PFC employees at each store manually entered
product codes into registers to record sales, recently PFC stores have begun
using bar scanners to register sales, track inventories and conduct physical
inventories. The point-of-sale cash registers at PFC stores are designed to
record daily sales and allow PFC to capture unit and financial data from a
single entry. The new inventory and financial reporting systems, including
purchase, product allocation/distribution and sales, are designed to allow PFC
to monitor store and warehouse inventories efficiently and to provide for
automatic reordering, minimum and maximum stocking levels and optimum order
quantities based on actual sales. The systems are also designed to enable PFC to
analyze retail sales data by product group, SKU and manufacturer so that PFC can
adjust to changes in customer demand.
STORE EXPANSION AND CLOSINGS
Historically, PFC has reviewed additional store locations on an ongoing
basis, seeking to open new stores in outlet malls where it does not already have
a presence. The opening of new stores is subject to a number of factors,
including general economic and business conditions affecting consumer purchases,
the availability of suitable store sites, the ability to obtain leases on
favorable terms and the impact of competition from new stores on sales at
existing stores, among others.
PFC opened six new stores in November 1996 and in October and November 1996
opened 13 temporary stores for the Christmas season. All of the temporary stores
are located in malls that also house existing PFC stores, and the inventory of
the temporary stores, which consists primarily of cosmetic gift sets and other
gift items, will be moved to such existing PFC stores when the temporary stores
are closed the week after Christmas. Nine new store openings are expected for
1997, and leases for these stores have been negotiated and executed. Eleven
other store sites are under consideration, although whether any such stores will
be opened in 1997 depends upon the factors noted above and, among other things,
upon the completion of the development of the outlet malls in question. PFC
store openings may be delayed due to such factors as well as others, some of
which are beyond PFC's control, including the developer's failure to complete an
outlet mall as scheduled.
PFC continuously monitors store performance and in the ordinary course of
business closes stores that do not perform well. Through the ten months ended
October 31, 1996, PFC closed four stores and opened nine new stores for a net
increase of five stores. PFC closed eight stores and opened 17 new stores in
1995 for a net increase of nine stores and closed seven stores and, exclusive of
the acquisition of the Colours & Scents stores in 1994, opened 22 new stores in
1994 for a net increase of 15 stores. PFC attempts to schedule store closings
after the Christmas holiday season and typically attempts to schedule openings
before November 15 so that stores are in operation during the Christmas holiday
season. Management anticipates that store openings and closings will continue to
be a regular part of the Combined Company's operations.
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DISTRIBUTION OPERATIONS
PFC's current executive and administrative offices and warehouse and
distribution facility are located at a facility owned by Revlon in Holmdel, New
Jersey and consists of approximately 15,000 square feet in office space and
approximately 78,000 square feet in warehouse and distribution space. Other than
inventory located at PFC stores, the remainder of PFC's inventory is stored in
the Holmdel warehouse until it is delivered to the stores. At the Holmdel
distribution center, delivered merchandise is inspected for damage and checked
against the applicable purchase order and, unless shipped immediately to a PFC
store to fill an existing order, is stored in the appropriate warehouse
location. See "The Merger -- Operations After the Merger."
Shipments are generally sent via United Parcel Service ("UPS") and are sent
directly from the warehouse to PFC's retail stores. Revlon has a shipment
contract with UPS that extends to its subsidiaries, including PFC. The prices
paid by PFC vary, depending upon shipment weight and distance. If UPS services
were not available, PFC believes it could use one or more other carriers without
materially impacting the delivery process, although the start-up time necessary
to familiarize a new carrier with PFC's operations could cause temporary
disruptions in distribution and PFC's delivery costs could increase. Although
there can be no assurance, PFC has no reason to believe that UPS services would
not be available after the Effective Time.
Deliveries of merchandise are generally made to PFC stores weekly, with
more frequent deliveries during the Christmas holiday season when demand
increases. Frequent deliveries permit the stores to minimize inventory storage
space, maximizing display and selling space.
PURCHASING
PFC purchases merchandise from a number of suppliers based on the most
favorable available terms, including price, quantity and merchandise selection
and, accordingly, the nature and extent of PFC's purchases vary in the ordinary
course. PFC currently purchases inventory from approximately 75 vendors. PFC's
largest vendor, Revlon, and its indirect parent, Holdings, accounted for
approximately 29%, 32% and 45% of total purchases during the nine months ended
September 30, 1996, and the years ended December 31, 1995 and 1994,
respectively, excluding approximately 3% and 5% in 1995 and 1994, respectively,
attributable to two brands that were divested by Revlon in 1995. In the past,
PFC has purchased some first quality products as well as returned, discontinued
and excess products from Revlon at discount prices. While the loss of Revlon as
a supplier could have a material adverse effect on PFC's business if PFC were
unable to secure alternative sources of products, PFC has no reason to believe
that Revlon would not continue as a supplier. PFC's second largest supplier,
with whom PFC has a supply contract that expires in 1999, accounted for
approximately 15% of total purchases during 1995. Two other significant
suppliers accounted for approximately 5% and 2% of total purchases during 1995.
PFC does not believe that the loss of a single supplier, other than Revlon,
would have a material adverse effect on PFC's business because PFC believes that
alternative sources of supply would be available. See "Risk Factors -- Reliance
on Vendors and Sources of Supply" and "Agreements with Revlon."
PFC purchases from manufacturers as well as secondary source suppliers such
as distributors, wholesalers, importers and retailers. As a result of the
expansion of its merchandise mix, including the addition of fragrance products
to PFC stores, PFC expects that its reliance on secondary sources will decrease
slightly. During the nine months ended September 30, 1996 and the year ended
December 31, 1995, PFC purchased 80% of its products and 73% of its products,
respectively, directly from manufacturers with the balance purchased from
secondary sources. PFC's largest secondary source vendor accounted for
approximately 1.5% of total purchases in the nine months ended September 30,
1996 and 7% of total purchases during 1995.
Merchandise purchased by PFC from secondary sources may include merchandise
that was originally sold by manufacturers and distributors to department stores
or other retailers. From time to time, certain manufacturers have taken actions
to attempt to prohibit or restrict the resale of such merchandise by department
stores and other retailers. Merchandise purchased by PFC from secondary sources
may also include products that are subject to copyright, trademark, trade dress
and patent rights, either manufactured in foreign countries or manufactured in
the United States and sold to foreign distributors. Periodically, the United
States trademark, trade dress, patent and copyright owners and their licensees
and trade associations have initiated litigation or administrative agency
proceedings seeking to halt the importation into the United States of such
foreign manufactured or previously exported products or restrict the sale of
such merchandise once in the United States. Federal legislation to support such
owners', licensees' and trade associations' positions has been proposed but to
date not adopted. PFC's secondary sources typically will not disclose the
identity of their suppliers, and accordingly, PFC cannot determine what, if any,
portion of its merchandise purchased from secondary sources could be affected by
any such attempt to prohibit
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or restrict resale or by judicial, legislative or administrative action
discussed above or by actions on other grounds. Although there can be no
assurance that future judicial, legislative or administrative agency action,
including possible import, export, tariff or other trade restrictions, will not
limit or eliminate some of the secondary sources used by PFC, PFC believes that
in the event of any such action or the limitation or elimination of any of its
secondary sources, PFC could obtain alternative sources for most, if not all, of
its products or substitute products from other suppliers. However, there can be
no assurance that PFC could obtain such alternative sources or that the terms on
which PFC could purchase these substitute products would be as favorable as the
terms it currently receives from secondary sources.
TRADE NAME AND SERVICE MARK
PFC's stores use the trade names and service marks "Prestige Fragrance &
Cosmetics," "Colours & Scents," "Visage" and "The Cosmetic Warehouse." PFC has
registered the Colours & Scents mark with the United States Patent and Trademark
Office.
COMPETITION
The retail cosmetic, fragrance and personal care product business is
subject to intense competition. PFC's principal competitors are other stores or
chains selling similar products at discounted prices, along with department
stores, independent drug stores, national and regional drug chains and other
retail stores. Some of PFC's competitors are part of large national or regional
chains and have substantially greater resources and name recognition than PFC
and some of these chains have stores that have been established for some time in
the same geographic areas as PFC stores. PFC believes that the principal areas
of competition with respect to its business are selling price, merchandise
selection and variety, customer service and store location. Some of PFC's
competitors derive revenue from sales of services or products other than
cosmetics, fragrances, personal care products and cosmetic accessories, such as
hair salons and professional beauty products.
MERCHANDISE AND MARKETING
Prestige Fragrance & Cosmetics stores sell mainly excess, discontinued and
returned products and some first quality products of major manufacturers.
Colours & Scents stores sell principally prestige brand first quality cosmetic
and fragrance products. Virtually all merchandising decisions affecting the
stores are made by the buyers in charge of PFC's three product categories, mass
cosmetics, prestige fragrances and beauty care and accessories, with approval by
the Director of Merchandising. Pricing and markdowns are determined centrally
but may be adjusted locally by regional managers in response to competitive
situations, subject to certain approvals. Approximately 90% of the merchandise
carried by Prestige Fragrance & Cosmetics stores is carried across all Prestige
Fragrance & Cosmetics stores; substantially all of the same merchandise is
carried consistently across all of Colours & Scents stores.
Value-oriented, in-store, point-of-purchase advertising is an important
part of PFC's overall marketing strategy. PFC advertises by means of flyers and
brochures distributed in the outlet malls and in-store promotions.
PROPERTIES
PFC's office, warehouse and distribution facility and retail store location
in Holmdel, New Jersey are owned by Revlon and consist of approximately 78,000
square feet of warehouse and distribution space and approximately 15,000 square
feet of office and retail store space. PFC currently occupies the facility
without any written lease and pays charges for allocated costs such as
maintenance, insurance, taxes, waste disposal and other charges to Revlon
aggregating approximately $570,000 per annum. At the Effective Time the office,
warehouse and distribution facility will be leased from Revlon for a period of
up to five years, subject to early termination under certain conditions. See
"The Merger -- Operations After the Merger" and "Agreements with Revlon --
Holmdel Lease."
The employee stores located in New York, New York and Apex, North Carolina
are leased from unaffiliated third parties by Revlon and a subsidiary of Revlon,
respectively. The New York lease will be subleased to Cosmetic and the Apex
lease will be assigned to Cosmetic at the Effective Time. The employee store
properties located in Edison, New Jersey (two employee stores, which may be
consolidated into one prior to the Effective Time), Irvington, New Jersey,
Oxford, North Carolina, and Phoenix, Arizona currently are owned by Revlon or
its affiliates and are occupied by PFC without any written lease with Revlon
except that PFC pays charges to Revlon aggregating approximately $139,000 per
annum. At the Effective Time, Cosmetic will enter into leases for these employee
stores. See "Agreements with Revlon -- PFC Employee Store Leases."
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PFC's retail outlet stores are typically subject to leases with initial
terms expiring at various dates through 2005 that provide for the payment of a
base rent plus additional occupancy charges. The average 1996 base rent cost is
$16.94 per square foot with additional estimated costs for taxes, insurance,
maintenance and similar charges of $8.68 per square foot. PFC leases also
provide for the payment of a percentage of sales, the average of which is 4.5%
of sales in excess of a negotiated minimum sales volume.
The average remaining initial term of all PFC retail store leases is
approximately four years, with 122 store leases containing renewal options for
an average of five years. Excluding four leases that are currently on a
month-to-month basis, 106 of the retail store leases will expire by December 31,
2000, with the remaining leases expiring between January 1, 2001 and November
30, 2005. Eight of the leases permit either PFC or the lessor to terminate if
specified minimum sales levels are not met. Certain of the leases contain
provisions pursuant to which PFC may terminate if the outlet mall in which the
store is located does not achieve a minimum occupancy rate. Leases for certain
PFC stores also contain provisions pursuant to which PFC is restricted from
opening new stores within certain distances from such PFC stores.
EMPLOYEES
As of October 31, 1996, PFC employed the equivalent of 789 full-time
employees, of whom 741 were employed in stores and 48 were employed in
executive, administration and other similar positions. Revlon provides the
services of approximately 60 union employees, and during the Christmas season a
number of temporary employees, all of whom perform warehouse, distribution and
related services at PFC's warehouse and distribution facility for which Revlon
charges PFC. See "Agreements with Revlon." PFC typically hires temporary and
part-time sales employees at its retail stores during peak sales periods, which
principally occur during the fourth quarter. PFC's full-time, salaried employees
are eligible to participate in employee pension benefit plans sponsored or
maintained by Revlon, including the Revlon Employees' Savings and Investment
Plan (a defined contribution 401(k) plan) and the Revlon Employees' Retirement
Plan (a defined benefit pension plan), and group medical, dental, life and
disability insurance coverages. Management believes that its employee relations
are satisfactory.
LEGAL PROCEEDINGS
From time to time, PFC is involved in various routine legal proceedings
incident to the ordinary course of its business. PFC believes that the outcome
of all pending legal proceedings in the aggregate is unlikely to have a material
effect on its business.
STOCKHOLDER MATTERS
There is no established public trading market for PFC's common stock. The
only outstanding PFC common stock is owned by Revlon, which has pledged such
stock as collateral to its bank group to support certain bank obligations of
Revlon and its subsidiaries, including Revlon's credit agreement and to support
a Yen-denominated credit facility of another subsidiary of Revlon. Immediately
after the Merger, assuming the Cash Election is made for all outstanding shares
and options for shares with an exercise price of less than $7.63 per share,
Revlon will receive approximately 84% of the Cosmetic Class C common stock. It
is anticipated that such stock would be pledged as collateral to replace the PFC
common stock previously pledged. See "The Merger."
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As noted above, PFC has occupied the Holmdel office, warehouse and
distribution facility, the Holmdel retail store and five employee stores that
are owned by Revlon or its affiliates. Revlon and Holdings have sold product to
PFC in the past. Additionally, Revlon has provided various services to PFC and
has allocated charges to PFC to approximate the cost of such services. At the
Effective Time, Cosmetic and Revlon (or its affiliates, as the case may be) will
enter into agreements with respect to the Holmdel office, warehouse and
distribution facility and retail store, the employee stores, the supply of
product, the Services and tax sharing payments. See "Agreements with Revlon."
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ELECTION OF DIRECTORS; MANAGEMENT OF COSMETIC
FOLLOWING THE MERGER
ELECTION OF DIRECTORS
The Cosmetic Board currently is classified, with two Class I directors, two
Class II directors and two Class III directors. The current terms of the
directors continue until the annual meeting of stockholders to be held in 1997,
1998 and 1999, respectively, and until their respective successors are elected
and qualified. At each annual meeting, directors are elected for a full term of
three years to succeed those directors whose terms expire at the annual meeting
date. As described elsewhere in this Proxy Statement/Prospectus, at the Meeting,
Cosmetic is seeking the approval of the holders of the Cosmetic Class B common
stock to an amendment to Cosmetic's Certificate of Incorporation to repeal the
classification of the Cosmetic Board and thereafter to elect all members of the
Combined Company Board annually. See "The Merger -- Amendments to Cosmetic's
Certificate of Incorporation."
The holders of the Cosmetic Class B common stock will vote upon the
election of the Class II directors, whose terms expire at the Meeting. If for
any reason the Merger is not completed, the term of the Class II directors
elected at the Meeting would expire in 2000.
Notwithstanding the election of the Class II directors at the Meeting, the
Merger Agreement provides that, at the Effective Time, the persons named in the
Merger Agreement would become the directors of the Combined Company. See
"Directors Following the Merger."
The persons named in the proxy will vote at the Meeting, unless the proxy
is marked otherwise, to elect as Class II directors, Mark S. Weinstein and
Donald R. Rogers. The proxy may not be voted for more than two directors. If a
nominee will be unable to serve, the person acting under the proxy may vote the
proxy for the election of a substitute. It is not currently contemplated that
any nominee will be unable to serve. The following information is furnished with
respect to the nominees listed above and to the other current directors of
Cosmetic. All references to Cosmetic in this section include Cosmetic's
predecessors.
Mark S. Weinstein, age 43, has been chairman of the Cosmetic Board since
July 1995. He was vice chairman of the Cosmetic Board and chief executive
officer of Cosmetic from April 1989 to July 1995 and has been a director of
Cosmetic since September 1982. From June 1985 to April 1989, he served as
Cosmetic's president. Mr. Weinstein is a Class II director.
Donald R. Rogers, age 49, has served as a director of Cosmetic since
February 1983. For more than the past five years, he has been a member of the
law firm of Shulman, Rogers, Gandal, Pordy & Ecker, P.A. in Rockville, Maryland.
Mr. Rogers is a director of Allegiance Bank, N.A. Mr. Rogers is a Class II
director.
Ronald M. Hirschel, age 45, has been a member of the law firm of Hirschel,
Savitz, Parker & Hollman, P.A. (formerly Savitz, Kronthal & Hirschel, P.A.)
since its inception in 1991. From 1988 to 1991, Mr. Hirschel was a consultant
and lawyer in private practice. He has served as a director of Cosmetic since
December 1994. Mr. Hirschel is a Class I director.
Susan K. Magenheim, age 38, has served as a director of Cosmetic since
April 1989 and as vice president and assistant secretary of Cosmetic since April
1986. Ms. Magenheim also served as a director of Cosmetic from September 1982 to
July 1987. Mrs. Magenheim is a Class I director.
Ben S. Kovalsky, age 57, has served as chief executive officer of Cosmetic
since July 1995 and as a director, president and chief operating officer of
Cosmetic since April 1989. Mr. Kovalsky is a Class III director.
Anita J. Weinstein, age 67, has served as vice chairwoman of the Cosmetic
Board since July 1995, as a director and secretary of Cosmetic since September
1982 and as a vice president since April 1989. Mrs. Weinstein is a Class III
director.
Mark S. Weinstein and Susan K. Magenheim are the son and daughter of Anita
J. Weinstein.
The Cosmetic Board held five meetings during the fiscal year ended
September 27, 1996. Cosmetic does not have a nominating committee. During 1996,
each director attended at least 75% of the aggregate of the total number of
meetings of the Cosmetic Board (held during the period for which he or she was a
director) and the total number of meetings held by all Cosmetic Board committees
on which he or she served (during the periods that he or she served as a
member).
The Audit Committee, which during 1996 consisted of Messrs. Hirschel and
Rogers, is responsible for reviewing, with the independent certified public
accountants, the general scope of their audit services and the annual results of
their audit and making recommendations to the Cosmetic Board regarding the
selection and fees of the independent auditors. The Audit
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<PAGE>
Committee met twice during the fiscal year. The Audit Committee also met in
December 1996 to discuss the results of the year end audit.
Based upon its review of Forms 3, 4 and 5 and any amendments thereto
furnished to Cosmetic pursuant to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), all of such forms were filed on a timely
basis by reporting persons during 1996.
DIRECTORS FOLLOWING THE MERGER
The following persons will become all of the directors of the Combined
Company immediately following the Merger (biographies are as of December 3,
1996):
Ronald O. Perelman, age 53, has been chairman of the executive committee of
the board of Revlon and of Revlon, Inc. since November 1995, and a director of
Revlon and of Revlon, Inc. since their respective formations in 1992. Mr.
Perelman has been chairman of the board and chief executive officer of
MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings") and various of its
affiliates for more than the past five years. Mr. Perelman also is chairman of
the board of Andrews Group Incorporated ("Andrews Group"), Consolidated Cigar
Holdings Inc. ("Cigar Holdings"), Mafco Consolidated Group Inc. ("Mafco
Consolidated"), Meridian Sports Incorporated ("Meridian"), New World
Communications Group Incorporated ("New World Group"), Power Control
Technologies, Inc. ("PCT"), Toy Biz, Inc. ("Toy Biz") and chairman of the
executive committee of the board of Marvel Entertainment Group, Inc. ("Marvel").
Mr. Perelman is a director of the following corporations which file reports
pursuant to the Exchange Act: Andrews Group, The Coleman Company, Inc.
("Coleman"), Coleman Holdings Inc. ("Coleman Holdings"), Coleman Worldwide
Corporation ("Coleman Worldwide"), Cigar Holdings, Consolidated Cigar
Corporation ("Consolidated Cigar"), First Nationwide Bank, a Federal Savings
Bank ("First Nationwide"), First Nationwide Holdings, Inc. ("FN Holdings"),
First Nationwide (Parent) Holdings Inc. ("First Nationwide Parent"), Mafco
Consolidated, Pneumo Abex Corporation ("Pneumo Abex"), Marvel, Marvel Holdings
Inc., Marvel (Parent) Holdings Inc., Marvel III Holdings Inc., Meridian, New
World Group, New World Television Incorporated ("NWTV"), NWCG Holdings
Corporation ("NWCG"), PCT, Revlon, Revlon, Inc., Revlon Worldwide Corporation
("Revlon Worldwide") and Toy Biz.
Howard Gittis, age 62, has been a director of Revlon and of Revlon, Inc.
since their respective formations in 1992. He has been vice chairman of
MacAndrews Holdings and various of its affiliates for more than five years. Mr.
Gittis is a director of the following corporations which file reports pursuant
to the Exchange Act: Andrews Group, Cigar Holdings, Consolidated Cigar, FN
Holdings, First Nationwide, First Nationwide Parent, Mafco Consolidated, Pneumo
Abex, New World Group, NWCG, NWTV, PCT, Revlon, Revlon, Inc., Revlon Worldwide,
Jones Apparel Group, Inc., Loral Space and Communications, Ltd. and
Rutherford-Moran Oil Corporation.
Howard Diener, age 54, has served as the president of PFC since September
1995. Prior to joining PFC, Mr. Diener was executive vice president of marketing
for McCrory's Stores from early 1993 until September 1995, executive vice
president of Rita Ann Distributors from 1991 until late 1992, executive vice
president of People's Drug Stores from 1988 until 1991, senior vice president of
merchandising at Rite-Aid from 1979 until 1988 and vice president of
merchandising for Dart Drug Corporation from 1968 until 1978.
William J. Fox, age 40, has been vice president and a director of PFC since
June 1992 and executive vice president and chief financial officer of Revlon,
Inc. and of Revlon since their respective formations in 1992. Mr. Fox was
elected as a director of Revlon, Inc. in November 1995 and of Revlon in
September 1994. He has been senior vice president of MacAndrews Holdings since
August 1990. He was vice president of MacAndrews Holdings from February 1987 to
August 1990 and was treasurer of MacAndrews Holdings from February 1987 to
September 1992. Prior to February 1987, he was vice president and assistant
treasurer of MacAndrews Holdings. Mr. Fox joined MacAndrews & Forbes Group,
Incorporated in 1983 as assistant controller, prior to which time he was a
certified public accountant at the international auditing firm of Coopers &
Lybrand. Mr. Fox is a director of Hain Food Group.
Jerry W. Levin, age 52, has served as a director of PFC since October 1995,
has been chairman of the board of Revlon, Inc. and of Revlon since November
1995, and chief executive officer and a director of Revlon, Inc. and of Revlon
since their respective formations in 1992. Mr. Levin was president of Revlon,
Inc. and of Revlon from their respective formations in 1992 to November 1995.
Mr. Levin has been executive vice president of MacAndrews Holdings since March
1989. For 15 years prior to joining MacAndrews Holdings, he held various senior
executive positions with The Pillsbury Company. Mr. Levin is a director of the
following corporations that file reports pursuant to the Exchange Act: Coleman,
Coleman Holdings, Coleman Worldwide, Ecolab, Inc., First Bank System, Inc.,
Meridian, Revlon, Revlon, Inc. and Revlon Worldwide.
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<PAGE>
Wade H. Nichols, age 53, has been vice president and a director of PFC
since June 1992 and has been senior vice president and general counsel of
Revlon, Inc. and of Revlon since their respective formations in 1992. He was
elected senior vice president and general counsel of Holdings in March 1992. He
was vice president and secretary of Holdings from 1984 to 1992 and secretary
from 1981 to 1984. He joined Holdings in 1978. Mr. Nichols has been vice
president-law of MacAndrews Holdings since 1988.
Mark S. Weinstein, age 43, has been chairman of the Cosmetic Board since
July 1995, vice chairman and chief executive officer of Cosmetic from April 1989
to July 1995 and a director since September 1982. From June 1985 to April 1989,
he served as Cosmetic's president.
David N. Dinkins, age 69, has been a professor at Columbia University
School of International and Public Affairs since January 1994. Mr. Dinkins was
Mayor of The City of New York from January 1990 through December 1993. Prior to
serving as Mayor of The City of New York, Mr. Dinkins served as Manhattan
Borough President from 1986 through 1989. Mr. Dinkins is a Director of the
following corporations which file reports pursuant to the Exchange Act: AMREP
Corporation, Carver Bancorp Inc., New World Group, and Transderm Laboratories
Corporation. He is also a trustee of WSIS Series Trust.
Harvey Rosenthal, age 54, was president and chief operating officer of
Melville Corporation, now known as CVS Corporation, from 1994 until October
1996. From 1984 to 1994, Mr. Rosenthal was president and chief executive officer
of the CVS division of Melville Corporation. Mr. Rosenthal joined the CVS
division of Melville Corporation in 1969 and held various executive positions in
merchandising, marketing and operations until 1984. Mr. Rosenthal is a director
of CVS, which files reports pursuant to the Exchange Act.
If the Merger is completed, but the Board Amendment is not approved, Mr.
Diener, Mr. Dinkins and Mr. Rosenthal will be elected for a term expiring at the
1998 annual stockholders meeting, Mr. Fox, Mrs. Gittis and Mr. Nichols will be
elected for a term expiring at the 1999 annual stockholders meeting and Mr.
Perelman, Mr. Levin and Mr. Weinstein will be elected for a term expiring at the
2000 annual stockholders meeting.
The Stockholders Agreement provides that for three years from the
consummation of the Merger, the Principal Stockholders agree to vote all of
their Class C common stock in favor of Revlon's nominees for director so that
Revlon will at all times maintain representation on the Combined Company Board
equal to Revlon's percentage ownership of Class C common stock, but not less
than seven board seats, including two independent directors, and Revlon agrees
to vote its shares in favor of the Principal Stockholders' nominees for director
equal to their aggregate percentage ownership of Class C common stock, after
giving effect to the Merger and the Cash Election, but not less than one nor
more than two board seats.
EXECUTIVE OFFICERS FOLLOWING THE MERGER
The Merger Agreement provides that, immediately following the consummation
of the Merger, the Combined Company Board will appoint Jerry W. Levin as
chairman of the Combined Company Board, Mark S. Weinstein as vice chairman of
the Combined Company Board and Howard Diener as the Combined Company's president
and chief executive officer. The following persons will be the other executive
officers of the Combined Company immediately following the Merger.
Ben S. Kovalsky, age 57, will serve as the president and chief operating
officer of the Cosmetic stores division of the Combined Company. Mr. Kovalsky
has served as chief executive officer of Cosmetic since July 1995 and as a
director, president and chief operating officer of Cosmetic since April 1989.
Bruce E. Strohl, age 46, will serve as the senior vice president and chief
financial officer of the Combined Company. Mr. Strohl has served as vice
president and chief financial officer of Cosmetic since April 1989. From 1988 to
April 1989, Mr. Strohl was vice president-finance and controller for Dart Drug
Stores, Inc.
Allan Goldman, age 42, will serve as senior vice president -- merchandising
of the Combined Company. Mr. Goldman has served as senior vice president --
merchandising of Cosmetic since November 1995 and as senior vice president --
marketing of Cosmetic from March 1995 to November 1995. From July 1988 to
February 1995, Mr. Goldman was vice president -- merchandising for Rite Aid
Corporation.
Michael J. Lewis, age 57, will serve as vice president -- retail operations
of the Combined Company. Mr. Lewis has served as vice president -- retail
operations of Cosmetic since January 1990.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal years ended September 27,
1996, September 29, 1995 and September 30, 1994, the annual and long-term
compensation for services in all capacities for Cosmetic and its subsidiaries of
Cosmetic's chief executive officer and the four most highly compensated
executive officers at September 27, 1996 whose cash compensation from Cosmetic
exceeded $100,000:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- AWARDS
NAME AND SALARY ------------ ALL OTHER
PRINCIPAL POSITION YEAR $ BONUS $ OPTIONS # COMPENSATION
- --------------------------------- ---- ------- --------- ------------ ------------
<S> <C>
Ben S. Kovalsky 1996 314,644 -- 13,500 --
President, Chief Executive 1995 306,680 -- 13,500(1) --
Officer and Chief Operating 1994 299,943 32,500 4,500 --
Officer
Mark S. Weinstein 1996 241,416 -- 15,000 8,800(2)
Chairman of the Board 1995 232,045 -- 15,000(1) 8,800(2)
of Directors 1994 225,961 32,500 5,000 6,976(2)
Allan Goldman 1996 152,396 -- 7,500 --
Senior Vice President- 1995 81,237 -- -- --
Merchandising 1994 -- -- -- --
Michael J. Lewis 1996 159,233 -- 7,500 --
Vice President-Retail 1995 157,488 -- 6,700(1) --
Operations 1994 154,519 -- 2,500 --
Bruce E. Strohl 1996 120,075 -- 7,500 --
Vice President-Finance 1995 117,814 -- 8,000(1) --
Chief Financial Officer 1994 116,953 -- 2,500 --
</TABLE>
- ---------------
(1) In February 1995, the named executive officer received stock option grants
at the then fair market value of the Cosmetic Class A common stock upon
surrendering a like number of stock options.
(2) Includes insurance premiums paid in the amount of $8,800, $8,800 and $6,976
in 1996, 1995 and 1994, respectively, by Cosmetic with respect to
split-dollar life insurance polices for the benefit of Mark S. Weinstein.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of options
under the Cosmetic 1991 Stock Option Plan (the "1991 Option Plan") to each of
the executive officers named in the Summary Compensation Table during the fiscal
year ended September 27, 1996. All options issued under the 1991 Option Plan are
for Cosmetic Class A common stock.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (3)
OPTIONS TO EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED #(1) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------ ------------ --------------- --------- ---------- ------- -------
<S> <C>
Ben S. Kovalsky 13,500(2) 14.5% $4.12 2/27/2006 $34,979 $88,644
Mark S. Weinstein 15,000(2) 16.1 4.53 2/27/2001 18,773 41,484
Allan Goldman 7,500(2) 8.1 4.12 2/27/2006 19,433 49,247
Michael J. Lewis 7,500(2) 8.1 4.12 2/27/2006 19,433 49,247
Bruce E. Strohl 7,500(2) 8.1 4.12 2/27/2006 19,433 49,247
</TABLE>
- ---------------
(1) All options issued during the 1996 fiscal year to the named executive
officers were granted as incentive stock options ("ISOs") under Section 422
of the Code. The option price with respect to ISOs may not be less than 100%
of the fair market value of the common shares on the date of grant of the
option. However, in the case of an ISO granted to a person owning over 10%
of the total combined voting power of all classes of stock of Cosmetic (a
"Ten Percent Stockholder"),
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<PAGE>
the option price may not be less than 110% of such fair market value. Mark
S. Weinstein is a Ten Percent Stockholder. The aggregate fair market value
(determined as of the date or dates of grant) of the common shares subject
to ISOs granted to any one person which first become exercisable in any
calendar year may not exceed $100,000. ISOs are exercisable over a specified
period not to exceed ten years from the date of grant; provided, however,
that in the case of an ISO granted to a Ten Percent Stockholder, the
exercise period may not exceed five years from the date of grant. Subject to
the terms of the 1991 Option Plan and the option agreements, options will
terminate no later than thirty days after the termination of service as an
employee or director, except that options will terminate no later than nine
months after the termination of service due to death or disability. See
"1991 Option Plan."
(2) It is anticipated that all options will be vested upon the consummation of
the Merger. The options would have first become exercisable in each calendar
year as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C>
Ben S. Kovalsky.................................................. 6,750 3,375 3,375
Mark S. Weinstein................................................ 7,500 3,750 3,750
Allan Goldman.................................................... 3,750 1,875 1,875
Michael J. Lewis................................................. 3,750 1,875 1,875
Bruce E. Strohl.................................................. 3,750 1,875 1,875
</TABLE>
(3) The potential realizable value represents the estimated future gain in the
value of the options over their exercise price. The calculation assumes a 5%
and 10% appreciation rate, as dictated by the SEC, in the per share price of
the Cosmetic Class A common stock starting on the date of grant and further
assumes that the options will be exercised on the expiration date. These
return values are not intended to be a forecast of the Cosmetic Class A
common stock price and are not necessarily indicative of the actual values
which may be realized by the named executive officer. See "Interests of
Certain Persons in the Merger -- Cosmetic Stock Options."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information for each of the executive
officers named in the Summary Compensation Table with respect to the options
exercised during the fiscal year ended September 27, 1996 and the value of
outstanding and unexercised options held as of September 27, 1996.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-
MONEY
NUMBER OF OPTIONS AT
SHARES NUMBER OF UNEXERCISED OPTIONS AT FISCAL YEAR
ACQUIRED FISCAL YEAR END ENDED(1)
CLASS OF ON VALUE --------------------------------- -----------
NAME STOCK EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE(2) EXERCISABLE
- ------------------ --------- ---------- ------------- ------------ ----------------- -----------
<S> <C>
Ben S. Kovalsky A -- -- 47,750 6,750 $45,525
B -- -- 27,500 -- 32,400
Mark S. Weinstein A -- -- 22,500 7,500 8,175
B -- -- -- -- --
Allan Goldman A -- -- 3,750 3,750 5,625
B -- -- -- -- --
Michael J. Lewis A -- -- 10,450 3,750 5,625
B -- -- -- -- --
Bruce E. Strohl A -- -- 13,500 3,750 8,055
B -- -- 1,750 -- 2,430
<CAPTION>
NAME UNEXERCISABLE(2)
- ------------------ ----------------
<S> <C>
Ben S. Kovalsky $ 10,125
--
Mark S. Weinstein 8,175
--
Allan Goldman 5,625
--
Michael J. Lewis 5,625
--
Bruce E. Strohl 5,625
--
</TABLE>
- ---------------
(1) At September 27, 1996 the closing market price of the Cosmetic Class A
common stock was $5.63 per share and the closing market price of the
Cosmetic Class B common stock was $5.63 per share.
(2) It is anticipated that all options will be vested upon the consummation of
the Merger.
EMPLOYMENT AGREEMENTS
Cosmetic has employment agreements with Mr. Weinstein and Mr. Kovalsky that
provide for annual salaries of $227,625 and $298,721, respectively, subject to
annual increases. The agreements require that Cosmetic provide to the respective
employee a vehicle or vehicle allowance, as well as the right to participate in
certain of Cosmetic's benefit programs.
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<PAGE>
Each of the agreements has a four-year term, commencing March 1, 1991, and
is automatically extended for successive additional 12-month periods unless a
notice to terminate such contract is given by Cosmetic at least 24 months prior
to the expiration of the term of such agreement (including any extension
thereof). The agreements provide that if the respective employee is terminated
by Cosmetic other than for "good cause," or if there is a "change in control" of
Cosmetic (as defined in the agreements), Cosmetic is obligated to pay the
employee the balance of the salary due over the remaining term of the agreement.
Additionally, upon death, expiration of term, change in control of Cosmetic, or
termination other than for "good cause," Cosmetic is obligated to purchase all
of the employees' options (vested or unvested), which totaled 112,000 options at
December 8, 1996. Payments would be based upon the difference between the market
value of the Cosmetic Class A or Class B common stock, as the case may be, on
the termination date and the exercise prices of the options.
Each agreement provides that, during the term of the agreement and for two
years thereafter, the employee will not, directly or indirectly, own, control,
manage, or operate stores similar to those operated by Cosmetic in Maryland,
Virginia, Illinois, or the District of Columbia or within a 50 mile radius of
any other city where Cosmetic is operating retail stores.
The agreement with Mr. Weinstein requires that Cosmetic continue in effect
a life insurance policy in the face amount of $1,000,000. Cosmetic pays the
annual premium of $8,800 on the policy. Cosmetic is the beneficiary of the
policy to the extent of the premiums paid by it and the balance of the benefits
are payable to beneficiaries designated by Mr. Weinstein. The agreement with Mr.
Kovalsky requires that Cosmetic reimburse him, up to a maximum amount of $4,000,
for the annual premium cost of various personal insurance policies owned by him.
Cosmetic has employment agreements with Allan Goldman, Michael Lewis and
Bruce Strohl that currently provide for annual salaries of $150,000, $150,380,
and $140,000, respectively, subject to annual increases. Mr. Goldman's agreement
commenced on October 1, 1996. Mr. Lewis's and Mr. Strohl's agreements commenced
on August 1, 1995. The agreements have a one-year term and are automatically
extended for successive additional 12-month periods unless a notice to terminate
the agreement is given by Cosmetic at least 90 days prior to the expiration of
the term of the agreement (including any extension thereof). The agreements
provide that if Messrs. Goldman, Lewis or Strohl are terminated by Cosmetic
without cause or after the expiration of the term, Cosmetic is obligated to pay
the employee an amount equal to one year's salary. Upon the death of the
employee, the agreement is terminated and the Cosmetic's only obligation is the
payment of the unpaid portion of accrued compensation up to the date of death.
In connection with the Merger, Mr. Weinstein will enter into a new
agreement and Mr. Kovalsky's agreement will be amended. See "Interests of
Certain Persons in the Merger -- Employment and Non-Competition Agreements with
Mark S. Weinstein and Anita J. Weinstein," " -- Consulting Agreement and
Non-Competition with Susan K. Magenheim" and " -- Employment Agreement with Ben
S. Kovalsky."
DIRECTOR COMPENSATION
Cosmetic pays each director who is not an officer or employee of Cosmetic
or any affiliate $2,000 as director fees for each Cosmetic Board meeting and
$1,000 for each audit committee meeting attended. Directors who are officers or
employees of Cosmetic or any affiliate receive no additional cash compensation
for service as directors. For the fiscal year ended September 27, 1996, Cosmetic
paid directors fees of $10,000 to each of Mr. Rogers and Mr. Hirschel and audit
committee fees of $2,000 to each of Mr. Rogers and Mr. Hirschel.
Anita J. Weinstein and Mr. Rogers are members of the stock option
committee. In that capacity, pursuant to the terms of the 1991 Option Plan, they
receive annually on January 15th non-discretionary, fully vested grants of
non-qualified options for 20,000 and 1,000 shares of Cosmetic Class A common
stock, respectively. Mrs. Weinstein's options are issued at 110% of fair market
value at the date of grant and terminate five years thereafter. Mr. Rogers'
options are issued at fair market value at the date of grant and terminate ten
years thereafter. This provision will be repealed in connection with the Merger,
and the Cosmetic 1997 Stock Option Plan does not make any provision for
non-discretionary grants.
1991 OPTION PLAN
An aggregate of 596,408 shares of Cosmetic Class A common stock and 43,750
shares of Cosmetic Class B common stock are reserved for issuance pursuant to
the 1991 Option Plan. Options under the 1991 Option Plan have been designated
ISOs, which are intended to qualify under Section 422 of the Code, or
non-qualified options ("Non-Qualified Options") which are not subject to the
provisions of Section 422. An employee exercising an ISO will recognize no
income at the time of exercise, and Cosmetic will have no deduction for purposes
of federal income taxation at the time of exercise. The 1991 Option Plan will
terminate on December 31, 2000, or on such earlier date as the Cosmetic Board
may determine.
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<PAGE>
The 1991 Option Plan is administered by a committee of the Cosmetic Board,
consisting of Anita Weinstein and Mr. Rogers (the "Stock Option Committee"). The
Stock Option Committee has the authority to determine who among the eligible
participants will be granted options, whether an option will be designated as an
ISO or a Non-Qualified Option, the number of shares of Cosmetic Class A common
stock covered by each option, the time or times at which options may be granted
or exercised, and any other terms and conditions of the options which are not
otherwise stated in the 1991 Option Plan, except for the non-discretionary
option grants described below, the recipients and terms of which are specified
in the 1991 Option Plan.
Directors, officers and key employees of Cosmetic are eligible to
participate in the 1991 Option Plan. Directors who are not employees may only
receive Non-Qualified Options, and the Stock Option Committee members may only
receive non-discretionary option grants as described below.
The option price with respect to ISOs will not be less than 100% of the
fair market value of the Cosmetic Class A common stock on the date of grant of
the option. However, in the case of an ISO granted to a Ten Percent Stockholder,
the option price will not be less than 110% of such fair market value. The
option price of Non-Qualified Options will not be less than 50% of the fair
market value of the Cosmetic Class A common stock on the date of grant. The
aggregate fair market value of the Cosmetic Class A common stock subject to ISOs
(determined as of the date or dates of grant) granted to any one person which
first become exercisable in any calendar year may not exceed $100,000.
Except for non-discretionary grants, ISOs are exercisable over the exercise
period specified by the Stock Option Committee in the option agreement, but in
no event will such period exceed ten years from the date of grant; provided,
however, that in the case of an ISO granted to a Ten Percent Stockholder, the
exercise period will not exceed five years from the date of grant. Non-Qualified
Options are exercisable over a period of 11 years from the date of grant.
Options will terminate no later than thirty days after the termination of
service as an employee or director, except that options will terminate no later
than nine months after the termination of service due to death or disability.
The option price shall be paid in full at the time of exercise in cash.
Alternatively, the Stock Option Committee may approve, except for options
granted pursuant to the non-discretionary provisions, payment in Cosmetic Class
A common stock having an aggregate fair market value equal to the aggregate
option price of the options exercised or in such a combination of cash and
Cosmetic Class A common stock.
Provided Cosmetic Class A common stock is available under the 1991 Option
Plan, the Stock Option Committee annually is required to grant to any director
serving on the Stock Option Committee who is not an employee of Cosmetic a Non-
Qualified Option for 1,000 shares of Cosmetic Class A common stock on January 15
or the closest business day if January 15 is not a business day (the
"Non-Discretionary Grant"). The option price is required to be 100% of the fair
market value of the Cosmetic Class A common stock on the date of grant of the
option. The option is required to be fully vested upon grant and exercisable for
a period of ten years. Similarly, the Stock Option Committee is required to
grant to any director serving on the Stock Option Committee who is an employee
of Cosmetic an ISO on January 15 or the closest business day if January 15 is
not a business day. Each such grant is for 20,000 shares of Cosmetic Class A
common stock, provided, however, that if Cosmetic's consolidated net income as
reflected in its audited financial statements for the fiscal year immediately
preceding the date of grant (the "Subject Year") reflects an increase over the
last prior fiscal year (the "Prior Year") of 100% or more, such grant will be
for 30,000 shares of Cosmetic Class A common stock (the "Bonus Increase"). No
Bonus Increase will be granted with respect to a Subject Year when the
consolidated net income for the Prior Year is less than the consolidated net
income for the fiscal year preceding the Prior Year. The option price will be
100% of the fair market value of the Cosmetic Class A common stock on the date
of grant of the option and will be exercisable for a period of ten years from
the date of grant; provided, however, that in the case of an ISO granted to a
Ten Percent Shareholder, the option price will be 110% of such fair market value
on the date of grant and will be exercisable for a period of five years from the
date of grant. Each optionee's options granted under this provision shall vest
at a rate such that the aggregate fair market value (determined at the time an
option is granted) of Cosmetic Class A common stock subject to ISOs which become
exercisable for the first time in any one year will not exceed $100,000.
All outstanding but unexercised options to the extent that they are not
fully vested become exercisable in full on the date that (a) Cosmetic executes
an agreement to merge with or into another corporation or to sell substantially
all its assets (except a merger in which Cosmetic is the surviving corporation
and no Cosmetic Class A common stock is converted or exchanged in the merger),
(b) more than 50% of the Cosmetic Class A common stock is acquired by any person
or group (other than any group composed of members of the Weinstein family) or
(c) members of the then existing Cosmetic Board cease to constitute at least a
majority of the Cosmetic Board other than as the result of nominations or
elections approved by a vote of at least two-thirds of the existing directors.
75
<PAGE>
During the fiscal year ended September 27, 1996, options for 13,500 shares
of Cosmetic Class A common stock were granted to Ben S. Kovalsky at an average
exercise price of $4.12; options for 15,000 shares of Cosmetic Class A common
stock were granted to Mark S. Weinstein at an average exercise price of $4.53;
options for 7,500 shares of Cosmetic Class A common stock were granted to Alan
Goldman at an average exercise price of $4.12; options for 7,500 shares of
Cosmetic Class A common stock were granted to Michael J. Lewis at an average
exercise price of $4.12; options for 7,500 shares of Cosmetic Class A common
stock were granted to Bruce E. Strohl at an average exercise price of $4.12;
options for 92,000 shares of Cosmetic Class A common stock (including the
foregoing individual option grants) were granted to all current executive
officers as a group at an average exercise price of $4.75; and options for 1,000
shares of Cosmetic Class A common stock were granted to all directors (other
than directors who are executive officers) as a group at an average exercise
price of $6.00. All of the foregoing option grants were made under the 1991
Option Plan.
In connection with the Merger, the Cosmetic Board will amend the 1991
Option Plan to delete the Non-Discretionary Grant provision and to provide that
no further options are to be granted under the 1991 Option Plan. See "The
Merger" and "Interests of Certain Persons in the Merger -- Cosmetic Stock
Options."
REPORT TO STOCKHOLDERS ON COMPENSATION
Cosmetic's executive compensation policies are formulated, administered and
reviewed by the Cosmetic Board. The Cosmetic Board's general goal with respect
to executive officer compensation is to design a compensation package which
enables Cosmetic to attract, motivate and retain key qualified executives and to
establish and maintain incentives for performance. The executive officer
compensation program consists of: (a) salary, (b) bonus and (c) long-term stock
based incentives.
The base salaries of the executive officers are intended to be set at
competitive levels within the retail industry consistent with the executive
officer's position and experience. The Cosmetic Board does not employ pay
scales, formulas, target levels or other quantitative techniques in setting
executive officers' salaries but instead makes an individual judgment in its
discretion with respect to each executive officer, based upon the directors'
general knowledge with respect to compensation practices in other companies,
including companies the directors believe are engaged in similar businesses, and
the directors' judgment with respect to an appropriate salary based upon the
individual officer's position, experience and personal performance. The base
salaries for Messrs. Kovalsky, Weinstein, Goldman, Lewis and Strohl were fixed
in connection with entering into the employment agreements described above under
"Employment Agreements." The agreements for Messrs. Kovalsky and Weinstein
provide for annual increases equal to the greater of the Consumer Price Index
for all Urban Consumers or the budgeted percentage compensation increase for all
officers, exclusive of the chairman of the Cosmetic Board and the president of
Cosmetic.
The Cosmetic Board similarly does not employ scales, formulas, target
levels or other quantitative techniques in setting executive officer bonuses but
instead makes an individual judgment based upon the overall performance of
Cosmetic on a year to year basis and an evaluation, in its discretion, of the
personal performance of each executive officer.
Long-term incentive compensation, in the form of stock options, may be
awarded to any of the executive officers under the 1991 Option Plan. Awards
under the plan are made by the Stock Option Committee (composed of Mrs.
Weinstein and Mr. Rogers). The Stock Option Committee does not employ formulas
or other quantitative techniques in setting the amount of option grants, but
exercises its discretion in determining grants based upon its evaluation of the
executive officer's position, experience and personal performance. The exercise
price of options granted under the plan are fixed by the plan at fair market
value of the shares subject to the grant on the date of the grant (110% of the
fair market value in the case of ISO grants to 10% stockholders). Compensation
under the plan therefore will be realized only to the extent that the stock
price appreciates, thereby aligning the financial interest of Cosmetic's
executive officers with those of Cosmetic's stockholders.
Mr. Kovalsky has served as Cosmetic's chief executive officer since July
1995 and is compensated pursuant to his employment agreement entered into as of
March 1, 1991. The terms of the agreement are described above under "Employment
Agreements." Mr. Kovalsky's base salary is set in the agreement and an annual
increase is determined by calculating the greater of the Consumer Price Index
for all Urban Consumers or the budgeted percentage compensation increase for all
officers, exclusive of the chairman of the Cosmetic Board and the president of
Cosmetic. Mr. Kovalsky's base salary was increased by $5,716 from 1995 to 1996.
No bonus was awarded in 1996. In February 1996 the Stock Option Committee
awarded 13,500 options to Mr. Kovalsky at the fair market value. The options,
when awarded.; were exercisable over a three year period, but in accordance with
the terms of the plan were accelerated upon the signing of the Merger Agreement.
The 2% salary increase was determined by the Cosmetic Board, and the option
grants were determined by the Stock Option Committee, based upon their
individual evaluations of Mr. Kovalsky's personal performance and cost of living
increases.
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<PAGE>
The Cosmetic Board believes that Mr. Kovalsky's compensation for the fiscal
year ended September 27, 1996 was determined in a manner consistent with the
policies described above. Mr. Kovalsky did not participate in the Cosmetic
Board's deliberations with respect to the determination of his compensation.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS STOCK OPTION COMMITTEE
- ------------------------------------ ------------------------------------
<S> <C>
Mark S. Weinstein Anita J. Weinstein
Anita J. Weinstein Donald R. Rogers
Ben S. Kovalsky
Susan K. Magenheim
Donald R. Rogers
Ronald M. Hirschel
</TABLE>
PERFORMANCE GRAPH
The following graph illustrates from September 30, 1991 through September
30, 1996 the cumulative total stockholder return, including the reinvestment of
dividends, of $100 invested in Cosmetic Class B common stock, the Total Return
Index for the Nasdaq National Market (US Companies) and the Total Return
Industry Index for the Nasdaq Retail Stocks.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE COSMETIC CENTER, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ RETAIL TRADE INDEX
[Graph goes here]
9/91 9/92 9/93 9/94 9/95 9/96
(DOLLARS)
The Cosmetic Center, Inc. 100 126 147 180 77 63
Nasdaq Stock Market-US 100 112 146 148 204 243
Nasdaq Retail Trade 100 101 115 112 124 148
* $100 invested on 9/30/91 in stock or index - including reinvestment of
dividends. Fiscal year ending September 30.
77
<PAGE>
COSMETIC 1997 STOCK OPTION PLAN
The Cosmetic Board has approved the Cosmetic 1997 Stock Option Plan to
assist the Combined Company in attracting, maintaining and developing strong
management following the Merger by, among other things, encouraging ownership of
shares by employee and aligning grantee interests with the interests of
stockholders of the Combined Company. An aggregate of shares of
Cosmetic Class C common stock have been reserved for issuance pursuant to the
Cosmetic 1997 Stock Option Plan. Options under the Cosmetic 1997 Stock Option
Plan may be designated ISOs or Non-Qualified Options. An employee exercising an
ISO will not recognize income at the time of exercise, and the Combined Company
will not have a deduction for purposes of federal income taxation at the time of
exercise. The Cosmetic 1997 Stock Option Plan will terminate on December 31,
2006, or on such earlier date as the Combined Company Board may determine.
The Cosmetic 1997 Stock Option Plan may be administered by the Combined
Company Board or by a committee of the Combined Company Board. The Combined
Company Board or the committee will have the authority to determine who among
the eligible participants will be granted options, whether an option will be
designated as an ISO or a Non-Qualified Option, the number of shares covered by
each option, the time or times at which options may be granted or exercised, and
any other terms and conditions of the options which are not otherwise stated in
the Cosmetic 1997 Stock Option Plan.
Directors, officers and key employees of the Combined Company will be
eligible to participate in the Cosmetic 1997 Stock Option Plan. Directors who
are not employees may only receive Non-Qualified Options. Approximately persons
initially will be eligible to receive options under the Cosmetic 1997 Stock
Option Plan.
The option price with respect to ISOs and Non-Qualified Options will not be
less than 100% of the fair market value of the Cosmetic Class C common stock on
the date of grant of the option. However, in the case of an ISO granted to a Ten
Percent Stockholder, the option price will not be less than 110% of such fair
market value. The aggregate fair market value of the Cosmetic Class C common
shares subject to ISOs (determined as of the date or dates of grant) granted to
any one person which first become exercisable in any calendar year may not
exceed $100,000.
ISOs will be exercisable over the exercise period specified by the Combined
Company Board or the committee in the option agreement, but in no event will
such period exceed ten years from the date of grant; PROVIDED, HOWEVER, that in
the case of an ISO granted to a Ten Percent Stockholder, the exercise period
will not exceed five years from the date of grant. Non-Qualified Options
generally will be exercisable over a period of up to ten years from the date of
grant. Options will terminate 30 days after the termination of service (other
than for cause) as an employee or director, except that options will vest and
may be exercised for nine months after the termination of service due to death
or disability. Options will terminate immediately upon termination for cause.
The option price shall be paid in full at the time of exercise in cash or
by delivery of shares of Cosmetic Class C common stock held for at least six
months having an aggregate fair market value equal to the aggregate option price
of the options exercised or in such a combination of cash and such shares of
Cosmetic Class C common stock.
In the event that the Combined Company is to be merged or consolidated with
another corporation or reorganized or liquidated, then the Combined Company
Board or the committee may, in its discretion, provide that awards granted to an
optionee will terminate unless exercised within the period determined by the
Combined Company Board or the committee (not less than 30 days) in which case
the Combined Company Board or the committee must accelerate the exercisability
and vesting of such awards.
The Combined Company Board or the committee may provide that options are
transferable under limited circumstances to optionees' immediate family members
or partnerships or trusts for their benefit.
The affirmative vote of holders of a majority of the Cosmetic Class B
common stock voting at the Meeting is required for approval of the Cosmetic 1997
Stock Option Plan. The Principal Stockholders and their family members, who in
the aggregate beneficially own or control more than 51% of the outstanding
Cosmetic Class B common stock as of the record date, have advised the Cosmetic
Board that they intend to vote their shares in favor of the Cosmetic 1997 Stock
Option Plan. Accordingly, approval of the Cosmetic 1997 Stock Option Plan is
assured without the vote of any other stockholder.
The Cosmetic Board recommends a vote FOR the approval of the Cosmetic 1997
Stock Option Plan.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF COSMETIC
The following table sets forth certain information regarding the beneficial
ownership of Cosmetic common stock as of December 9, 1996, (i) by each such
person who is known by Cosmetic to own beneficially more than five percent (5%)
of the Cosmetic Class A or Class B common stock, (ii) by each director and
officer of Cosmetic and (iii) by all directors and officers of Cosmetic as a
group. Except as indicated, each stockholder has sole voting and investment
power with respect to all shares shown as beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
COSMETIC CLASS A COMMON COSMETIC CLASS B COMMON
STOCK STOCK
-------------------------- --------------------------
AMOUNT AND PERCENT OF AMOUNT AND PERCENT OF
NAME NATURE CLASS (1) NATURE CLASS (2)
- --------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C>
Anita J. Weinstein............................................. 139,544(3) 5.0 615,995(4) 38.7
Mark S. Weinstein.............................................. 120,259(5) 4.4 102,790(6) 6.5
Susan K. Magenheim............................................. 36,397(7) 1.3 57,758(8) 3.6
Weinstein Family Limited Partnership........................... 473,728(9) 17.4 -0- *
Ben S. Kovalsky................................................ 59,500(10) 2.1 32,500(11) 2.0
Donald R. Rogers............................................... 7,500(12) * 4,500(13) *
Ronald M. Hirschel............................................. 1,810(14) * 605(15) *
Allan Goldman.................................................. 8,500(16) * -0- *
Michael J. Lewis............................................... 14,200(17) * -0- *
Bruce E. Strohl................................................ 21,250(18) * 2,750(19) *
Brown Capital Management, Inc.................................. -0- * 210,200 13.3(20)
All directors and officers as a group (12 persons)............. 913,888(21) 30.7 823,398(22) 50.7
</TABLE>
- ---------------
* Less than 1% of the outstanding shares.
(1) Based on 2,717,104 shares of Cosmetic Class A common stock outstanding plus
258,300 currently exercisable options for the individual officers.
(2) Based on 1,582,780 shares of Cosmetic Class B common stock outstanding plus
42,250 currently exercisable options for the individual officers.
(3) Includes 90,000 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options. Excludes shares held by the
Weinstein Family Limited Partnership. See Note 9.
(4) Includes 10,000 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options.
(5) Includes 30,000 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options and 2,036 shares of Cosmetic Class
A common stock owned by his wife. Excludes 26,260 shares of Cosmetic Class A
common stock held by him in trust for his nephews and niece, over which
shares he disclaims any beneficial interest. Also excludes shares held by
the Weinstein Family Limited Partnership. See Note 9.
(6) Includes 6,888 shares of Cosmetic Class B common stock owned by his wife and
excludes 17,722 shares of Cosmetic Class B common stock held by him in trust
for his nephews and niece, over which shares he disclaims any beneficial
interest.
(7) Includes 12,400 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options and 2,424 shares of Cosmetic Class
A common stock owned by her husband. Excludes 37,453 shares of Cosmetic
Class A common stock held by her in trust for her nephew and niece, over
which shares she disclaims any beneficial interest. Also excludes shares
held by the Weinstein Family Limited Partnership. See Note 9.
(8) Excludes 29,085 shares of Cosmetic Class B common stock held by her in trust
for her nephew and niece, over which shares she disclaims any beneficial
interest.
(9) Anita J. Weinstein, Mark S. Weinstein, and Susan K. Magenheim hold a 38.50%,
30.75% and 30.75% partnership interest, respectively, in the Weinstein
Family Limited Partnership.
(10) Includes 54,500 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(11) Includes 27,500 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options.
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<PAGE>
(12) Includes 5,000 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options and 2,000 shares of Cosmetic
Class A common stock owned by his wife, over which shares he disclaims any
beneficial interest.
(13) Includes 1,000 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options and 2,000 shares of Cosmetic
Class B common stock owned by his wife, over which shares he disclaims any
beneficial interest.
(14) Includes 80 shares of Cosmetic Class A common stock owned by his wife and
excludes 1,170 shares of Cosmetic Class A common stock held by him in trust
for his children, over which shares he disclaims any beneficial interest.
(15) Includes 55 shares of Cosmetic Class B common stock owned by his wife.
(16) Includes 7,500 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(17) Includes 14,200 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(18) Includes 17,250 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(19) Includes 1,750 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options.
(20) Based upon Schedule 13G filed with the SEC on April 15, 1996, Brown Capital
Management, Inc., 809 Cathedral Street, Baltimore, Maryland 21201, has sole
voting power with respect to 168,000 of these shares.
(21) Includes 258,300 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options and excludes other shares of
Cosmetic Class A common stock as described above. See Notes 5, 7, 12, and
14.
(22) Includes 42,250 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options and excludes other shares of
Cosmetic Class B common stock as described above. See Notes 6, 8, 13 and
15.
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<PAGE>
DESCRIPTION OF COSMETIC CAPITAL STOCK
Before giving effect to the Class C Amendment, Cosmetic is authorized to
issue 5,000,000 shares of Class A common stock, par value $.01 per share, and
5,000,000 shares of Class B common stock, par value $.01 per share. As of
December 9, 1996, there were outstanding 2,713,354 shares of Cosmetic Class A
common stock and 1,586,530 shares of Cosmetic Class B common stock, held of
record by approximately 189 stockholders and approximately 136 stockholders,
respectively, excluding holders whose stock is held in nominee or street name.
Pursuant to the Class C Amendment, Cosmetic's Certificate of Incorporation
is proposed to be amended to authorize 40,000,000 shares of Class C common
stock, par value $.01 per share. Pursuant to the Merger, all of the outstanding
Cosmetic common stock will be exchanged for Cosmetic Class C common stock.
Although following the Merger, the Certificate of Incorporation will continue to
authorize Cosmetic Class A and Class B common stock, Cosmetic has no current
intention to issue any more Cosmetic Class A or Class B common stock.
COSMETIC CLASS A COMMON STOCK
VOTING RIGHTS. The holders of Cosmetic Class A common stock have no voting
rights except as described below and as otherwise required by Delaware law. In
exercising any such vote, each outstanding share of Cosmetic Class A common
stock would be entitled to one vote. The Certificate of Incorporation provides
that the affirmative vote of holders of at least a majority of the then
outstanding Cosmetic Class A common stock, voting together as a single class, is
required to amend the Certificate of Incorporation if such amendment would alter
or change the powers, preferences or special rights of the Cosmetic Class A
common stock.
DIVIDENDS AND OTHER DISTRIBUTIONS. Each share of Cosmetic Class A and Class
B common stock is equal in respect to dividends and other distributions in cash,
stock or property, except that (i) a dividend or distribution in cash or
property on Cosmetic Class A common stock may be greater than any dividend or
distribution in cash or property on Cosmetic Class B common stock, (ii) a
dividend or distribution in Cosmetic shares on Cosmetic Class A common stock may
be paid or made only in Cosmetic Class A common stock and (iii) a dividend or
distribution in Cosmetic shares on Cosmetic Class B common stock may be paid or
made either in Cosmetic Class A or Class B common stock.
MERGERS AND CONSOLIDATIONS. In the event of a merger, consolidation or
combination of Cosmetic with another entity (whether or not Cosmetic is the
surviving entity) or in the event of dissolution of Cosmetic, the holders of
Cosmetic Class A common stock are entitled to receive the same per share
consideration as the per share consideration, if any, received by holders of
Cosmetic Class B common stock in that transaction.
CONVERTIBILITY. The Cosmetic Class A common stock is convertible into
Cosmetic Class B common stock if at any time the number of outstanding shares of
Cosmetic Class B common stock falls below 10% of the aggregate number of
outstanding shares of Cosmetic Class A and Class B common stock. In that event,
immediately upon the occurrence thereof, all of the outstanding Cosmetic Class A
common stock would be converted automatically into Cosmetic Class B common stock
on a share-for-share basis. For purposes of this provision, Cosmetic Class A or
Class B common stock repurchased by Cosmetic would not be considered to be
"outstanding" from and after the date of repurchase. In the event of any such
conversion of the Cosmetic Class A common stock, certificates which formerly
represented outstanding Cosmetic Class A common stock thereafter would be deemed
to represent a like number of shares of Cosmetic Class B common stock, and all
common stock then authorized by the Certificate of Incorporation would be deemed
to be Cosmetic Class B common stock.
PREEMPTIVE RIGHTS. The holders of Cosmetic Class A common stock do not have
any preemptive rights enabling them to subscribe for or receive shares of
Cosmetic of any class or any other securities convertible into any class of
Cosmetic's shares.
COSMETIC CLASS B COMMON STOCK
VOTING RIGHTS. The holders of Cosmetic Class B common stock are entitled to
vote on all matters voted on by stockholders, including the election of
directors, and, except as noted above and as otherwise required by law with
respect to the Cosmetic Class A common stock, the holders of such shares
exclusively possess all voting power. In exercising any such vote, each
outstanding share of Cosmetic Class B common stock is entitled to one vote. The
ability of the holders of Cosmetic Class B common stock to exercise their voting
power may be affected by the Class A protection provisions discussed below.
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<PAGE>
CLASS A PROTECTION. The Certificate of Incorporation provides that any
person who, after March 13, 1992, acquires and continues to hold more than 15%
of the outstanding Cosmetic Class B common stock would only be allowed to vote
those shares to the extent that such shares are not "excess Class B Common
Shares." The number of shares of Cosmetic Class B common stock on any date
deemed to be excess Class B Common Shares would be equal to: (i) the percentage
which the number of shares of Cosmetic Class B common stock acquired since March
13, 1992 and then held by that person bears to the aggregate number of
outstanding shares of Cosmetic Class B common stock; (ii) minus the percentage
which the number of shares of Cosmetic Class A common stock acquired since March
13, 1992 at an equitable price and then held by that person bears to the
aggregate number of outstanding shares of Cosmetic Class A common stock; (iii)
times the aggregate number of outstanding shares of Cosmetic Class B common
stock. For purposes of the Cosmetic Class A protection provision, Cosmetic Class
B common stock held by a person on March 13, 1992 would not be included in
determining whether a person has acquired excess Class B Common Shares.
The Certificate of Incorporation provides that an equitable price has been
paid for Cosmetic Class A common stock only when it has been acquired at a price
at least equal to the greater of (i) the highest per share price paid by the
acquiring person, in cash or in non-cash consideration, for any shares of
Cosmetic Class B common stock acquired within the 60-day periods preceding and
following the acquisition of the Cosmetic Class A common stock or (ii) the
highest closing market sale price of a share of Cosmetic Class B common stock
during the 30-day periods preceding and following the acquisition of the
Cosmetic Class A common stock. The value of any noncash consideration will be
determined by the Cosmetic Board acting in good faith. The highest closing
market sale price of a share of Cosmetic Class B common stock will be the
highest closing sale price on the Nasdaq National Market or such other
securities exchange or quotation system then constituting the principal trading
market for the Cosmetic Class B common stock. If no quotations are available,
the highest closing market sale price will be the fair market value during the
30-day periods of a share of Cosmetic Class B common stock as determined by the
Cosmetic Board acting in good faith.
Under the Class A protection provisions, an acquisition of Cosmetic Class B
common stock is deemed to include any shares that a person acquires directly or
indirectly, in one transaction or a series of transactions, or with respect to
which that person acts or agrees to act in concert with any other person. Unless
there are affirmative attributes of concerted action, however, "acting or
agreeing to act in concert with any other person" will not include actions taken
or agreed to be taken by persons acting in their official capacities as
directors or officers of Cosmetic or actions by persons merely because they are
related by blood or marriage. Also, an acquisition of Cosmetic Class B common
stock will not be deemed to include acquisitions made pursuant to contracts
existing prior to March 13, 1992 or acquisitions by bequest or inheritance, by
operation of law upon the death of any individual, or by any other transfer
without valuable consideration, including a gift that is made in good faith and
not for purposes of circumventing the Class A protection provisions.
For purposes of the Class A protection provisions, (i) any Cosmetic Class A
or Class B common stock issued by Cosmetic since the last date on which a person
acquired any Cosmetic Class B common stock is considered to be not outstanding
and (ii) any Cosmetic Class A or Class B common stock repurchased by Cosmetic
since the last date on which a person acquired any Cosmetic Class A or Class B
common stock (whether in treasury or retired) is deemed still to be outstanding.
The Class A protection provisions also provide that, if the voting power of any
Cosmetic Class B common stock cannot be exercised pursuant to the provision,
that share nevertheless will be included in the determination of the voting
power of Cosmetic for any purposes under the Certificate of Incorporation or
under the Delaware General Corporation Law, unless otherwise specified in the
Bylaws.
DIVIDENDS AND OTHER DISTRIBUTIONS. Each share of Cosmetic Class A and Class
B common stock is equal in respect to dividends and other distributions in cash,
stock or property, except that (i) a dividend or distribution in cash or
property on Cosmetic Class A common stock may be greater than any dividend or
distribution in cash or property on Cosmetic Class B common stock, (ii) a
dividend or distribution in Cosmetic shares on Cosmetic Class A common stock may
be paid or made only in Cosmetic Class A common stock and (iii) a dividend or
distribution in Cosmetic shares on Cosmetic Class B common stock may be paid or
made either in Cosmetic Class A or Class B common stock.
NO CONVERTIBILITY. The Cosmetic Class B common stock is not at any time
convertible into Cosmetic Class A common stock.
PREEMPTIVE RIGHTS. The holders of Cosmetic Class B common stock do not have
any preemptive rights enabling them to subscribe for or receive shares of
Cosmetic of any class or any other securities convertible into any class of
Cosmetic's shares.
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<PAGE>
COSMETIC CLASS C COMMON STOCK
Upon the exchange of the outstanding Cosmetic Class A and Class B common
stock for Cosmetic Class C common stock pursuant to the terms of the Merger, the
Cosmetic Class C common stock will have all the rights of common stock as
provided in the Delaware General Corporation Law.
VOTING RIGHTS. The holders of Cosmetic Class C common stock will be
entitled to vote on all matters voted on by stockholders, including the election
of directors. In exercising any such vote, each outstanding share of Cosmetic
Class C common stock will be entitled to one vote.
DIVIDENDS AND OTHER DISTRIBUTIONS. Each share of Cosmetic Class C common
stock will be equal in respect to dividends and other distributions in cash,
stock or property.
NO CONVERTIBILITY. The Cosmetic Class C common stock will not be at any
time convertible into Cosmetic Class A or Class B common stock.
PREEMPTIVE RIGHTS. The holders of Cosmetic Class C common stock will not
have any preemptive rights enabling them to subscribe for or receive Cosmetic
shares of any class or any other securities convertible into any class of
Cosmetic's shares.
DIVIDENDS
Cosmetic has not paid any dividends on the Cosmetic Class A or Class B
common stock to date. The payment of any dividends subsequent to the Merger will
be within the discretion of the Combined Company Board.
TRANSFER AGENT
The transfer agent and registrar for the Cosmetic common stock is First
Union National Bank of North Carolina.
NASDAQ NATIONAL MARKET LISTING
Cosmetic has made application for the listing of the Cosmetic Class C
common stock on the Nasdaq National Market.
FEDERAL SECURITIES LAWS CONSEQUENCES
This Proxy Statement/Prospectus does not cover any resales of the Cosmetic
Class C common stock to be issued upon consummation of the Merger, and no person
is authorized to make any use of this Proxy Statement/Prospectus in connection
with any such resale.
The Cosmetic Class C common stock issued pursuant to this Proxy
Statement/Prospectus will be freely transferable under the Securities Act except
for shares issued to any stockholder who may be deemed to be an "affiliate" of
Cosmetic for purposes of Rule 145 under the Securities Act as of the date of the
Meeting. Affiliates are persons that directly or indirectly control, are
controlled by, or are under common control with, Cosmetic. Under federal
securities laws, control is considered to be a question of fact determined on a
case by case basis. Generally, whether a person is in control of a corporation
is determined by that person's power to effect the policies of the corporation
through stock ownership or managerial position.
Affiliates may offer and sell Cosmetic Class C common stock received in the
Merger as long as the following conditions are met: (i) Cosmetic has filed with
the SEC all reports required to be filed pursuant to Section 13 of the Exchange
Act during the 12 months preceding the sale arising from the Merger; (ii)7the
number of shares of Cosmetic Class C common stock sold by each affiliate does
not exceed the greater of (a) 1% of the outstanding Cosmetic Class C common
stock, (b) the average weekly reported volume of trading in Cosmetic Class C
common stock on all national securities exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the filing of the notice required by Rule 144(h)
under the Securities Act, or if no such notice is required, the date of
execution of the transaction directly with a market maker, or (c) the average
weekly volume of trading in such securities reported through the consolidated
transaction reporting system contemplated by Rule 11Aa3-1 under the Exchange Act
during the four-week period specified above; (iii) all shares of Cosmetic Class
C common stock are sold in brokerage transactions and no orders are solicited in
connection with the sale; and (iv) the broker does not receive more than the
usual and customary broker's commission in connection with the sale.
As described in "The Stockholders Agreement," both Revlon and the Principal
Stockholders will receive certain rights to registration of their Cosmetic Class
C common stock under the Securities Act. Pursuant to any such registration
statement, the selling securityholders would be entitled to sell shares without
regard to the foregoing limitations. See "Risk Factors -- Shares Eligible for
Future Sale."
83
<PAGE>
LEGAL MATTERS
Arent Fox Kintner Plotkin & Kahn, Washington, D.C., will render an opinion
with respect to certain matters on behalf of Cosmetic. Certain partners of Arent
Fox Kintner Plotkin & Kahn hold Cosmetic Class A and Class B common stock.
EXPERTS
Cosmetic's financial statements as of September 27, 1996 and for each of
the three years then ended included in this Proxy Statement/Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein and in the Registration Statement in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said report.
PFC's financial statements as of December 31, 1994 and 1995, and for each
of the years in the three-year period ended December 31, 1995, included in this
Proxy Statement/Prospectus and elsewhere in the Registration Statement have been
included in this Proxy Statement/Prospectus and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere in this Proxy Statement/Prospectus, and upon
the authority of said firm as experts in accounting and auditing.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, were Cosmetic's
auditors for the fiscal year ended September 27, 1996 and have been employed in
that capacity since May 1987. The Cosmetic Board has not made a determination as
to Cosmetic's auditors for Cosmetic's current fiscal year, which determination
is expected to be made after the completion of the Merger.
A representative of Arthur Andersen LLP is expected to attend the Meeting.
At that time, the representative will have the opportunity to make a statement
if he or she desires and will be available to respond to appropriate questions
regarding the most recent audit of Cosmetic's financial statements.
FUTURE STOCKHOLDER PROPOSALS
Any Cosmetic stockholder who intends to submit a proposal for inclusion in
the proxy materials for the 1998 annual meeting of Cosmetic must submit such
proposal to the Secretary of Cosmetic by 1997.
WHERE YOU CAN FIND MORE INFORMATION
Cosmetic files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information Cosmetic files at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
Cosmetic's SEC filings are also available to the public from commercial document
retrieval services and from the SEC's site on the World Wide Web located at
www.sec.gov.
Cosmetic has filed a Registration Statement on Form S-4 to register with
the SEC the Cosmetic Class C common stock to be issued in the Merger. This Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of Cosmetic in addition to being a proxy statement of Cosmetic for
the Meeting. As allowed by SEC rules, this Proxy Statement/Prospectus does not
contain all the information you can find in the Registration Statement or the
exhibits to the Registration Statement.
Cosmetic has supplied all information contained in this Proxy
Statement/Prospectus relating to Cosmetic and PFC has supplied all such
information relating to PFC and Revlon.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED JANUARY ,
1997. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE
ISSUANCE OF THE COSMETIC CLASS C COMMON STOCK IN THE MERGER SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
84
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ---------------------------------------------------------------------------------------- -----------
<S> <C>
1991 Option Plan........................................................................ 72
Acquired Companies...................................................................... 29
Andrews Group........................................................................... 70
Board Amendment......................................................................... 6
Bonus Increase.......................................................................... 75
Book Value Multiples.................................................................... 28
Cash Election........................................................................... Cover page
Cash Offer.............................................................................. 27
Cessation of Operations................................................................. 55
Cigar Holdings.......................................................................... 70
Class C Amendment....................................................................... 6
Code.................................................................................... 23
Coleman................................................................................. 70
Coleman Holdings........................................................................ 70
Coleman Worldwide....................................................................... 70
Colours & Scents........................................................................ 41
Colours & Scents stores................................................................. 63
Combined Company........................................................................ 4
Combined Company Board.................................................................. 4
Comparable Companies.................................................................... 27
Consolidated Cigar...................................................................... 70
Cosmetic................................................................................ Cover page
Cosmetic Board.......................................................................... 1
Cosmetic Center Alternate Transaction................................................... 53
Cosmetic Center Break-up Fee............................................................ 53
Cosmetic Center Termination Date........................................................ 53
Cosmetic Center Triggering Events....................................................... 53
Cosmetic Certificates................................................................... 49
Cosmetic Unaffected Stock Price......................................................... 29
EBIT.................................................................................... 27
EBIT Multiples.......................................................................... 27
EBITDA.................................................................................. 27
EBITDA Multiples........................................................................ 27
Effective Time.......................................................................... 14
Enterprise Value........................................................................ 27
Enterprise Value Multiples.............................................................. 27
EPS..................................................................................... 27
Equity Value............................................................................ 27
Equity Value Multiples.................................................................. 28
Exchange Act............................................................................ 70
Exchange Agent.......................................................................... 3
Exclusivity Agreement................................................................... 15
Exclusivity Period...................................................................... 17
Facility................................................................................ 39
Financing............................................................................... 10
First Nationwide........................................................................ 70
First Nationwide Parent................................................................. 70
FN Holdings............................................................................. 70
Holdings................................................................................ 11
Holmdel Lease........................................................................... 54
IRS..................................................................................... 23
ISOs.................................................................................... 72
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ---------------------------------------------------------------------------------------- -----------
<S> <C>
LBO..................................................................................... 30
Legg Mason.............................................................................. 5
Legg Mason Opinion...................................................................... 26
Letter of Intent........................................................................ 15
Limit................................................................................... 14
LTM..................................................................................... 27
LTM EPS Multiples....................................................................... 27
LTM Transaction Value Multiples......................................................... 29
MacAndrews Holdings..................................................................... 70
Mafco Consolidated...................................................................... 70
Mafco Holdings.......................................................................... 56
Marvel.................................................................................. 70
Meeting................................................................................. Cover page
Merger.................................................................................. Cover page
Merger Agreement........................................................................ Cover page
Meridian................................................................................ 70
Net Unleveraged Cash Flow............................................................... 30
New Facility............................................................................ 39
New World Group......................................................................... 70
NOLs.................................................................................... 28
Non-Discretionary Grant................................................................. 75
Non-Operating Items..................................................................... 28
Non-Qualified Options................................................................... 74
NWCG.................................................................................... 70
NWTV.................................................................................... 70
PCT..................................................................................... 70
PFC..................................................................................... Cover page
PFC Alternate Transaction............................................................... 53
PFC Employee Store Leases............................................................... 55
Pneumo Abex............................................................................. 70
Prestige Fragrance & Cosmetics stores................................................... 63
Principal Stockholder Break-Up Fee...................................................... 54
Principal Stockholders.................................................................. 1
Prior Year.............................................................................. 75
Pro Rata Offer.......................................................................... 27
Projected 1997 EPS Multiples............................................................ 28
Projected 1998 EPS Multiples............................................................ 28
Proposal................................................................................ 15
Purchase Price of Equity................................................................ 29
Purchase Price of Equity Multiples...................................................... 29
Registration Rights Agreement........................................................... 57
Revenue Multiples....................................................................... 27
Revlon.................................................................................. Cover page
Revlon Break-up Fee..................................................................... 53
Revlon Expense Reimbursement Fee........................................................ 53
Revlon Notes............................................................................ 11
Revlon Termination Date................................................................. 53
Revlon Triggering Events................................................................ 53
Revlon Worldwide........................................................................ 70
SEC..................................................................................... 17
S G & A................................................................................. 37
Securities Act.......................................................................... 12
Services................................................................................ 55
Services Agreement...................................................................... 55
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ---------------------------------------------------------------------------------------- -----------
<S> <C>
Stock Offer............................................................................. 27
Stock Option Committee.................................................................. 75
Stockholders Agreement.................................................................. 4
Stockholder Alternate Transaction....................................................... 54
Stockholder Triggering Event............................................................ 54
Subject Year............................................................................ 75
Supply Agreement........................................................................ 56
Tax Sharing Agreement................................................................... 56
Ten Percent Stockholder................................................................. 72
Terminal Value.......................................................................... 30
The Salon............................................................................... 59
Toy Biz................................................................................. 70
Transaction Value....................................................................... 29
UPS..................................................................................... 66
</TABLE>
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................................................... F-2
Consolidated Balance Sheets as of September 29, 1995 and September 27, 1996............................................ F-3
Consolidated Statements of Operations.................................................................................. F-4
Fifty-three weeks ended September 30, 1994
Fifty-two weeks ended September 29, 1995
Fifty-two weeks ended September 27, 1996
Consolidated Statements of Shareholders' Equity........................................................................ F-5
Fifty-three weeks ended September 30, 1994
Fifty-two weeks ended September 29, 1995
Fifty-two weeks ended September 27, 1996
Consolidated Statements of Cash Flows.................................................................................. F-6
Fifty-three weeks ended September 30, 1994
Fifty-two weeks ended September 29, 1995
Fifty-two weeks ended September 27, 1996
Notes to Consolidated Financial Statements............................................................................. F-7
PRESTIGE FRAGRANCE & COSMETICS, INC.
Independent Auditors' Report........................................................................................... F-15
Balance Sheets as of December 31, 1994 and 1995...................................................................... F-16
Statements of Operations for each of the years in the three-year period ended December 31, 1995...................... F-17
Statements of Stockholder's Equity for each of the years in the three-year period ended December 31, 1995............ F-18
Statements of Cash Flows for each of the years in the three-year period ended December 31, 1995...................... F-19
Notes to Financial Statements........................................................................................ F-20
Condensed Balance Sheets as of December 31, 1995 and September 30, 1996................................................ F-28
Condensed Statements of Operations for the nine months ended September 30, 1995 and 1996............................... F-29
Condensed Statement of Stockholder's Equity for the nine months ended September 30, 1996............................... F-30
Condensed Statements of Cash Flows for the nine months ended September 30, 1995 and 1996............................... F-31
Note to Unaudited Condensed Financial Statements....................................................................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE COSMETIC CENTER, INC.:
We have audited the accompanying consolidated balance sheets of The
Cosmetic Center, Inc. (a Delaware corporation), and subsidiaries as of September
27, 1996, and September 29, 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three fiscal
years in the period ended September 27, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Cosmetic Center, Inc.,
and subsidiaries as of September 27, 1996, and September 29, 1995, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended September 27, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.,
November 27, 1996
F-2
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C>
(DOLLARS IN
THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $ 1,320 $ 979
Accounts receivable............................................................................. 881 1,860
Inventories..................................................................................... 61,891 56,479
Prepaid expenses................................................................................ 529 442
Prepaid income taxes............................................................................ 1,142 1,735
Deferred income tax benefit..................................................................... 970 1,631
------- -------
Total current assets......................................................................... 66,733 63,126
------- -------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment............................................................... 11,410 10,989
Leasehold improvements.......................................................................... 4,932 5,022
Leased property -- capitalized.................................................................. 1,670 1,652
------- -------
18,012 17,663
Accumulated depreciation and amortization....................................................... 7,211 9,256
------- -------
10,801 8,407
------- -------
DEPOSITS AND OTHER ASSETS......................................................................... 307 378
------- -------
DEFERRED INCOME TAX BENEFIT....................................................................... 126 611
------- -------
TOTAL ASSETS................................................................................. $77,967 $72,522
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................................ $17,309 $15,956
Note payable -- bank (Note 2)................................................................... 11,985 --
Accrued expenses................................................................................ 4,058 4,044
Current portion of obligation under capital leases.............................................. 291 311
------- -------
TOTAL CURRENT LIABILITIES.................................................................... 33,643 20,311
NOTE PAYABLE -- BANK (NOTE 2)..................................................................... -- 12,220
OBLIGATION UNDER CAPITAL LEASES................................................................... 420 109
DEFERRED RENT..................................................................................... 1,339 1,305
OTHER LIABILITIES................................................................................. 624 1,396
------- -------
TOTAL LIABILITIES............................................................................ 36,026 35,341
------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY: (NOTE 4)
Class A common stock, $.01 par value; authorized 5,000,000 shares; issued 2,721,472 shares in
1995 and 2,713,354 shares in 1996............................................................ 27 27
Class B common stock, $.01 par value; authorized 5,000,000 shares; issued 1,594,924 shares in
1995 and 1,582,780 shares in 1996............................................................ 16 16
Additional paid-in capital...................................................................... 21,740 21,386
Retained earnings............................................................................... 20,512 15,752
Treasury stock-Class B common stock, 32,144 shares in 1995 and no shares in 1996, at cost....... (354) --
------- -------
TOTAL SHAREHOLDERS' EQUITY........................................................................ 41,941 37,181
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................................................ $77,967 $72,522
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net sales.................................................................. $ 123,551 $ 132,304 $ 133,795
---------- ---------- ----------
Cost of sales including buying, occupancy and distribution................. 96,574 105,094 105,761
Selling, general and administrative expenses............................... 19,929 27,033 30,268
Restructuring provision (Note 10).......................................... -- -- 4,024
---------- ---------- ----------
Total operating expenses................................................... 116,503 132,127 140,053
---------- ---------- ----------
Income (loss) from operations.............................................. 7,048 177 (6,258)
Other income, net.......................................................... 110 670 95
Interest expense........................................................... (166) (725) (1,030)
---------- ---------- ----------
Earnings (loss) before income taxes........................................ 6,992 122 (7,193)
Income tax provision (benefit)............................................. 2,804 (157) (2,433)
---------- ---------- ----------
Net earnings (loss)........................................................ $ 4,188 $ 279 $ (4,760)
---------- ---------- ----------
---------- ---------- ----------
Net earnings (loss) per common share
Primary.................................................................... $ 0.95 $ 0.06 $ (1.11)
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding
Primary.................................................................... 4,414,462 4,358,339 4,293,457
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------ PAID-IN RETAINED ------------------
CLASS A CLASS B CAPITAL EARNINGS CLASS A CLASS B
------- ------- ---------- -------- ------- -------
<S> <C>
(DOLLARS IN THOUSANDS)
Balances at September 24, 1993.................... $27 $15 $ 21,349 $ 16,045 $ -- $ --
Exercise of stock options, 6,050 shares........... -- -- 38 -- -- --
Net earnings...................................... -- -- -- 4,188 -- --
------- ------- ---------- -------- ------- -------
Balances at September 30, 1994.................... 27 15 21,387 20,233 -- --
Exercise of stock options, 32,144 Class B common
shares tendered for 40,180 Class A common shares
and 40,182 Class B common shares................ -- 1 353 -- -- (354)
Net earnings...................................... -- -- -- 279 -- --
------- ------- ---------- -------- ------- -------
Balances at September 29, 1995.................... 27 16 21,740 20,512 -- (354)
Exercise of stock options, 28,118 Class A common
shares tendered for 20,000 Class A common shares
and 20,000 Class B common shares................ -- -- 214 -- (214) --
Retired treasury stock, 28,118 Class A common
shares and 32,144 Class B common shares......... -- -- (568) -- 214 354
Net loss.......................................... -- -- -- (4,760) -- --
------- ------- ---------- -------- ------- -------
Balances at September 27, 1996.................... $27 $16 $ 21,386 $ 15,752 $ -- $ --
------- ------- ---------- -------- ------- -------
------- ------- ---------- -------- ------- -------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balances at September 24, 1993.................... $37,436
Exercise of stock options, 6,050 shares........... 38
Net earnings...................................... 4,188
-------------
Balances at September 30, 1994.................... 41,662
Exercise of stock options, 32,144 Class B common
shares tendered for 40,180 Class A common shares
and 40,182 Class B common shares................ --
Net earnings...................................... 279
-------------
Balances at September 29, 1995.................... 41,941
Exercise of stock options, 28,118 Class A common
shares tendered for 20,000 Class A common shares
and 20,000 Class B common shares................ --
Retired treasury stock, 28,118 Class A common
shares and 32,144 Class B common shares......... --
Net loss.......................................... (4,760)
-------------
Balances at September 27, 1996.................... $37,181
-------------
-------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
<S> <C>
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net earnings (loss)............................................................... $ 4,188 $ 279 $(4,760)
Adjustments to reconcile net earnings to net cash (used in)
provided by operating activities:
Depreciation and amortization.................................................. 1,580 2,341 2,719
Restructuring provision (Note 10).............................................. -- -- 4,024
Change in assets and liabilities:
Accounts receivable.......................................................... (484) 676 (979)
Inventories.................................................................. (5,420) (11,469) 5,412
Prepaid expenses............................................................. (341) (406) (86)
Prepaid income taxes......................................................... (103) (983) (593)
Deposits and other assets.................................................... (140) (53) (71)
Accounts payable............................................................. (2,895) 7,387 (1,353)
Accrued expenses............................................................. 903 723 (1,034)
Restructuring provision (Note 10)............................................ -- -- (1,022)
Deferred rent................................................................ 163 132 (34)
Other liabilities............................................................ -- 624 (316)
Deferred income tax benefit.................................................. 207 (403) (1,146)
------- -------- -------
Net cash (used in) provided by operating activities.......................... (2,342) (1,152) 761
------- -------- -------
Cash flows from investing activities:
Capital expenditures, net......................................................... (2,861) (5,633) (1,055)
Proceeds from sale of equipment................................................... -- 35 9
------- -------- -------
Net cash used in investing activities.......................................... (2,861) (5,598) (1,046)
------- -------- -------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement..................................... 5,025 6,960 235
Repayments of capital lease obligations........................................... (245) (272) (291)
Exercise of stock options......................................................... 38 -- --
------- -------- -------
Net cash provided by (used in) financing activities............................ 4,818 6,688 (56)
------- -------- -------
Net decrease in cash and cash equivalents........................................... (385) (62) (341)
Cash and cash equivalents at beginning of year...................................... 1,767 1,382 1,320
------- -------- -------
Cash and cash equivalents at end of year............................................ $ 1,382 $ 1,320 $ 979
------- -------- -------
------- -------- -------
Supplemental disclosures of cash flow information
and non cash activities:
Cash payments for interest........................................................ $ 146 $ 696 $ 1,059
Cash payments for income taxes.................................................... 2,700 837 339
Capital lease obligations incurred................................................ 192 -- --
Treasury stock (Note 4)........................................................... -- 354 214
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Cosmetic
Center, Inc. and its wholly owned subsidiaries (the "Company"). The Company
sells cosmetics, fragrances, beauty aids and related items on a retail basis
under the name "The Cosmetic Center(Register mark)" in Illinois, Maryland, New
Jersey, North Carolina, Pennsylvania, and Virginia, on a wholesale basis through
M. Steven Cosmetic Company, Inc., and on a distribution basis through Courtney
Brooke, Inc. and Dumond Distribution, Inc. All significant intercompany balances
and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue at the point of sale on its retail business
and at the point of shipment on its wholesale business.
FISCAL YEAR
The Company's fiscal year ends on the last Friday of September. The
Company's fiscal years ended on September 30, 1994, September 29, 1995, and
September 27, 1996. Fiscal year 1994 consisted of 53 weeks and fiscal years 1995
and 1996 each consisted of 52 weeks.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased
with a maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist of cash and cash equivalents and accounts receivable. The
Company's cash and cash equivalents are deposited with major banks and financial
institutions. The Company's accounts receivable result primarily from
advertising rebates, income tax refunds and construction allowances. The Company
routinely assesses the financial strength of its financial institutions. As a
consequence it feels that its concentration of credit risk is limited.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of minimum lease payments at the beginning of the
lease term.
Depreciation on property and equipment is calculated on a straight-line
basis over the estimated useful lives of the assets. Leasehold improvements and
equipment under capital leases are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
NEW STORE OPENING COSTS
Personnel recruitment, training, supplies, payroll and related costs
incurred in connection with opening a new store are capitalized and included in
prepaid expenses until the store opens, at which time such costs are amortized
over a twelve-month period.
ACCOUNTS PAYABLE
Accounts payable includes unfunded disbursement checks which have not been
presented to the bank for payment of $1,679,000 and $2,486,000 at September 29,
1995, and September 27, 1996, respectively.
F-7
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note 1 -- Summary of Significant Accounting Policies -- Continued
SELF-INSURANCE
The Company is self-insured for its employee medical benefit program which
covers eligible hourly and salaried employees. The Company maintains stop loss
insurance coverage both on an individual and aggregate basis.
ADVERTISING COSTS
The Company expenses advertising costs as incurred.
DEFERRED INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under SFAS
109, deferred tax assets and liabilities are computed based on the difference
between financial statement and income tax bases of assets and liabilities using
the enacted-marginal tax rate. Deferred income tax expenses or credits are based
on the changes in the asset or liability from period to period.
EARNINGS PER COMMON SHARE
Earnings per common share has been computed on the basis of the weighted
average common shares outstanding for all periods presented. Weighted average
common shares outstanding for 1994 and 1995 includes the exercise of all stock
options having exercise prices less than the average market price of the common
stock using the treasury stock method. Stock options were not considered for
1996 as their impact is antidilutive. Fully diluted earnings per share is not
presented as the difference between these amounts and the amounts presented is
not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF CURRENT ASSETS AND CURRENT LIABILITIES
At September 27, 1996, the carrying amount of current assets and current
liabilities approximates fair value due to the short maturity of those
instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," no
later than its fiscal year ending September 26, 1997. The Company anticipates
that the adoption of the standard will not have a material effect on its
consolidated financial position or results of operations.
The Company is also required to adopt SFAS No. 123, "Accounting for
Stock-Based Compensation," no later than its fiscal year ending September 26,
1997. This statement encourages, but does not require, a fair value based method
of accounting for employee stock options or similar equity instruments. Entities
which elect not to adopt the fair value method of accounting are required to
make pro forma disclosures of earnings and per share data as if the fair value
method was adopted. Management does not intend to adopt the fair value method of
accounting. Accordingly, adoption of the statement will only impact the
Company's disclosures.
Note 2 -- Note Payable -- Bank
The Company had an unsecured credit facility (the "Facility") with a bank
for a maximum borrowing of $15,000,000. The Facility, which was scheduled to
expire on February 28, 1997, was subject to repayment on demand and accrued
interest was payable monthly, at an annual rate equal to the bank's prime rate
or at LIBOR plus 200 basis points. The Facility required compliance with certain
restrictive covenants including maintenance of minimum tangible net worth. At
September 29, 1995, the Facility had an outstanding balance of $11,985,000 at
interest rates ranging from 7.03% to 8.00%. At
F-8
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note 2 -- Note Payable -- Bank -- Continued
September 27, 1996, the Facility had an outstanding balance of $12,220,000 at
interest rates ranging from 6.46% to 9.50%. The weighted average interest rate
on borrowings was 7.90% in 1995 and 7.47% in 1996. The carrying value of the
Company's debt approximates fair value.
In October 1996, the Company paid the outstanding balance of $14,200,000 on
the Facility with borrowings under a new loan and security agreement (the "New
Facility"). Under the New Facility, which expires October 31, 1999, the Company
may borrow the lesser of $25,000,000 or 50% of eligible inventory, as defined in
the New Facility. Borrowings under the New Facility are secured by all of the
Company's assets except for fixed assets. Under the New Facility the Company may
borrow at LIBOR plus 200 basis points or at the bank's prime rate plus 50 basis
points. The Company also pays an unused line fee equal to one-quarter of one
percent per annum. Interest is payable monthly. If the Company terminates the
New Facility, the Company is obligated to pay a prepayment penalty of $187,500
if termination is made before the first anniversary date and $62,500 after the
first anniversary date. As a result of the Company's ability to refinance the
prior Facility with the New Facility, the balance of the Facility was classified
as long-term debt in the accompanying September 27, 1996 balance sheet. The New
Facility requires the Company to be in compliance with a minimum tangible net
worth covenant.
Future annual maturities of long-term debt under the terms of the New
Facility are as follows for the fiscal year: 1997 -- $0, 1998 -- $0, 1999 -- $0,
2000 -- $12,220,000 and 2001 -- $0.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate cap and
swap agreements are used to reduce the potential impact of increases in interest
rates on the floating rates credit facility. During 1995, the Company entered
into an interest rate cap on a $2 million notional amount which expired in
August 1996. The agreement entitled the Company to receive payments from the
counterparties in any period during which the floating rate on its credit
facility exceeded 8%. The premium paid was amortized over the cap period.
In 1995 the Company also entered into an interest rate swap for a notional
amount of $4 million which expires in February 1997. This agreement effectively
changes the Company's exposure on $4 million of its credit facility to a fixed
rate of 7.46%. The Company is exposed to credit losses in the event of
nonperformance by the counterparties to its interest rate caps and swaps. The
Company anticipates, however, that the counterparty (major financial
institution) will be able to fully satisfy its obligations under the contract.
Note 3 -- Accrued Expenses
At September 29, 1995 and September 27, 1996, accrued expenses consisted of
the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C>
(DOLLARS IN
THOUSANDS)
Payroll and payroll taxes................................................................ $ 1,423 $ 1,419
Restructuring provision (Note 10)........................................................ -- 1,020
Other operating expenses................................................................. 911 794
Sales and other taxes.................................................................... 775 467
Group medical............................................................................ 23 160
Advertising expenses..................................................................... 511 143
Fixed assets............................................................................. 415 41
------- -------
$ 4,058 $ 4,044
------- -------
------- -------
</TABLE>
F-9
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note 4 -- Shareholders' Equity
The Class A common stock (nonvoting) and Class B common stock (voting) are
similar in characteristics except that the voting power for the election of
directors and all other purposes is vested exclusively in the holders of Class B
common stock, except as otherwise required by law or the Certificate of
Incorporation.
Under the 1991 Stock Option Plan (Note 7), 596,408 shares of Class A common
stock and 43,750 shares of Class B common stock are reserved for issuance.
In fiscal 1995, certain officers exercised options for 40,180 and 40,182
shares of Class A and Class B common stock, respectively. The exercise price of
approximately $354,000 was paid with 32,144 shares of Class B common stock and
as a result, was recorded as treasury stock in the accompanying financial
statements.
In fiscal 1996, certain officers exercised options for 20,000 shares of
each of the Class A and Class B common stock. The exercise price of
approximately $214,000 was paid with 28,114 shares of Class A common stock and
as a result was recorded as treasury stock in the accompanying financial
statements.
In August 1996, the Board of Directors retired the 28,114 shares of Class A
and 32,144 shares of Class B treasury stock. As a result the original cost of
the treasury stock was recorded against additional paid-in capital.
Note 5 -- Income Taxes
The Company accounts for income taxes under SFAS 109. SFAS 109 requires
that the net deferred tax asset be reduced by a valuation allowance if, based on
the weight of available evidence, it is more likely than not that some portion
or all of the net deferred tax asset will not be realized. The Company has not
recorded a valuation allowance against its net deferred tax assets.
At September 29, 1995 and September 27, 1996, the components of the net
deferred tax asset consisted of the following:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C>
(DOLLARS IN
THOUSANDS)
Deferred tax assets (liabilities):
UNICAP................................................................................. $ 565 $ 556
Deferred rent.......................................................................... 623 549
Depreciation and amortization.......................................................... (570) (369)
Preopening costs....................................................................... (40) (9)
Restructuring costs.................................................................... -- 843
Alternative minimum tax credit......................................................... -- 252
Accrued vacation....................................................................... 159 158
Accrued group medical.................................................................. 2 40
Employment contract.................................................................... 269 129
Deferred legal......................................................................... 40 31
Deferred compensation.................................................................. 48 62
------ ------
Net deferred tax asset................................................................... $1,096 $2,242
------ ------
------ ------
</TABLE>
F-10
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note 5 -- Income Taxes -- Continued
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------- ----- -------
<S> <C>
(DOLLARS IN THOUSANDS)
Current:
Federal...................................................................... $ 2,126 $202 $(1,482)
State........................................................................ 471 44 195
------- ----- -------
2,597 246 (1,287)
------- ----- -------
Deferred:
Federal...................................................................... 181 (330) (974)
State........................................................................ 26 (73) (172)
------- ----- -------
207 (403) (1,146)
------- ----- -------
$ 2,804 $(157) $(2,433)
------- ----- -------
------- ----- -------
</TABLE>
A reconciliation of the actual tax expense to the expected tax expense
(computed by applying the federal corporate income tax rate of 34% to earnings
before income taxes) follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ---------------- ----------------
<S> <C>
AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ------ ------- -----
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Expense at statutory federal rate................................ $2,377 34.0% $ 42 34.0% $(2,446) (34.0)%
Increase in income taxes resulting from:
State income taxes, net of
Federal income tax benefit.................................. 325 4.6 6 4.6 129 1.8
Life insurance proceeds........................................ -- -- (216 ) (176.3) -- --
Other, net..................................................... 102 1.5 11 9.0 (116) (1.6)
------ ---- ------ ------ ------- -----
$2,804 40.1% $(157 ) (128.7)% $(2,433) (33.8)%
------ ---- ------ ------ ------- -----
------ ---- ------ ------ ------- -----
</TABLE>
Note 6 -- Employee Benefit -- Retirement Plans
The Company's Employee Retirement Plan (the "Retirement Plan") covers all
eligible employees. The Retirement Plan includes both a profit sharing option
and 401K option. The Board of Directors approved total contributions of $114,000
and $38,000 for fiscal years 1994 and 1995, respectively. There was no
contribution in 1996. The contributions for the profit sharing plan are
discretionary and are allocated based upon each participant's salary. The
contribution for the 401K is determined by matching a percentage of each
employee's elective salary deferral.
Generally, the Company offers no post-employment or post-retirement
benefits to employees. (Note 9)
Note 7 -- Stock Option Plan
The 1991 Stock Option Plan (the "Plan"), as amended, authorizes options for
the purchase of 500,000 shares of common stock. In 1995, the Board approved an
increase in the shares reserved for granting to 800,000 by adding 300,000 shares
of Class A common stock to the Plan. The Plan is intended to provide an
incentive to directors, officers and key employees of the Company by providing
those persons with opportunities to purchase shares of the Company's common
stock under either incentive stock options, as defined under Section 422 of the
Internal Revenue Code of 1986, or other stock options.
Incentive stock options may be granted at a price not less than 100% of
fair market value at the date of grant for a term not to exceed ten years. Other
stock options may be granted at a price not to be less than 50% of the fair
market value at the date of grant for a term not to exceed eleven years. With
respect to any director, officer or key employee who is a ten percent
shareholder, incentive options may be granted at a price not less than 110% of
fair market value at the date of grant for a term not to exceed five years.
F-11
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note 7 -- Stock Option Plan -- Continued
The Plan is administered by a Stock Option Committee (the "Committee")
consisting of two or more members of the Board. The Committee receives annual
non-discretionary grants provided shares are available under the Plan. Any non-
employee director shall receive annually on January 15th, a fully vested option
for 1,000 shares of Class A common stock, at an option price of 100% of the fair
market value and for a term of ten years. Any employee director shall receive
annually on January 15th, a fully vested option for 20,000 shares of Class A
common stock, at an option price of 100% of fair market value (110% with respect
to a ten percent shareholder) and for a term of 10 years (5 years with respect
to a ten percent shareholder).
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- -------------------- -------------------
<S> <C>
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- -------- -------- -------- -------- -------
Available for grant:
Beginning............................. 135,776 -- 70,776 -- 329,776 --
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Under option:
Beginning............................. 224,612 134,612 285,812 132,362 286,632 92,180
Granted ($15.75-21.17/share).......... 65,000 -- -- -- -- --
Granted ($7.00-9.62/share)............ -- -- 113,000 -- -- --
Granted ($ 4.12-6.60/share)........... -- -- -- -- 93,000 --
Exercised ($4.00-11.37/share)......... (3,800) (2,250) -- -- -- --
Exercised ($4.40/share)............... -- -- (40,180) (40,182) -- --
Exercised ($5.36/share)............... -- -- -- -- (20,000) (20,000)
Cancelled ($11.37-17.32/share)........ -- -- (72,000) -- -- --
Cancelled ($6.50-21.17/share)......... -- -- -- -- (96,082) (28,430)
-------- -------- -------- -------- -------- -------
Under option -- end..................... 285,812 132,362 286,632 92,180 263,550 43,750
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Authorized increase..................... -- -- 300,000 -- -- --
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Options exercisable..................... 227,885 130,106 252,921 92,180 218,314 43,750
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Available for grant -- end.............. 70,776 -- 329,776 -- 332,858 --
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
</TABLE>
During 1995 the Company reduced the exercise price of 72,000 options to the
then current fair market value of $7.00 per share.
Note 8 -- Related-Party Transactions
The Company leases an industrial park store from a partnership which is
owned 35.67% by the Vice Chairman of the Board of Directors. Lease payments made
to the partnership during fiscal year 1994, 1995 and 1996 were approximately
$59,000, $59,000 and $52,000 respectively.
Note 9 -- Commitments and Contingencies
The Company is party to certain capital lease agreements for computer
equipment. The gross amount of these capital leases included in property and
equipment is as follows:
<TABLE>
<CAPTION> 1995 1996
----------- -----------
<S> <C>
Computer equipment............................................. $ 1,670,000 $ 1,652,000
Accumulated amortization....................................... (1,030,000) (1,288,000)
----------- -----------
$ 640,000 $ 364,000
----------- -----------
----------- -----------
</TABLE>
F-12
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note 9 -- Commitments and Contingencies -- Continued
The Company is obligated under several noncancellable operating leases
primarily for warehouse, office and retail space and equipment at various
locations. Some leases provide for additional rentals based on sales in excess
of specified amounts. Additionally, certain store leases have stated annual
rental increases or rent abatements. Rental abatements are recognized on a
straight line basis over the life of the lease. Total rent expense for fiscal
years 1994, 1995 and 1996, was approximately $5,448,000, $7,091,000 and
$7,481,000, respectively. Total rent expense includes additional rentals, based
upon sales, of approximately $106,000, $78,000 and $55,000, respectively.
Future minimum lease payments under noncancellable leases and the present
value of future minimum capital lease payments as of September 27, 1996, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C>
Year ending September:
1997............................................................................. $ 331,000 $ 7,652,000
1998............................................................................. 98,000 6,923,000
1999............................................................................. 15,000 5,993,000
2000............................................................................. -- 4,969,000
2001............................................................................. -- 3,580,000
2002 and future years............................................................ -- 7,013,000
--------- -----------
Total minimum lease payments.................................................. $ 444,000 $36,130,000
-----------
-----------
Less amount representing interest.................................................. (24,000)
---------
Present value of future minimum capital lease payments............................. 420,000
Less current maturities of obligation under capital leases......................... (311,000)
---------
Obligation under capital leases, excluding current maturities...................... $ 109,000
---------
---------
</TABLE>
The Company is involved in litigation arising in the normal course of
business. In the opinion of management, this litigation will not have a material
effect on the Company's financial position or results of operations.
The Company has employment agreements with certain employees that call for
minimum annual salaries totaling approximately $1.1 million. Certain agreements
will automatically renew for a twelve month period unless notice to terminate is
given by either party twenty-four months prior to the expiration date. Certain
agreements provide that if the respective employee dies, is disabled or is
terminated by the Company, other than for "good cause" (as defined therein) or
if there is a change in control of the Company, the Company is obligated to pay
the employee the balance of salary due over the remaining term of the agreement.
Additionally, the Company may be obligated to buy back all of the employee's
options (vested or unvested), which totalled 112,000 options at September 27,
1996. Payments will be based upon the difference between the market value of the
appropriate class of the Company's common stock on the event date and the
exercise price of the options.
During 1995, the Company's Chairman died. As a result, under the Chairman's
employment agreement, the Company was required to record a salary continuation
liability of approximately $920,000, $503,000 of which is outstanding as of
September 27, 1996. This liability was partially funded by life insurance
proceeds of $550,000 which is included in other income for the fiscal year 1995.
There was no required payment under the stock option buy back provision, as the
Chairman's beneficiary elected not to exercise this provision.
Note 10 -- Restructuring Provision
During the fourth quarter of 1996, the Company recorded a restructuring
provision of $4,024,000 related to the August 1996 closing of the Company's
eight retail stores in the Atlanta, Ga. marketplace. The restructuring provision
included the cost of future lease obligations, a write off of certain assets and
a severance package for its Atlanta employees. The unpaid balance of the
restructuring provision as of September 27, 1996 was approximately $2,108,000,
principally related to lease liabilities. Of this amount $1,020,000 is expected
to be paid in fiscal year 1997 and as a result is classified as a current
liability.
F-13
<PAGE>
THE COSMETIC CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note 11 -- Subsequent Event
On November 27, 1996, the Company entered into a merger agreement (the
"Merger") with Revlon Consumer Products Corporation ("RCPC") and Prestige
Fragrance & Cosmetic, Inc. ("PFC") a wholly owned subsidiary of RCPC. Under the
Merger, the Company will merge with PFC and the Company will remain as the
surviving corporation. In connection with the Merger, a new class of the Company
voting common stock ("Class C common stock") will be created. RCPC will receive
newly issued Class C common stock such that immediately following the Merger,
RCPC will own 65% of the issued and outstanding Class C common stock of the
Company. Also as a part of the Merger, holders of the Class A and Class B common
stock can elect to receive cash at $7.63 per share and holders of options with
an exercise price of less than $7.63 per share can elect to receive cash of
$7.63 less the exercise price with a limit of 2,829,065 shares and options as to
which the cash elections will be accepted (the "Cash Election"). Giving effect
to the Cash Election, RCPC can own at least 74% and up to 84% of the Company's
outstanding common stock. Since, as a result of the Merger and Cash Election,
RCPC will own a majority of voting interest in the Company, the Merger will be
accounted for as a reverse acquisition, whereby the PFC's financial statements
will represent the continuing historical financial statements of the Company.
The completion of the Merger is subject to, among other things, the approval of
the stockholders of the Company, regulatory approval and financing for the
surviving corporation. No assurance can be given that the Merger can be
completed.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Prestige Fragrance & Cosmetics, Inc.:
We have audited the accompanying balance sheets of Prestige Fragrance &
Cosmetics, Inc. (a wholly owned subsidiary of Revlon Consumer Products
Corporation) as of December 31, 1994 and 1995, and the related statements of
operations, cash flows and stockholder's equity for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prestige Fragrance &
Cosmetics, Inc. as of December 31, 1994 and 1995 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
October 18, 1996
New York, New York
F-15
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C>
1994 1995
-------- -------
ASSETS
Current assets:
Cash............................................................................................ $ 3,370 $ 3,421
Inventories, net................................................................................ 26,701 29,171
Prepaid expenses and other...................................................................... 795 846
-------- -------
Total current assets......................................................................... 30,866 33,438
-------- -------
Property and equipment, net....................................................................... 5,375 6,409
Intangible asset.................................................................................. 1,528 1,490
-------- -------
Total assets................................................................................. $ 37,769 $41,337
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................................................ $ 2,815 $ 876
Accrued expenses and other...................................................................... 2,269 2,548
-------- -------
Total current liabilities.................................................................... 5,084 3,424
-------- -------
Due to Parent..................................................................................... 21,353 9,615
Stockholder's equity:
Common stock, par value $1.00 per share, 1,000 shares authorized, 1 share issued and
outstanding.................................................................................. -- --
Additional paid-in capital...................................................................... 9,043 30,023
Retained earnings (Accumulated deficit)......................................................... 2,289 (1,725)
-------- -------
Total stockholder's equity................................................................... 11,332 28,298
-------- -------
Total liabilities and stockholder's equity.............................................. $ 37,769 $41,337
-------- -------
-------- -------
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C>
1993 1994 1995
------- ------- -------
Net sales......................................................................... $54,677 $62,674 $72,717
Cost of sales..................................................................... 27,636 31,922 38,044
------- ------- -------
Gross margin................................................................... 27,041 30,752 34,673
Selling, general and administrative expenses...................................... 27,641 31,441 36,500
------- ------- -------
Operating loss................................................................. (600) (689) (1,827)
Intercompany interest............................................................. 914 1,329 2,137
------- ------- -------
Loss before income taxes.......................................................... (1,514) (2,018) (3,964)
Provision for income taxes........................................................ 17 25 50
------- ------- -------
Net loss.......................................................................... $(1,531) $(2,043) $(4,014)
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT) EQUITY
-------- ---------- ------------ -------------
<S> <C>
Balance at January 1, 1993................................................ $ -- $ 7,496 $ 6,000 $13,496
Net loss.................................................................. -- -- (1,531) (1,531)
Net contributions from Parent............................................. -- 1,547 -- 1,547
-------- ---------- ------------ -------------
Balance at December 31, 1993.............................................. -- 9,043 4,469 13,512
Net loss.................................................................. -- -- (2,043) (2,043)
Net distributions to Parent............................................... -- -- (137) (137)
-------- ---------- ------------ -------------
Balance at December 31, 1994.............................................. -- 9,043 2,289 11,332
Net loss.................................................................. -- -- (4,014) (4,014)
Net distributions to Parent............................................... -- (3,707) -- (3,707)
Capitalization of indebtedness by Parent.................................. -- 24,687 -- 24,687
-------- ---------- ------------ -------------
Balance at December 31, 1995.............................................. $ -- $ 30,023 $ (1,725) $28,298
-------- ---------- ------------ -------------
-------- ---------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C>
1993 1994 1995
------- ------- -------
Cash flows from operating activities:
Net loss........................................................................... $(1,531) $(2,043) $(4,014)
Depreciation and amortization...................................................... 1,071 1,388 1,996
Change in assets and liabilities, net of the effect of acquisition:
Increase in inventories......................................................... (1,113) (3,243) (2,470)
(Increase) decrease in prepaid expenses and other............................... (177) 255 (51)
Increase (decrease) in accounts payable......................................... 1,016 1,358 (1,939)
(Decrease) increase in accrued expenses and other............................... (157) (348) 279
------- ------- -------
Net cash used for operating activities........................................ (891) (2,633) (6,199)
------- ------- -------
Cash flows from investing activities:
Capital expenditures............................................................... (2,743) (1,962) (2,992)
------- ------- -------
Net cash used for investing activities........................................ (2,743) (1,962) (2,992)
------- ------- -------
Cash flows from financing activities:
Increase in Due to Parent.......................................................... 2,751 6,578 12,949
Net contributions from (distributions to) Parent................................... 1,547 (137) (3,707)
------- ------- -------
Net cash provided by financing activities..................................... 4,298 6,441 9,242
------- ------- -------
Net increase in cash................................................................. 664 1,846 51
Cash at the beginning of the period.................................................. 860 1,524 3,370
------- ------- -------
Cash at the end of the period........................................................ $ 1,524 $ 3,370 $ 3,421
------- ------- -------
------- ------- -------
Supplemental schedule of non cash investing activities:
In connection with the business acquisition, liabilities were assumed as follows:
Fair value of assets acquired...................................................... $ 3,882
Cash paid.......................................................................... --
-------
Liabilities assumed................................................................ $ 3,882
-------
-------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. Nature of Business
Prestige Fragrance & Cosmetics, Inc. ("PFC" or the "Company") was
incorporated on July 6, 1987. PFC's business consists of two groups, its retail
outlets and the employee stores. As of December 31, 1995, the Company owned and
operated 186 retail outlet stores, operating under the names "Colours & Scents,"
"Prestige Fragrance & Cosmetics," "Visage" and "The Cosmetic Warehouse"
throughout the United States, and seven stores in the United States principally
for employees of Revlon Consumer Products Corporation ("RCPC" or the "Parent")
and its affiliates. The retail outlet stores are located in regional and
manufacturers' outlet malls. The employee stores are located primarily at RCPC
offices and manufacturing facilities throughout the country. The Company offers
a broad selection of brand name prestige and mass-merchandised cosmetic
products, consisting of makeup, lipstick, nail enamel, fragrances and personal
care and skin care products. The Prestige Fragrance & Cosmetics outlet stores
provide an outlet for mass cosmetic manufacturers to sell their surplus and
returned and refurbished products. Colours & Scents stores generally carry first
quality prestige brand fragrances and cosmetics at discounts from department
store prices. Colours & Scents stores also operate in the outlet mall
environment and as such provide an outlet for prestige brand manufacturers to
sell their excess and overstocked first quality merchandise.
2. Significant Accounting Policies
BASIS OF PRESENTATION:
The Company is a wholly owned subsidiary of RCPC, which is a wholly owned
subsidiary of Revlon, Inc. ("Revlon"), which in turn is an indirect majority
owned subsidiary of Revlon Holdings Inc. ("Holdings"). Holdings is an indirect
subsidiary of Mafco Holdings Inc. ("Mafco Holdings").
Assets, liabilities and results of operations specifically identifiable to
certain small businesses that historically were included in the financial
statements of the Company have been excluded from these financial statements as
those businesses were transferred to and are currently managed and operated by
RCPC.
CASH:
The Company maintains minimal cash balances on hand at the stores and in
local bank branches. The cash is regularly transferred to an account maintained
by RCPC and at such time reduces the amount due to Parent.
INVENTORIES:
Inventories, consisting of finished goods, are stated at the lower of cost
or market value. Cost is determined using the average cost method.
PROPERTY, PLANT AND EQUIPMENT:
Machinery, office furniture and equipment are recorded at cost and are
depreciated on a straight-line basis over the estimated useful lives of such
assets, which is generally five years. Leasehold improvements are amortized over
the terms of the lease or the estimated useful lives of the improvements,
whichever is shorter. The estimated useful lives for leasehold improvements is
generally five years. Repairs and maintenance are charged to operations as
incurred, and expenditures for additions and improvements are capitalized.
INTANGIBLE ASSET:
The intangible asset relates to the acquisition in 1994 of the assets and
liabilities assumed of Colours & Scents, Inc. ("Colours & Scents") and consists
of goodwill, which is being amortized on a straight-line basis over 40 years.
The Company evaluates, when circumstances warrant, the recoverability of its
intangible asset on the basis of undiscounted cash flow projections and through
the use of various other measures, which include, among other things, a review
of its business plans. Accumulated amortization aggregated $10 and $48 at
December 31, 1994 and 1995, respectively.
F-20
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. Significant Accounting Policies -- Continued
REVENUE RECOGNITION:
The Company recognizes revenue upon the sale of products at its stores.
INCOME TAXES:
Income taxes are calculated using the liability method in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
The Company is included in the affiliated group of which Mafco Holdings is
the common parent, and the Company's federal taxable income and loss will be
included in such group's consolidated tax returns filed by Mafco Holdings. The
Company also may be included in certain state and local tax returns of Mafco
Holdings or its subsidiaries. For all periods presented, federal, state and
local income taxes are provided as if the Company filed its own tax returns. In
June 1992, RCPC and certain of its subsidiaries, including the Company, and
Mafco Holdings entered into a tax sharing agreement, subsequently amended, which
is described in Note 10.
PENSION, HEALTH AND WELFARE AND POSTEMPLOYMENT BENEFITS:
Employees of the Company are eligible to participate in RCPC sponsored
employee pension benefit plans, including the Revlon Employees' Savings and
Investment Plan, a defined contribution 401 (k) plan (the "Revlon Savings Plan")
and the Revlon Employees' Retirement Plan, a defined benefit pension plan (the
"Revlon Pension Plan") and RCPC sponsored employee welfare benefit plans,
including medical, dental, life and disability insurance coverage. The minimum
amount required pursuant to the Employee Retirement Income Security Act, as
amended, is contributed annually by RCPC on behalf of all participants in the
plans, including PFC employees who participate in the RCPC sponsored plans. PFC
records pension expense for its share of the pension liability for the employees
of the Company as a component of the allocation made by RCPC to PFC. Certain
union employees of RCPC that provide services to PFC are covered by the
Revlon/UAW Pension Plan and the UAW Group Welfare Plan. Wages, benefit costs and
pension and welfare expenses of RCPC union employees that provide services to
PFC are charged directly to PFC and are recorded as charges to selling, general
and administrative expenses (see Note 11).
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires the Company to
accrue for benefits such as severance, disability and health insurance provided
to former employees prior to their retirement, if estimable. Such benefits
generally are vested and accumulate over employees' service periods. Effective
January 1, 1994, the Company accounts for such benefits on a terminal basis in
accordance with the provisions of SFAS No. 5, "Accounting for Contingencies," as
amended by SFAS No. 112, which requires companies to accrue for postemployment
benefits when it is probable that a liability has been incurred and the amount
of such liability can be reasonably estimated, which is generally when an
employee is terminated. The Company does not believe such liabilities can be
reasonably estimated prior to termination. The adoption of SFAS No. 112 did not
have a material impact on the 1994 Statement of Operations.
CONCENTRATION OF RISK:
The Company's only financial instrument that is exposed to concentration of
credit risk consists of cash. The Company's cash is deposited with major banks
and financial institutions and is transferred to an account maintained by RCPC
on a regular basis. RCPC routinely assesses the financial strength of its
financial institutions, including those of its subsidiaries. As a consequence,
RCPC and PFC have concluded that the Company's exposure resulting from
concentration of credit risk is limited.
The Company purchased fragrances, personal care and cosmetics and skin care
products from RCPC for first quality products at prices equal to cost plus a
mark-up of approximately 6.1%, 6.1% and 5.5% for 1993, 1994 and 1995,
respectively, and for returned and refurbished products at prices equal to cost
plus a mark-up of approximately 3.3% for 1993, 1994 and 1995. The amounts
purchased, including the mark-up, amounted to $17,680, $19,047 and $13,468 for
1993, 1994 and 1995, respectively. The loss of RCPC as a supplier could have a
material adverse effect on the Company's business if PFC were unable to secure
alternative sources of similar products.
F-21
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. Significant Accounting Policies -- Continued
PFC's second largest supplier, with which PFC has a supply contract that
expires in 1999, accounted for approximately 12.4% and 15.3% of total purchases
during 1994 and 1995, respectively. The Company does not believe that the loss
of this supplier or any other single supplier other than RCPC would have a
material adverse effect on PFC's business because the Company believes that
alternative sources of supply are available.
NEW STORE OPENING EXPENSES:
Personnel recruitment, training, supplies, payroll and related costs
incurred in connection with opening new stores are expensed as incurred.
MANAGEMENT ESTIMATES:
The Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, the disclosure of contingent assets and
liabilities and the reporting of revenue and expenses to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and accounts payable approximate their fair
values as of December 31, 1995, due to the short maturities of such instruments.
3. Effect of New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The statement also requires
that long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. SFAS
No. 121 will be effective beginning January 1, 1996. The Company does not
believe that the adoption of SFAS No. 121 will have a material adverse impact on
its results of operations or financial condition.
4. Acquisition of Colours & Scents
On July 6, 1994, the Company acquired substantially all of the assets and
assumed certain liabilities of Colours & Scents for cash of $2,734, which was
paid by RCPC on behalf of the Company, and recorded the purchase price as an
increase in Due to Parent. The acquisition has been accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets purchased and liabilities assumed based upon their
estimated fair values at the date of acquisition. The excess of the purchase
price over the fair values of the net assets acquired and liabilities assumed
was $1,538 and has been recorded as an intangible asset, which is being
amortized on a straight-line basis over 40 years. The results of operations of
Colours & Scents have been included in the accompanying Statements of Operations
from the date of acquisition.
F-22
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. Acquisition of Colours & Scents -- Continued
The following unaudited pro forma summary combines the results of
operations of the Company and Colours & Scents as if the acquisition had
occurred at the beginning of 1993 after giving effect to certain pro forma
adjustments, including, among others, adjustments to reflect the amortization of
cost in excess of net assets of the business acquired and increased interest
expense associated with acquisition funding. This pro forma financial
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been if the
acquisition had occurred at the beginning of 1993, nor is it necessarily
indicative of the results of operations which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
<S> <C>
1993 1994
------- -------
Net sales............................................................................. $60,215 $66,085
Operating loss........................................................................ (427) (789)
Net loss.............................................................................. $(1,631) $(2,280)
------- -------
------- -------
</TABLE>
5. Additional Paid-in Capital
During 1995, the Parent capitalized intercompany receivables from the
Company in the amount of $24,687. The Company recorded the capital infusion as
Additional paid-in capital and reduced the Due to Parent correspondingly.
6. Due to Parent
As of December 31, 1994 and 1995, the Company had an outstanding obligation
due to its Parent and certain of its Parent's subsidiaries of $21,353 and
$9,615, respectively. The Company's working capital and capital expenditure
needs are satisfied through interest-bearing obligations that are payable by the
Company to its Parent. The weighted average interest rate on the outstanding
balances due to the Parent for the years ended December 31, 1993, 1994 and 1995
was 10%, respectively. The Company has reflected this obligation on a long-term
basis as the obligation has not been repaid as a result of the capitalization
(see Note 5) and to the extent debt was incurred subsequent to the capital
infusion, the Company anticipates that such balance will be payable to the
extent of funds available from operations and, if and to the extent such
financing is secured and permits such repayment, from long-term third party
financing.
7. Prepaid Expenses and Other
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1994 1995
---- ----
Prepaid expenses............................................................................ $640 $656
Other....................................................................................... 155 190
---- ----
$795 $846
---- ----
---- ----
</TABLE>
8. Property and Equipment, Net
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
<S> <C>
1994 1995
------- -------
Machinery and equipment............................................................... $ 1,756 $ 1,779
Office furniture and fixtures......................................................... 5,490 6,221
Leasehold improvements................................................................ 3,697 3,978
Construction-in-progress.............................................................. 7 1,202
------- -------
10,950 13,180
Accumulated depreciation.............................................................. (5,575) (6,771)
------- -------
$ 5,375 $ 6,409
------- -------
------- -------
</TABLE>
F-23
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. Property and Equipment, Net -- Continued
Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1993, 1994 and 1995 was $1,071, $1,378 and $1,958,
respectively.
9. Accrued Expenses and Other
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
<S> <C>
1994 1995
------- -------
Taxes, other than federal income taxes................................................... $ 903 $ 986
Rent..................................................................................... 151 406
Compensation and related benefits........................................................ 430 349
Other.................................................................................... 785 807
------- -------
$ 2,269 $ 2,548
------- -------
------- -------
</TABLE>
10. Income Taxes
In June 1992, Holdings, Revlon, RCPC and certain of its subsidiaries,
including the Company, and Mafco Holdings entered into a tax sharing agreement
(as amended, the "Tax Sharing Agreement"), pursuant to which Mafco Holdings has
agreed to indemnify Revlon and RCPC against federal, state or local income tax
liabilities of the consolidated or combined group of which Mafco Holdings (or a
subsidiary of Mafco Holdings other than Revlon and RCPC or its subsidiaries) is
the common parent for taxable periods beginning on or after January 1, 1992
during which Revlon and RCPC or a subsidiary of RCPC is a member of such group.
Pursuant to the Tax Sharing Agreement, for all taxable periods beginning on or
after January 1, 1992, RCPC will pay to Revlon, which in turn will pay to
Holdings amounts equal to the taxes that RCPC and its subsidiaries would
otherwise have to pay if they were to file separate consolidated federal, state
or local income tax returns (including any amounts determined to be due as a
result of a redetermination arising from an audit or otherwise of the
consolidated or combined tax liability relating to any such period which is
attributable to RCPC or its subsidiaries), except that RCPC and its subsidiaries
will not be entitled to carry back any losses to taxable periods ending prior to
January 1, 1992. Pursuant to the Tax Sharing Agreement, the Company is
responsible to pay to RCPC, to the extent a tax obligation exists for RCPC and
its subsidiaries under the Tax Sharing Agreement, amounts equal to the taxes
that the Company would have to pay if it were to file separate federal, state or
local income tax returns applying the same principles used in determining RCPC's
tax sharing payments to Revlon. No payments are required by RCPC or any of its
subsidiaries, including the Company, if and to the extent RCPC is prohibited
under its credit agreement from making tax sharing payments. The RCPC credit
agreement currently in effect (the "RCPC Credit Agreement") prohibits RCPC from
making cash tax sharing payments other than in respect of state and local income
taxes. Since the payments to be made by RCPC and its subsidiaries under the Tax
Sharing Agreement will be determined by the amount of taxes that RCPC and its
subsidiaries would otherwise have to pay if it were to file separate federal,
state or local income tax returns, the Tax Sharing Agreement will benefit Mafco
Holdings to the extent Mafco Holdings can offset the taxable income generated by
RCPC and its subsidiaries against losses and tax credits generated by Mafco
Holdings and its other subsidiaries. As a result of net operating tax losses and
prohibitions under the RCPC Credit Agreement, no federal tax payments or
payments in lieu of taxes pursuant to the Tax Sharing Agreement were required by
the Company in 1993, 1994 or 1995.
The Company's provision for income taxes reflects only the current
provision for state and local taxes as the Company does not have a provision for
federal income tax as a result of its losses before income taxes.
F-24
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. Income Taxes -- Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1995 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
<S> <C>
1994 1995
------- -------
Deferred tax assets:
Inventories.......................................................................... $ 678 $ 631
Net operating loss carryforwards..................................................... 4,892 8,511
Employee benefits.................................................................... 18 7
Other................................................................................ 479 851
------- -------
Total gross deferred tax assets................................................... 6,067 10,000
Less valuation allowance.......................................................... (6,015) (9,902)
------- -------
Net deferred tax assets........................................................... 52 98
Deferred tax liabilities:
Other................................................................................ (52) (98)
------- -------
Total gross deferred tax liabilities.............................................. (52) (98)
------- -------
Net deferred tax liability............................................................. $ -- $ --
------- -------
------- -------
</TABLE>
The valuation allowance for deferred tax assets at January 1, 1994 was
$3,381. The valuation allowance increased by $2,634 during the year ended
December 31, 1994 and increased by $3,887 during the year ended December 31,
1995.
11. Related Party Transactions
SERVICES:
RCPC provides certain services to the Company for which the Company is
charged for direct and indirect expenses incurred by RCPC in providing such
services. Such services include insurance and risk management services, travel,
legal services, treasury and finance services, customer service, information
systems and audit services. Additionally, RCPC provides the services of certain
union employees at the Company's warehouse and distribution center. The amounts
charged by RCPC to the Company for such allocated expenses and for the services
of the union employees amounted to approximately $2,022, $1,968 and $2,037 for
1993, 1994 and 1995, respectively. These expenses are included within selling,
general and administrative expenses in the accompanying Statements of
Operations.
EMPLOYEE BENEFITS:
Company employees are eligible to participate in RCPC sponsored employee
pension benefit plans, including the Revlon Savings Plan and the Revlon Pension
Plan and RCPC sponsored employee welfare benefit plans, including medical,
dental, life and disability insurance coverage. The minimum amount required
pursuant to the Employee Retirement Income Security Act, as amended, is
contributed annually by RCPC on behalf of PFC employees who participate in the
RCPC sponsored plans. PFC recorded $1,818, $2,221 and $2,754 in 1993, 1994 and
1995, respectively, in benefit expenses for its share of the pension and welfare
benefit plans liability for the Company's employees. Such amounts are recorded
as a charge to selling, general and administrative expenses in the accompanying
Statements of Operations. RCPC union employees who provide services to the
Company are covered by the Revlon/UAW Pension Plan and the UAW Group Welfare
Plan. Pension and welfare expenses for the RCPC union employees are charged
directly to the Company and have been included within amounts reflected in the
"Services" paragraph.
RENT:
The Company currently occupies its headquarters office, warehouse and
distribution center in Holmdel, New Jersey without any written arrangement with
RCPC. The amount charged to the Company by RCPC for the Holmdel facility
amounted to approximately $563, $546 and $557 for 1993, 1994 and 1995,
respectively. The employee stores located in New
F-25
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
11. Related Party Transactions -- Continued
York City and Apex, NC are leased from unaffiliated third parties by RCPC and a
subsidiary of RCPC, respectively. The five remaining employee stores are
occupied by the Company without any written arrangement with RCPC. The Company
paid to RCPC rental and other allocated charges for the employee stores that
amounted to $57, $25 and $52 in the aggregate in 1993, 1994 and 1995,
respectively. All rental and other expenses related to such occupancies have
been recorded by the Company in selling, general and administrative expenses in
the accompanying Statements of Operations.
SALE OF PRODUCT MANUFACTURED BY RCPC:
Sales by PFC of products that were purchased from RCPC and Holdings
amounted to approximately 88.2%, 68.0% and 48.0% of total net sales for 1993,
1994 and 1995, respectively.
TAX SHARING AGREEMENT:
Holdings, RCPC and certain of its subsidiaries, including the Company, and
Mafco Holdings are parties to the Tax Sharing Agreement which is described in
Note 10.
12. Commitments and Contingencies
LEASES:
The Company currently leases retail space at various locations under
operating lease agreements. Certain leases provide for contingent rents based
upon store sales exceeding specified amounts. Additionally, some store leases
have specified annual rental increases or rent abatements. Total rent expense to
third parties for 1993, 1994 and 1995, was approximately $4,764, $6,326 and
$7,743, respectively, of which $554, $278 and $358 was recorded for contingent
rent in 1993, 1994 and 1995, respectively. Certain of the leases contain
provisions pursuant to which the Company may terminate if the outlet mall in
which the store is located does not achieve at least a specified occupancy rate.
Certain of the leases permit either the Company or the lessor to terminate the
lease if specified minimum sales levels are not met. In addition, one hundred
and twenty-one of the leases permit the Company to renew its leases for
specified terms.
Future minimum lease commitments under operating leases with initial or
remaining lease terms in excess of one year from December 31, 1995 aggregated
$24,114; such commitments for each of the five years subsequent to December 31,
1995 are $4,833, $4,618, $4,034, $3,166 and $2,611, respectively.
OTHER:
The Company is involved as a defendant in certain litigation and
proceedings arising in the normal conduct of its business. In the opinion of the
Company's management, based upon advice of its counsel handling such litigation
and proceedings, an adverse outcome, if any, will not have a material effect on
the Company's financial condition or results of operations.
Certain of the Company's assets and its one share of issued and outstanding
common stock have been pledged as collateral to support certain bank obligations
of RCPC and its subsidiaries, including the RCPC Credit Agreement, and the stock
has been pledged as collateral under a yen-denominated credit agreement of
another subsidiary of RCPC.
13. Subsequent Event
PROPOSED MERGER:
On October 1, 1996, RCPC entered into a non-binding letter of intent with
respect to the proposed merger (the "Proposed Merger") of the Company with and
into The Cosmetic Center, Inc. ("Cosmetic Center") with Cosmetic Center as the
surviving corporation. In connection with the Proposed Merger, a new class of
Cosmetic Center voting common stock ("Class C Common Stock") would be created.
RCPC would receive newly issued Class C Common Stock such that immediately
following the Proposed Merger RCPC would own 65% of the issued and outstanding
Class C Common Stock of Cosmetic Center. Also as a part of the Proposed Merger,
holders of Cosmetic Center's Class A and Class B common stock could
F-26
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
13. Subsequent Event -- Continued
elect to receive cash at $7.63 per share and holders of options that have an
exercise price of less than $7.63 per share could elect to receive cash of $7.63
less the exercise price with a limit of 2,829,065 shares and options as to which
the cash elections would be accepted (the "Cash Election"). Giving effect to the
Cash Election, RCPC could own at least 74% and up to 84% of Cosmetic Center's
outstanding common stock. Since, as a result of the Proposed Merger and Cash
Election, RCPC will own a majority of voting interest in Cosmetic Center, the
Proposed Merger will be accounted for as a reverse acquisition, whereby the
Company's financial statements would represent the continuing historical
financial statements of Cosmetic Center. The completion of the Proposed Merger
is subject to, among other things, the approval of stockholders and boards of
directors of the Company and Cosmetic Center, regulatory approval and financing
for the surviving corporation. If such conditions are satisfied it is
anticipated that the Proposed Merger would be completed in early 1997. No
assurance can be given that such Proposed Merger can be completed.
As a part of the Proposed Merger, the Company expects that a credit
facility with a third party lending institution would be established, that would
provide financing for the Cash Election, refinancing of Cosmetic Center's
existing bank debt, post Proposed Merger working capital and repayment of the
outstanding balance due to Parent.
F-27
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash.................................................................................... $ 3,421 $ 1,940
Inventories, net........................................................................ 29,171 32,686
Prepaid expenses and other.............................................................. 846 986
------------ -------------
Total current assets................................................................. 33,438 35,612
------------ -------------
Property and equipment, net............................................................... 6,409 7,703
Intangible asset.......................................................................... 1,490 1,461
------------ -------------
Total assets......................................................................... $ 41,337 $44,776
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................................ $ 876 $ 2,831
Accrued expenses and other.............................................................. 2,548 1,984
------------ -------------
Total current liabilities............................................................ 3,424 4,815
------------ -------------
Due to Parent............................................................................. 9,615 18,746
Stockholder's equity:
Common stock, par value $1.00 per share, 1,000 shares authorized, 1 share issued and
outstanding.......................................................................... -- --
Additional paid-in capital.............................................................. 30,023 26,543
Accumulated deficit..................................................................... (1,725) (5,328)
------------ -------------
Total stockholder's equity........................................................... 28,298 21,215
------------ -------------
Total liabilities and stockholder's equity......................................... $ 41,337 $44,776
------------ -------------
------------ -------------
</TABLE>
See accompanying note to Unaudited Condensed Financial Statements.
F-28
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C>
1995 1996
------- -------
Net sales......................................................................................... $45,790 $48,970
Cost of sales..................................................................................... 23,765 23,592
------- -------
Gross margin.................................................................................... 22,025 25,378
Selling, general and administrative expenses...................................................... 26,977 28,237
------- -------
Operating loss.................................................................................. (4,952) (2,859)
Intercompany interest............................................................................. 1,958 699
------- -------
Loss before income taxes.......................................................................... (6,910) (3,558)
Provision for income taxes........................................................................ 45 45
------- -------
Net loss.......................................................................................... $(6,955) $(3,603)
------- -------
------- -------
</TABLE>
See accompanying note to Unaudited Condensed Financial Statements.
F-29
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ------------ -------------
<S> <C>
Balance at January 1, 1996................................................ $ -- $ 30,023 $ (1,725) $28,298
Net loss.................................................................. -- -- (3,603) (3,603)
Net distributions to Parent............................................... -- (3,480) -- (3,480)
------ ---------- ------------ -------------
Balance at September 30, 1996............................................. $ -- $ 26,543 $ (5,328) $21,215
------ ---------- ------------ -------------
------ ---------- ------------ -------------
</TABLE>
See accompanying note to Unaudited Condensed Financial Statements.
F-30
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1996
-------- --------
<S> <C>
Cash flows from operating activities:
Net loss............................................................................................. $ (6,955) $ (3,603)
Depreciation and amortization........................................................................ 1,400 1,543
Change in assets and liabilities, net of the effect of acquisition:
Increase in inventories........................................................................... (5,860) (3,515)
Increase in prepaid expenses and other............................................................ (92) (140)
(Decrease) increase in accounts payable........................................................... (573) 1,955
Increase (decrease) in accrued expenses and other................................................. 731 (564)
-------- --------
Net cash used for operating activities.......................................................... (11,349) (4,324)
-------- --------
Cash flows from investing activities:
Capital expenditures................................................................................. (2,317) (2,808)
-------- --------
Net cash used for investing activities.......................................................... (2,317) (2,808)
-------- --------
Cash flows from financing activities:
Increase in Due to Parent............................................................................ 13,302 9,131
Net distributions to Parent.......................................................................... (1,456) (3,480)
-------- --------
Net cash provided by financing activities....................................................... 11,846 5,651
-------- --------
Net decrease in cash................................................................................... (1,820) (1,481)
Cash at the beginning of the period.................................................................... 3,370 3,421
-------- --------
Cash at the end of the period.......................................................................... $ 1,550 $ 1,940
-------- --------
-------- --------
</TABLE>
See accompanying note to Unaudited Condensed Financial Statements.
F-31
<PAGE>
PRESTIGE FRAGRANCE & COSMETICS, INC.
NOTE TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. Basis of Presentation
Prestige Fragrance & Cosmetics, Inc. ("the Company") is a wholly owned
subsidiary of Revlon Consumer Products Corporation ("RCPC"), which is an
indirect subsidiary of Mafco Holdings Inc. ("Mafco Holdings").
The accompanying Condensed Financial Statements are unaudited. In
management's opinion, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been made.
Assets, liabilities and results of operations specifically identifiable to
certain small businesses that historically were included in the financial
statements of the Company have been excluded from these financial statements as
those businesses were transferred to and are currently managed and operated by
RCPC.
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year, due, in part, to seasonal fluctuations, which are
normal for the Company's business.
The Company has made a number of estimates and assumptions relating to the
assets and liabilities, the disclosure of contingent assets and liabilities and
the reporting of revenue and expenses to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-32
<PAGE>
ANNEX I
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
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THE COSMETIC CENTER, INC.,
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REVLON CONSUMER PRODUCTS CORPORATION
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AND
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PRESTIGE FRAGRANCE & COSMETICS, INC.
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DATED AS OF NOVEMBER 27, 1996
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 27, 1996 by and among The
Cosmetic Center, Inc., a Delaware corporation (the "Company"), Revlon Consumer
Products Corporation, a Delaware corporation ("Parent"), and Prestige Fragrance
& Cosmetics, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("PFC").
WHEREAS, the Board of Directors of each of Parent, PFC and the Company has
approved, and deems it advisable and in the best interests of its respective
stockholders to consummate, the merger of PFC with and into the Company upon the
terms and subject to the conditions set forth herein; and
WHEREAS, Parent is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, Anita J.
Weinstein, Mark S. Weinstein, Susan K. Magenheim and Weinstein Family Limited
Partnership, a Maryland limited partnership (collectively, the "Principal
Stockholders"), enter into an agreement (the "Stockholders Agreement") providing
for certain actions relating to the transactions contemplated by this Agreement,
and to induce Parent to enter into this Agreement, the Company has approved the
entering into by the Principal Stockholders of the Stockholders Agreement with
Parent;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
MERGER
SECTION 1.01 MERGER. Subject to the terms and conditions hereof, at the
Effective Time (as defined in Section 1.02), PFC shall be merged (the "Merger")
with and into the Company in accordance with the General Corporation Law of the
State of Delaware (the "GCL"). Following the Merger, the Company shall continue
as the surviving corporation (the "Surviving Corporation") under the name "The
Cosmetic Center, Inc." and the separate corporate existence of PFC shall cease.
The Merger shall have the effects set forth in the GCL.
SECTION 1.02 EFFECTIVE TIME. Parent, PFC and the Company will cause a
Certificate of Merger to be executed and filed on the Closing Date (as defined
in Section 1.03) (or on such other date as Parent and the Company may agree)
with the Secretary of State of the State of Delaware in accordance with the GCL
(the "Certificate of Merger"). The Merger shall become effective on the date on
which the Certificate of Merger has been duly filed with the Secretary of State
of the State of Delaware or such date and time as is agreed upon by the parties
and specified in the Certificate of Merger. The date and time the Merger becomes
effective is hereinafter referred to as "Effective Time."
SECTION 1.03 CLOSING. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. on a date specified by the parties, which shall be no later
than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VI (the "Closing Date"), at the offices of
Latham & Watkins, 885 Third Avenue, New York, New York 10022, unless another
date or place is agreed to in writing by the parties hereto.
SECTION 1.04 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be amended at the Effective Time by virtue of and in the Merger so
as to read in its entirety in the form set forth as Exhibit A, and, as so
amended, until thereafter further amended as provided therein and under the GCL,
it shall be the Certificate of Incorporation of the Surviving Corporation
following the Merger. The Bylaws of the Surviving Corporation shall be as set
forth on Exhibit B.
SECTION 1.05 DIRECTORS. The individuals listed on Annex A shall, from and
after the Effective Time, be the initial directors of the Surviving Corporation
until their successors shall have been duly elected and qualified or until their
earlier death, resignation or removal in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
SECTION 1.06 OFFICERS AND KEY EMPLOYEES. The individuals listed on Annex B
shall, from and after the Effective Time, be the initial officers of the
Surviving Corporation until their successors shall have been duly appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and Bylaws of the Surviving Corporation.
To ensure continuity of management for the Surviving Corporation, on the Closing
Date, the Surviving Corporation shall enter into Employment Agreements,
substantially in the form of Exhibit C-1 and C-2, with each of Mark Weinstein
and Anita Weinstein, respectively (the "Weinstein Employment Agreements"), an
Amendment to Employment Agreement, substantially in the form of Exhibit C-3,
with Ben S. Kovalsky (the "Kovalsky Amendment" and, together with the Weinstein
Employment Agreements, the "Employment Agreements") and a Consulting Agreement,
substantially in the form of Exhibit D, with Susan Magenheim (the "Consulting
Agreement").
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ARTICLE II
EXCHANGE OF SHARES
SECTION 2.01 CONVERSION OF SHARES.
(a) Each share of Class A common stock, par value $.01 per share (a "Class
A Share"), and each share of Class B common stock, par value $.01 per share (a
"Class B Share"; the Class B Shares and the Class A Shares are collectively
referred to herein as the "Shares") of the Company issued and outstanding
immediately prior to the Effective Time shall, at the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the following (the "Merger Consideration"):
(i) for each such Share other than Electing Shares (as defined in
Section 2.01(a)(ii)), one validly issued, fully paid and non-assessable
share of Class C common stock, par value $.01 per share, of the Surviving
Corporation (each, a "New Share"); and
(ii) to the extent not converted into New Shares in accordance with
Section 2.01(a)(i), and only for each such Share with respect to which an
election to receive cash has been effectively made and not revoked or lost
pursuant to Section 2.02 ("Electing Shares"), the right to receive the
consideration set forth in Section 2.03.
(b) Each Share held by the Company as a treasury share immediately prior to
the Effective Time shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the Company, be canceled and retired and cease
to exist without any conversion thereof and no payment shall be made with
respect thereto.
SECTION 2.02 CASH ELECTIONS.
(a) Each person who, on or prior to the Election Date (as defined in
Section 2.02(c)), is a record holder of Shares will be entitled, with respect to
all or any portion of his Shares, to make an unconditional election (a "Cash
Election"), subject to the terms hereof, on or prior to the Election Date to
receive the consideration set forth in Section 2.03 on the basis hereinafter set
forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section
5.03(a)), Parent shall appoint a bank or trust company to act as exchange agent
(the "Exchange Agent") for payment of the Merger Consideration.
(c) The Company shall prepare and mail a form of election, which form shall
be subject to the reasonable approval of Parent (the "Form of Election"), with
the Proxy Statement to the record holders of Shares as of the record date for
the Stockholders Meeting (as defined in Section 5.03(c)), which Form of Election
shall be used by each record holder of Shares who wishes to elect to receive the
consideration set forth in Section 2.03. Any such holder's election to receive
the Cash Election Price shall have been made properly if and only if the
Exchange Agent shall have received at its designated office, by 5:00 p.m., New
York City time, on the business day (the "Election Date") immediately preceding
the date of the Stockholders Meeting, a Form of Election properly completed and
signed by such holder.
(d) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent (i)
prior to 5:00 p.m., New York City time, on the Election Date or (ii) after the
Election Date, if (and only to the extent that) the Exchange Agent is required
to permit revocations and the Effective Time shall not have occurred prior to
such date. In addition, all Forms of Election shall automatically be revoked if
the Exchange Agent is notified in writing by Parent and the Company that the
Merger has been abandoned.
(e) The determination of the Exchange Agent shall be binding as to whether
or not elections to receive the Cash Election Price have been properly made or
revoked pursuant to this Section 2.02, including whether or not elections and
revocations were made on a timely basis. If the Exchange Agent determines that
any election to receive the Cash Election Price was not properly made or was
properly revoked with respect to Shares, such Shares shall be treated by the
Exchange Agent as Shares which were not Electing Shares, and such Shares shall
be converted in the Merger into New Shares pursuant to Section 2.01(a)(ii). The
Exchange Agent shall also make all computations contemplated by Sections 2.03
and 2.06, and all such computations shall be conclusive and binding on the
holders of the Shares absent manifest error. The Exchange Agent may, with the
mutual agreement of Parent and the Company, make such rules as are consistent
with this Section 2.02 for the implementation of the elections provided for
herein as shall be necessary or desirable fully to effect such elections.
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SECTION 2.03 MAXIMUM ELECTION NUMBER.
(a) If the aggregate number of Electing Shares and Electing Option Shares
(as defined in Section 2.06) (the "Cash Election Number") does not exceed
2,829,065 (the "Maximum Election Number"), then each Electing Share shall, at
the Effective Time, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive in cash from the
Company following the Merger an amount equal to $7.63 (the "Cash Election
Price").
(b) If the Cash Election Number exceeds the Maximum Election Number, then
each Electing Share shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive (i) cash from the Company following the Merger in an amount
equal to (x) the Cash Election Price multiplied by (y) a fraction (the "Cash
Proration Factor"), the numerator of which shall be the Maximum Election Number
and the denominator of which shall be the Cash Election Number, and (ii) subject
to Section 2.05(e), a fractional New Share equal to (x) one New Share,
multiplied by (y) one minus the Cash Proration Factor.
SECTION 2.04 CONVERSION OF PFC'S COMMON STOCK; REGISTRATION RIGHTS
AGREEMENT. The sole share of common stock of PFC issued and outstanding
immediately prior to the Effective Time shall, at the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and become 8,479,335 validly issued, fully paid and
non-assessable New Shares. On the Closing Date, the Company and Parent shall
enter into a Registration Rights Agreement (the "Parent Registration Rights
Agreement") substantially in the form of Exhibit E.
SECTION 2.05 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As soon as reasonably practicable as of or after the
Effective Time, the Company shall deposit with the Exchange Agent, for the
benefit of the holders of Company Common Stock, for exchange in accordance with
this Article II, the cash portion of Merger Consideration.
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
each holder of an outstanding certificate or certificates which prior thereto
represented Shares shall, upon surrender to the Exchange Agent of such
certificate or certificates and acceptance thereof by the Exchange Agent, be
entitled to a certificate or certificates representing the number of full New
Shares, if any, to be received by the holder thereof pursuant to this Agreement
and the amount of cash, if any, into which the number of Shares previously
represented by such certificate or certificates surrendered shall have been
converted pursuant to this Agreement. The Exchange Agent shall accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time, there shall be no
further transfer on the records of the Company or its transfer agent of
certificates representing Shares, and if such certificates are presented to the
Company for transfer, they shall be canceled against delivery of the Merger
Consideration to which the holder of such Shares is entitled. If any certificate
for such New Shares is to be issued in, or if cash is to be remitted to, a name
other than that in which the certificate for the Shares surrendered for exchange
is registered, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer and that the person requesting such exchange shall
pay to the Company or its transfer agent any transfer or other taxes required by
reason of the issuance of certificates for such New Shares in a name other than
that of the registered holder of the certificate surrendered, or establish to
the satisfaction of the Company or its transfer agent that such tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
2.05(b), each certificate for Shares shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration as contemplated by Section 2.01. No interest will be paid
or will accrue on any cash payable as Merger Consideration or in lieu of any
fractional New Shares exchanged.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No (i) dividends or
other distributions declared by the Company with a record date after the
Effective Time, (ii) Merger Consideration or (iii) cash payment in lieu of
fractional New Shares pursuant to Section 2.05(e) shall be paid to the holder of
any unsurrendered certificate for Shares until the surrender of such certificate
in accordance with this Article II. Subject to the effect of applicable laws,
following surrender of any such certificate, there shall be paid to the holder
of the certificate representing whole New Shares issued in connection therewith,
without interest, (A) at the time of such surrender, the Merger Consideration
and the amount of any cash payable in lieu of a fractional New Share to which
such holder is entitled pursuant to Article II and the proportionate amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole New Shares, and (B) at the
appropriate payment date, the proportionate amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole New Shares.
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(d) NO FURTHER OWNERSHIP RIGHTS IN SHARES EXCHANGED FOR CASH. All cash paid
upon the surrender for exchange of certificates representing any Shares in
accordance with the terms of this Article II (including any cash paid pursuant
to Section 2.05(e)) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the Shares exchanged for cash
theretofore represented by such certificates.
(e) NO FRACTIONAL SHARES. No certificates or scrip representing fractional
New Shares shall be issued in connection with the Merger, and such fractional
share interests shall not entitle the owner thereof to vote or to any rights of
a stockholder of the Company after the Merger. Notwithstanding any other
provision of this Agreement, each holder of Shares exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a New
Share (after taking into account all Shares delivered by such holder and after
aggregating all fractional shares to which each holder shall be entitled) shall
receive, in lieu thereof, a cash payment (without interest) equal to the Cash
Election Price multiplied by the fraction of a New Share to which such holder
would otherwise be entitled but for this Section 2.05(e).
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.05 (the "Exchange
Fund") which remains undistributed to the holders of the certificates
representing Shares for 180 days after the Effective Time shall be delivered to
the Company, upon demand, and any holders of Shares prior to the Merger who have
not theretofore complied with this Article II shall thereafter look only to the
Company and only as general creditors thereof for payment of their claim for
cash, New Shares, cash in lieu of fractional New Shares and dividends or
distributions with respect to New Shares, if any, to which such holders may be
entitled.
(g) NO LIABILITY. None of Parent or the Company or the Exchange Agent shall
be liable to any person in respect of any New Shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any certificates representing Shares shall not have been
surrendered prior to one year after the Effective Time (or immediately prior to
such earlier date on which any cash, cash in lieu of fractional New Shares or
dividends or distributions with respect to New Shares, if any, in respect of
such certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.04), any such cash, dividends or
distributions in respect of such certificate shall, to the extent permitted by
applicable law, become the property of the Company, free and clear of all claims
or interest of any person previously entitled thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by the Company, on a daily basis. Any
interest and other income resulting from such investments shall be paid to the
Company.
SECTION 2.06 STOCK OPTIONS.
(a) As soon as practicable following the date of this Agreement, the Board
of Directors of the Company (or, if appropriate, any committee thereof
administering the Company's 1991 Stock Option Plan (the "Stock Plan")) shall
adopt such resolutions or take such other actions as may be required (including,
if necessary, the preparation and filing of a Registration Statement on Form
S-8, or an amendment thereto) to effect the following:
(i) cause written notification of the Merger to be given by the Board
of Directors to each holder of an outstanding option to purchase Shares
("Company Stock Options") granted under the Stock Plan to the effect that
each such Company Stock Option has become fully exercisable and fully
vested as provided in the Stock Plan; and
(ii) amend the terms of all outstanding Company Stock Options to
provide that, (A) at the Effective Time, each outstanding Company Stock
Option shall be exercisable for the same number of New Shares and with the
same exercise price and expiration date as such option was exercisable for
Shares immediately prior to Effective Time ("New Options"); provided,
however, that each existing holder of a Company Stock Option that has an
exercise price of less than the Cash Election Price may elect (which
election (the "Option Cash Election") shall be delivered to the Company at
least three business days prior to the Effective Time) to receive in
cancellation for such Company Stock Option (subject to any applicable
withholding taxes) the consideration set forth in Section 2.06(c) and (B)
from and after the Effective Time, there shall be no further grants of
Company Stock Options (including New Options) under the Stock Plan.
(b) The Company Stock Options with respect to which an Option Cash Election
has been effectively made pursuant to Section 2.06(a)(ii) and not revoked or
lost shall be referred to as "Electing Options" and the number of Shares subject
to Company Stock Options with respect to which an Option Cash Election has been
effectively made pursuant to Section 2.06(a)(ii) and not revoked or lost shall
be referred to as "Electing Option Shares."
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(c) If the Cash Election Number does not exceed the Maximum Election
Number, then each Electing Option shall, at the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive an amount of cash from the Company following the
Merger equal to the product of (i) the total number of Electing Option Shares
subject to such Electing Option, multiplied by (ii) the excess of the Cash
Election Price over the exercise price per share of the Electing Option Shares
subject to such Electing Option. If the Cash Election Number exceeds the Maximum
Election Number, then each Electing Option shall, at the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive (i) cash from the Company following the
Merger in an amount equal to the product of (A) the total number of Electing
Option Shares subject to such Electing Option, multiplied by (B) the excess of
the Cash Election Price over the exercise price per share of the Shares subject
to such Electing Option, multiplied by (C) the Cash Proration Factor, and (ii)
New Options exercisable for a number of New Shares, rounded to the nearest whole
number of New Shares, equal to the product of (A) the total number of Electing
Option Shares subject to such Electing Option, multiplied by (B) one minus the
Cash Proration Factor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Parent and PFC to enter into this Agreement, the
Company hereby makes, as of the date hereof, the following representations and
warranties to Parent and PFC, except as otherwise set forth in a written
disclosure schedule (the "Company Disclosure Schedule") delivered by the Company
to Parent and PFC prior to the date hereof, a copy of which is attached hereto,
which contains schedules numbered to correspond to sections of this Article III
and which sets forth in reasonable detail exceptions to the representations and
warranties contained in this Article III and certain other information as
required by this Agreement. Unless otherwise specified, (a) each reference in
this Article III to a numbered schedule is a reference to that numbered schedule
which is included in the Company Disclosure Schedule and (b) no disclosure made
in any particular numbered schedule of the Company Disclosure Schedule shall be
deemed to be made in any other numbered schedule of the Company Disclosure
Schedule unless expressly made therein (by cross reference or otherwise).
SECTION 3.01 ORGANIZATION.
(a) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to have such power, authority or governmental approvals would not
individually or in the aggregate have a Material Adverse Effect (as defined in
this Section 3.01(a)) on the Company. Each of the Company and its subsidiaries
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not individually or in the aggregate have a
Material Adverse Effect on the Company. As used in this Agreement, (i) the term
"subsidiary" shall mean, with respect to any party, any corporation, partnership
or other business entity of which 50% or more of the equity or ordinary voting
power is held by, or which is controlled by, such party, and (ii) any reference
to any event, change or effect being "material" or having a "Material Adverse
Effect" means, with respect to any entity, such event, change or effect is
material or materially adverse (as the case may be) to the financial condition,
business or results of operations of such entity and its subsidiaries, if any,
taken as a whole, or impairs the ability of such entity to consummate the
transactions contemplated by this Agreement.
(b) The Company has heretofore delivered to Parent accurate and complete
copies of the Certificate of Incorporation, as amended to date, and Bylaws, as
currently in effect, of the Company and each of its subsidiaries.
(c) The Company does not own any equity interest in any corporation or
other entity other than its subsidiaries. Exhibit 22 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 29, 1995 sets forth a
complete list of the Company's subsidiaries. Neither the Company nor any of its
subsidiaries is party to any partnerships, joint ventures or similar business
organizations.
SECTION 3.02 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of 5,000,000 Class
A Shares and 5,000,000 Class B Shares. As of the date hereof, (i) 2,713,354
Class A Shares are issued and outstanding and no Class A Shares are issued and
held in the treasury of the Company, (ii) 1,582,780 Class B Shares are issued
and outstanding and no Class B Shares are held in the
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treasury of the Company and (iii) 263,550 Class A Shares and 43,750 Class B
Shares are reserved for issuance upon exercise of outstanding Company Stock
Options granted under the Stock Plan. Schedule 3.02 sets forth, with respect to
each outstanding Company Stock Option, the holder thereof, the number of Shares
issuable upon exercise thereof, the exercise price thereof and the expiration
date thereof. All outstanding shares of the Company's capital stock are, and all
Shares which may be issued pursuant to the exercise of outstanding Company Stock
Options will be, when issued in accordance with the terms thereof, duly
authorized, validly issued, fully paid and non-assessable and not issued in
violation of statutory or contractual preemptive or similar rights. There are no
bonds, debentures, notes or other indebtedness of the Company or any of its
subsidiaries having general voting rights (or convertible into or exercisable or
exchangeable for securities having such rights) ("Voting Debt") issued and
outstanding. Except as set forth above and except for the transactions
contemplated by this Agreement, as of the date hereof, (i) there are no shares
of capital stock of the Company authorized, issued or outstanding, (ii) there
are no existing options, warrants, calls, preemptive rights, subscriptions or
other rights, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of the Company or any of its
subsidiaries, obligating the Company or any of its subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of its subsidiaries or securities convertible into or exercisable or
exchangeable for such shares or equity interests, or obligating the Company or
any of its subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or commitment and
(iii) there are no Company Contracts (as defined in Section 3.04) to repurchase,
redeem or otherwise acquire or retire any Shares or other capital stock of the
Company or the capital stock of any subsidiary or affiliate of the Company, or
to provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity (other than a wholly owned
subsidiary of the Company).
(b) All of the outstanding shares of capital stock of each of the
subsidiaries of the Company are owned of record and beneficially by the Company,
directly or indirectly, and all such shares have been duly authorized and
validly issued and are fully paid and nonassessable and were not issued in
violation of any statutory or contractual preemptive rights; and all such shares
are owned by the Company or its subsidiaries free and clear of all liens,
pledges, charges, mortgages, claims, security interests or other encumbrances,
rights or interests of any kind (collectively, "Liens").
(c) There are no voting trusts, proxies or other agreements, understandings
or restrictions to which the Company or any of its subsidiaries is a party or
subject with respect to the voting of the capital stock of the Company or any of
the subsidiaries. Except as contemplated by this Agreement and the Stockholders
Agreement, there are no Company Contracts pursuant to which the Company is or
could be required to register Shares or other securities under the Securities
Act of 1933, as amended (the "Securities Act"), or any such agreement or other
agreements or arrangements with or among any securityholders of the Company with
respect to securities of the Company.
(d) Except as provided in Article II, none of the Company or its
subsidiaries is required to redeem, repurchase or otherwise acquire shares of
capital stock of the Company or any of its subsidiaries as a result of the
consummation of the transactions contemplated by this Agreement.
(e) The only indebtedness for borrowed money of the Company and its
subsidiaries is (i) under the Loan and Security Agreement dated as of October
31, 1996 among BankAmerica Business Credit, Inc., as lender, and the Company, as
borrower, and certain agreements executed in connection therewith (collectively,
the "Company Credit Facility"), and (ii) $495,000 of capitalized leases as of
June 28, 1996 identified in Schedule 3.02(e). Other than the Company Credit
Facility, no indebtedness for borrowed money by the Company or any of its
subsidiaries contains any restrictions upon the incurrence of indebtedness for
borrowed money by the Company or its subsidiaries or restricts the ability of
the Company or any of its subsidiaries to grant any Liens on its properties or
assets.
SECTION 3.03 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. The
Company has full corporate power and authority to execute and deliver each of
this Agreement and the agreements referred to herein or contemplated hereby and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement and the agreements
referred to herein or contemplated hereby, and the consummation by the Company
of the transactions contemplated hereby and thereby, have been duly authorized
by the Board of Directors of the Company and, except for obtaining the approval
of its stockholders as contemplated by Section 5.03(c), no other corporate
action on the part of the Company is necessary to authorize the execution and
delivery by the Company of this Agreement and the agreements referred to herein
or contemplated hereby and the consummation by the Company of the transactions
contemplated hereby and thereby. This Agreement has been, and, on the Closing
Date, each of the other agreements referred to herein or contemplated hereby to
which the Company is a party will be, duly executed and delivered by the Company
and, assuming due and
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valid authorization, execution and delivery hereof and thereof by the other
parties hereto and thereto, is or will be, as the case may be, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
SECTION 3.04 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), state securities or blue sky laws, and the
GCL, neither the execution, delivery or performance of this Agreement and the
agreements referred to herein or contemplated hereby by the Company, nor the
consummation by the Company of the transactions contemplated hereby or thereby,
nor compliance by the Company with any of the provisions hereof or thereof, will
(i) conflict with or result in any breach of any provision of the Certificate of
Incorporation or the Bylaws of the Company or of any of its subsidiaries, (ii)
require any filing, notice, declaration or registration to or with, or any
permit, authorization, consent or approval of, any federal, state, local or
foreign court, arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority, body or agency (a "Governmental
Entity"), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument, obligation or commitment to
which the Company or any of its subsidiaries is a party or by which any of them
or any of their respective properties or assets may be bound (the "Company
Contracts") or (iv) violate any order, writ, injunction, judgment, decree,
settlement, law, statute, rule, regulation or requirement or other governmental
approval or authorization (whether federal, state, local or foreign) applicable
to the Company, any of its subsidiaries or any of their respective businesses,
properties or assets, excluding from the foregoing clauses (ii), (iii) and (iv)
such violations, breaches or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. Schedule 3.04 sets
forth a list of all notices and consents required to be given or obtained
pursuant to the Company Contracts prior to or as a result of the consummation of
the transactions contemplated by this Agreement and the agreements referred to
herein or contemplated hereby.
SECTION 3.05 SEC REPORTS AND FINANCIAL STATEMENTS. The Company has filed
with the Securities and Exchange Commission (the "SEC"), and has heretofore made
available to Parent, true and complete copies of, all forms, reports, schedules,
statements and other documents required to be filed by it under the Exchange Act
or the Securities Act (as such documents have been amended since the time of
their filing, collectively, the "Company SEC Documents"). As of their respective
dates or, if amended, as of the date of the last such amendment, the Company SEC
Documents, including all financial statements and schedules included therein (a)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. None of
the subsidiaries of the Company is required to file any forms, reports,
schedules, statements or other documents with the SEC. The financial statements
of the Company included in the Company SEC Documents as of and for each of the
fiscal years of the Company in the three-year period ended September 29, 1995,
and the financial statements of the Company included in the Company SEC
Documents filed since September 29, 1995, have been prepared from, and are in
accordance with, the books and records of the Company and its consolidated
subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position and consolidated results of
operations and cash flows (and consolidated changes in financial position, if
any) of the Company and its subsidiaries for the respective periods or as of the
respective dates set forth therein.
SECTION 3.06 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company
SEC Documents, since September 29, 1995, (a) the Company and its subsidiaries
have conducted their respective businesses only in the ordinary and usual
course, consistent with past practice, and (b) no change has occurred or, to the
knowledge of the Company, is threatened that is reasonably likely to have a
Material Adverse Effect on the Company. Without limiting the generality of the
foregoing, since September 29, 1995, neither the Company nor any of its
subsidiaries has:
(i) amended its Certificate of Incorporation or Bylaws;
(ii) authorized for issuance, issued, sold, delivered or agreed or
committed to issue, sell or deliver (whether through the issuance or granting of
options, warrants, convertible, exercisable or exchangeable securities,
subscriptions, calls, rights, or other agreements or commitments) any stock of
any class or any other securities of the Company or any of its subsidiaries,
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except for the issuance of Shares pursuant to the exercise of Company Stock
Options in accordance with the terms of such options;
(iii) other than the cancellation of treasury shares, split, combined or
reclassified any shares of its capital stock, declared, set aside or paid any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeemed, repurchased
or otherwise acquired or retired any of its securities or any securities of its
subsidiaries;
(iv) other than under the Company Credit Facility (and any predecessor
thereof), incurred or assumed any indebtedness for borrowed money or issued any
debt securities or warrants or rights to acquire debt securities of the Company
or any of its subsidiaries, or assumed, guaranteed, endorsed or otherwise became
liable (whether directly, contingently or otherwise) for the obligations of any
other person, or made any loans, advances or capital contributions to, or
investments in, any other person (other than investments in any of the Company's
subsidiaries), or mortgaged, pledged or otherwise encumbered any assets or
otherwise created or suffered a lien thereon;
(v) entered into, adopted, terminated or amended any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements for the benefit or welfare of any director, officer or
employee, other than in connection with the hiring and termination of
non-officer employees in the ordinary course of business consistent with past
practices, or materially increased the compensation or fringe benefits of any
director, officer or employee (other than any such increase in the compensation
or fringe benefits of any non-officer employee in the ordinary course of
business consistent with past practices) or paid any benefit not required by any
existing plan and arrangement (including the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units) or entered
into any contract, agreement, commitment or arrangement to do any of the
foregoing;
(vi) paid, discharged or satisfied any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of liabilities or obligations in the
ordinary course of business consistent with past practice;
(vii) made any capital expenditure or commitment to make any capital
expenditure, except in accordance with the Company's capital expenditure plan
for the year ended September 27, 1996 (the "Company Capital Expenditure Plan"),
a true, correct and complete copy of which has been delivered to Parent and PFC,
or acquired, sold, leased, encumbered, transferred or disposed of any real
property or any other material assets, except for the purchase and sale of
inventory and the leasing, closing and renovation of retail stores, in each case
in the ordinary course of business consistent with past practice;
(viii) made any tax elections or settled or compromised any income tax
liability;
(ix) changed any accounting policies, procedures or practices, other than
as set forth in the Company SEC Documents; or
(x)(A) entered into, amended or terminated any Company Contract, except for
any such contract, other than a Material Company Contract, that (1) does or did
not involve an unpaid amount greater than $200,000, in the case of purchase
orders, and $50,000 in the case of any other Company Contract, and (2) was
entered into, amended or terminated in the ordinary course of business
consistent with past practice, or (B) taken any action or failed to take any
action that, with or without notice or lapse of time, would constitute a default
under any Material Company Contract (as defined in Section 3.12).
SECTION 3.07 NO UNDISCLOSED LIABILITIES. Since September 29, 1995, neither
the Company nor any of its subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
(a) individually or in the aggregate would be reasonably likely to have a
Material Adverse Effect on the Company or (b) would be required by GAAP to be
reflected on a consolidated balance sheet of the Company and its subsidiaries
(including the notes thereto), except, in the case of clause (b), for this
Agreement and the other agreements referred to herein or contemplated hereby,
and for such liabilities and obligations (i) disclosed in the Company SEC
Documents or (ii) incurred subsequent to September 27, 1996 in the ordinary
course of business consistent with past practices that have not arisen as a
result of a breach by the Company or any of its subsidiaries of any Company
Contract.
SECTION 3.08 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS.
(a) Neither the Company nor any of its subsidiaries is in default or
violation of any term, condition or provision of (i) its respective Certificate
of Incorporation or Bylaws or (ii) any order, writ, injunction, judgment,
decree, settlement, law, statute, rule, regulation or requirement or other
governmental approval or authorization (whether federal, state, local or
foreign)
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applicable to the Company, any of its subsidiaries or any of their respective
businesses, properties or assets, excluding from the foregoing clause (ii)
defaults or violations which would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(b) The Company and its subsidiaries hold, and are in compliance with the
terms of, all permits, licenses, variances, orders, approvals and authorizations
of all Governmental Entities required for the lawful conduct of the business of
the Company and its subsidiaries (the "Company Permits"), except where the
failure to hold or be in compliance with any such Company Permit would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
SECTION 3.09 LITIGATION. There is no suit, action, claim, proceeding,
investigation or review (each, a "Proceeding") by any Governmental Entity or
other person or entity with respect to the Company or any of its subsidiaries or
any of their respective assets pending or, to the best knowledge of the Company
and its subsidiaries, threatened, nor has any Governmental Entity or other
person or entity indicated an intention to conduct or prosecute any such
Proceeding, nor does the Company or any of its subsidiaries have knowledge of
any facts that could reasonably be expected to form the basis of any such
Proceeding, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen after due inquiry, would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. Neither the Company
nor any of its subsidiaries is subject to any outstanding order, writ,
injunction, settlement or decree which, insofar as can be reasonably foreseen
after due inquiry, would have, individually or in the aggregate, a Material
Adverse Effect on the Company. The Company has provided to Parent true, complete
and correct copies of all complaints, motions, responses and other documentation
and correspondence relating to any pending or threatened Proceeding.
SECTION 3.10 TITLE TO ASSETS. The Company and its subsidiaries have good
and marketable title to, or a valid leasehold interest in, all of their
respective properties and assets (real, personal and mixed, tangible and
intangible) free and clear of all Liens of any kind or character, except: (a)
Liens granted under the Company Credit Facility and capital leases disclosed in
the Company SEC Documents, (b) Liens for current Taxes (as defined in Section
3.17(c)) not yet due and payable; (c) Liens, imperfections of title or easements
which do not, in the aggregate, materially detract from the value of, or
interfere with the present or proposed use of, the properties subject thereto or
affected thereby, or otherwise materially impair the operations of the entity
which owns or leases such property or assets or materially impair the use of
such property or assets or which otherwise would not, in the aggregate, have a
Material Adverse Effect on the Company; and (d) mechanics', carriers', workers,
landlords', and other similar Liens arising or incurred in the ordinary course
of business consistent with past practice.
SECTION 3.11 PROPERTIES.
(a) OWNED REAL PROPERTY. Neither the Company nor any of its subsidiaries
owns any real property.
(b) LEASED REAL PROPERTY. Schedule 3.11(b) sets forth, by address, owner,
usage and term, a true and complete list of all real property agreements
(including all amendments thereto) pursuant to which the Company or any of its
subsidiaries leases, subleases or otherwise occupies any real property (the
"Real Property Leases"). Pursuant to the Real Property Leases, the Company and
its subsidiaries have validly existing and enforceable leasehold, subleasehold
or occupancy interests in the property leased thereunder ("Leased Real
Property"), in each case free from defaults (including any violation of any use
provisions thereunder) and events which with the giving of notice or the passage
of time would constitute a default. There are (i) no outstanding contracts for
any improvements to the Leased Real Property which have not been fully paid and
performed that involve the payment of more than $50,000 individually or $100,000
in the aggregate, (ii) no expenses of any kind (including brokerage and leasing
commissions and lease administration fees) in excess of an aggregate of $10,000
pertaining to the Leased Real Property which are due and payable and have not
been fully paid and (iii) no deposits held by any third party with respect to
any of the Leased Real Property.
(c) THIRD PARTY LEASES. Schedule 3.11(c) sets forth, by address, owner and
usage, a true and complete list of all real property agreements (including all
amendments thereto) pursuant to which the Company or any of its subsidiaries
leases, subleases or otherwise permits any third party to occupy any Leased Real
Property (collectively the "Third Party Leases"). Each of the Third Party Leases
is in full force and effect and free from defaults (including any violation of
any use provisions thereunder) and events which with the giving of notice or
passage of time would constitute a default (by landlord or tenant thereunder),
except for defaults which, individually or in the aggregate, would not have an
Material Adverse Effect on the Company. None of the Third Party Leases grants
any options or other rights to the tenant thereunder to purchase any of the
Leased Real Property.
(d) DEVELOPMENT AGREEMENTS. Schedule 3.11(d) sets forth a true and complete
list of all agreements (including all amendments thereto) pursuant to which (i)
any third party has been given the right (exclusive or otherwise) to develop any
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real property for the Company or any of its subsidiaries or (ii) the Company or
any of its subsidiaries has agreed to develop, construct or occupy in the future
(whether by lease or other occupancy agreement) any real property (the
"Development Agreements"). Each of the Development Agreements is in full force
and effect, in each case free from defaults and events which with the giving of
notice or the passage of time would constitute a default thereunder.
(e) VIOLATIONS/CONDEMNATION. Neither the Company nor any of its
subsidiaries has received, with respect to any Leased Real Property, any written
notice of default or any written notice of noncompliance with respect to any
applicable state, federal or local law, statute, rule, regulation or requirement
relating to zoning, building, fire, use restriction or safety or health codes
which have not been remedied in all respects which would be reasonably likely to
have a Material Adverse Effect on the Company. There is no pending, or to the
knowledge of the Company and its subsidiaries, threatened condemnation or other
governmental taking of any of the Leased Real Property.
SECTION 3.12 CONTRACTS.
(a) Schedule 3.12(a) sets forth a complete and accurate list of each
Company Contract (whether written or oral) (i) which relates to the borrowing of
money or a guaranty of any obligation for the borrowing of money, (ii) which
prohibits or limits the ability of the Company or any of its subsidiaries to
engage in any business or compete with any person, (iii) for the licensing or
use of any Company Intellectual Property (as defined in Section 3.13), (iv) for
the sale, lease or sublease of real property, (v) for the sale, lease or
sublease of personal property or other assets with a fair market value or for
total consideration exceeding $25,000, (vi) (other than this Agreement) for the
acquisition of the Company or any of its subsidiaries or the business of the
Company or any of its subsidiaries, (vii) for the supply of products and
inventory involving after the date hereof more than $50,000, (viii) which
relates to computer hardware, software and systems involving after the date
hereof more than $50,000, (ix) to which the Company or any of its subsidiaries,
and any affiliate, director or officer of the Company or any of its
subsidiaries, is a party, (x) not entered into in the ordinary course of
business consistent with past practice which involves after the date hereof the
receipt or payment of more than $25,000 in any one year, or (xi) the
consequences of a default or termination under which would be reasonably likely
to have a Material Adverse Effect on the Company (collectively, "Material
Company Contracts").
(b) True, complete and correct copies of all written Material Company
Contracts, including all amendments, modifications or extensions thereof, have
been previously made available to Parent.
(c) Each Material Company Contract is valid and binding and in full force
and effect and neither the Company nor any of its subsidiaries, or, to the best
knowledge of the Company and its subsidiaries, any other party thereto, is in
default or violation (and no event has occurred which with the giving of notice
or the lapse of time or both would constitute a default or violation) of any
term, condition or provisions of any Material Company Contract, except in either
instance for defaults or violations which, individually or in the aggregate,
would not be reasonably likely to have a Material Adverse Effect on the Company.
(d) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not alter or impair any rights of the
Company or its subsidiaries under any of the Material Company Contracts; and the
Company Contracts that will be held by the Surviving Corporation and its
subsidiaries at the Effective Time will include all Company Contracts necessary
to permit the Surviving Corporation and its subsidiaries to conduct the business
conducted by the Company and its subsidiaries as conducted on the date hereof.
SECTION 3.13 LICENSES; INTELLECTUAL PROPERTY. Schedule 3.13 sets forth a
list of all material federal, state, local and foreign registrations of patents,
trademarks, trade names or other trade rights and copyrights and all pending
applications for any such registrations that are owned by the Company or any of
its subsidiaries or in which the Company or any of its subsidiaries has any
interest, or that are being used in connection with, or relate to, the business
of the Company and its subsidiaries (collectively, the "Company Intellectual
Property"). The Company has delivered to Parent and PFC true, correct and
complete copies of each registration, application and other document relating to
the Company Intellectual Property. The Company and its subsidiaries own, or
possess adequate and enforceable licenses or other rights to use, all Company
Intellectual Property and all other patents, trademarks, trade names and other
trade rights and copyrights used in or necessary for their businesses as
currently conducted, except where the failure to own or possess such licenses or
other rights would not, individually or in the aggregate, have a Material
Adverse Effect on the Company; such ownership and licenses will not cease to be
valid and in full force and effect by reason of the execution, delivery and
performance of this Agreement and the agreements referred to herein or
contemplated hereby or the consummation of the transactions contemplated hereby
and thereby. No other entity or person (a) has notified the Company or any of
its subsidiaries that it is claiming any ownership of or right to use such
Company Intellectual Property or (b) to the best knowledge of the Company and
its subsidiaries, has
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interfered with, infringed upon or otherwise come into conflict with any such
Company Intellectual Property. The conduct of the business of the Company and
its subsidiaries has not in the preceding three years, and as currently
conducted does not, conflict with, interfere with, infringe upon or otherwise
violate the rights of any third party in or to patents, trademarks, trade names
or copyrights, and neither the Company nor any of its subsidiaries has received
any written notice of any such conflict, infringement or violation.
SECTION 3.14 EMPLOYMENT AND CONSULTING AGREEMENTS.
(a) Schedule 3.14 sets forth a complete and correct list of all employment,
compensation, severance, consulting or indemnification contracts ("Employment
Agreements") between the Company or any of its subsidiaries and its present or
former employees, officers, directors and consultants pursuant to which the
Company or any of its subsidiaries has any continuing obligations thereunder
(including any severance payments). The Company has made available to Parent
true, complete and correct copies of all such agreements.
(b) Neither the Company nor any of its subsidiaries is a party to any
Employment Agreement or any agreement relating to Company Stock Options which
contains a "change in control," "potential change in control" or similar
provision. Except as set forth in this Agreement, the execution, delivery and
performance of this Agreement and the agreements referred to herein or
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, will not (either alone or upon the occurrence of any
additional acts or events) result in any payment (severance pay or otherwise)
becoming due from the Company or any of its subsidiaries to any of its present
or former employees, officers, directors or consultants or accelerate the time
of payment or vesting, or increase the amount of compensation or Company Stock
Options due, any such person.
SECTION 3.15 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Schedule 3.15 sets forth a list of all material employee benefit plans,
arrangements, contracts or agreements (including Employment Agreements and
severance agreements) of any type (including all plans described in sections
3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained at any time during the past five years by the Company,
any of its subsidiaries or any trade or business, whether or not incorporated (a
"Company ERISA Affiliate"), which together with the Company would be deemed a
"single employer" within the meaning of section 4001(b)(15) of ERISA ("Company
Benefit Plans"). Neither the Company nor any Company ERISA Affiliate has any
formal plan or commitment, whether legally binding or not, to create any
additional Company Benefit Plan or modify or change any existing Company Benefit
Plan that would affect any employee or terminated employee of the Company or any
Subsidiary.
(b) With respect to each Company Benefit Plan, (i) if intended to qualify
under section 401(a), 401(k) or 403(a) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder (the "Code"), such
plan so qualifies, and its trust is exempt from taxation under section 501(a) of
the Code, (ii) such plan has been administered in all material respects in
accordance with its terms and applicable law, (iii) no breaches of fiduciary
duty have occurred which might reasonably be expected to give rise to material
liability on the part of the Company, (iv) no disputes are pending or, to the
knowledge of the Company and its subsidiaries, threatened that are reasonably
likely to give rise to material liability on the part of the Company or result
in a Material Adverse Effect on the Company, (v) no prohibited transaction
(within the meaning of Section 406 of ERISA) has occurred that are reasonably
likely to give rise to material liability on the part of the Company or result
in a Material Adverse Effect on the Company, (vi) all contributions and premiums
due as of the date hereof (without taking into account any extensions for such
contributions and premiums) have been made in full and (vii) all filings and
reports have been made in accordance with Sections 101, 104 and 400 of ERISA and
Sections 6057, 6058 and 6059 of the Code.
(c) Neither the Company nor any Company ERISA Affiliate (i) has incurred an
accumulated funding deficiency, as defined in the Code and ERISA, or (ii) has
any material liability under Title IV of ERISA with respect to any employee
benefit plan that is subject to Title IV of ERISA.
(d) With respect to each Company Benefit Plan that is a "welfare plan" (as
defined in section 3(1) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of the Company or any of
its subsidiaries beyond their termination of employment, other than on an
employee-pay-all basis.
(e) The execution, delivery and performance of this Agreement and the
agreements referred to herein or contemplated hereby, and consummation of the
transactions contemplated hereby and thereby, will not (i) entitle any
individual to severance pay from the Company or accelerate the time of payment
or vesting, or increase the amount, of compensation or benefits due to any
individual from the Company, (ii) constitute or result in a prohibited
transaction under section 4975 of the Code or
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section 406 or 407 of ERISA or (iii) subject the Company, any of its
subsidiaries, any Company ERISA Affiliate, any of the Company Benefit Plans, any
related trust, any trustee or administrator of any thereof, or any party dealing
with the Company Benefit Plans or any such trust to either a civil penalty
assessed pursuant to section 409 or 502 (i) of ERISA, a criminal penalty
assessed pursuant to section 501 of ERISA or a tax imposed pursuant to section
4975, 4976, 4977, 4980B or 6652 of the Code.
(f) There is no Company Benefit Plan that is a "multiemployer plan," as
such term is defined in section 3(37) of ERISA.
(g) With respect to each Company Benefit Plan, the Company has made
available to Parent or its representatives (i) accurate and complete copies of
all plan texts, summary plan descriptions, summary of material modifications,
trust agreements and other related agreements, including all amendments to the
foregoing, and (ii) the most recent annual report, the most recent annual and
periodic accounting of plan assets, the most recent determination letter
received from the United States Internal Revenue Service (the "Service") and the
most recent actuarial valuation, to the extent any of the foregoing may be
applicable to a particular Company Benefit Plan.
SECTION 3.16 LABOR RELATIONS.
(a) The Company and its subsidiaries do not have and for the past three
years have not had (i) any unfair labor practice charge or complaint or other
proceeding pending or, to the Company's best knowledge, threatened against the
Company or any of its subsidiaries before the National Labor Relations Board,
(ii) any labor strike, work slowdown or stoppage pending or, to the Company's
best knowledge, threatened against or affecting the Company or any of its
subsidiaries, (iii) any pending collective bargaining negotiations relating to
the employees of the Company or any of its subsidiaries, (iv) any pending
petitions for recognition of a labor union or association as the exclusive
bargaining agent for any or all of the employees of the Company or any of its
subsidiaries, (v) to the Company's best knowledge, any general solicitation of
representation cards by any union seeking to represent the employees of the
Company or any of its subsidiaries as their exclusive bargaining agent, (vi) any
collective bargaining agreements or (vii) any arbitrations, grievances, suits or
administrative proceedings before any Government Entity relating to labor or
employment matters involving any employees of the Company or any of its
subsidiaries.
(b) The Company and its subsidiaries are and have been in compliance for
the past three years with all applicable laws relating to employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health and notice and the requirements of the Worker
Adjustment Retraining Act of 1988, Title VII of the Civil Rights Act of 1964,
the Family and Medical Leave Act of 1993 or similar state or local law,
excluding defaults or violations which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
SECTION 3.17 TAXES.
(a) The Company and its subsidiaries have (i) duly filed and timely (or
there have been filed on their behalf) with the appropriate governmental
authorities all Tax Returns (as defined in Section 3.17(n)) required to be filed
by them on or prior to the date hereof, other than any filings which the failure
to make in a timely manner would not have a Material Adverse Effect on the
Company, it being understood that the failure to file a federal or state income
Tax Return would have a Material Adverse Effect on the Company, and all such Tax
Returns are true, correct and complete in all material respects, and (ii) duly
paid in full or made provision in accordance with GAAP (or there has been paid
or provision has been made on their behalf) for the payment of all Taxes (as
defined in Section 3.17(n)) for all periods ending on or before the date hereof.
(b) There are no Liens for Taxes upon any property or assets of the Company
or any of its subsidiaries, except for liens for Taxes not yet due.
(c) Neither the Company nor any of its subsidiaries has made any change in
accounting methods or received a ruling or a proposed ruling from any taxing
authority that is reasonably likely to have a Material Adverse Effect on the
Company.
(d) The Company and its subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes (including withholding of Taxes pursuant to Sections 1441
and 1442 of the Code or similar provisions under any foreign laws) and have,
within the time and the manner prescribed by law, withheld from employee wages
and paid over to the proper governmental authorities all amounts required to be
so withheld and paid over under applicable laws.
(e) No federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending or, to the best knowledge
of the Company, threatened with regard to any Taxes or Tax Returns of the
Company or
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any of its subsidiaries, and neither the Company nor any of its subsidiaries has
received a written notice of any pending audits or proceedings.
(f) The Tax Returns of the Company and its subsidiaries have been examined
by the Service or other applicable agency (or the applicable statutes of
limitation for the assessment of federal income Taxes for such periods have
expired) for all periods through and including September 30, 1994, and no
material deficiencies were asserted as a result of such examinations which have
not been resolved and fully paid.
(g) There are no outstanding requests, agreements, consents or waivers to
extend the statutory period of limitations applicable to the assessment of any
Taxes or deficiencies against the Company or any of its subsidiaries, and no
power of attorney granted by either the Company or any of its subsidiaries with
respect to any Taxes is currently in force.
(h) Neither the Company nor any of its subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes.
(i) Neither the Company nor any of its subsidiaries is a party to any
agreement, contract or arrangement that could result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(j) Neither the Company nor any of its subsidiaries has, with regard to any
assets or property held, acquired or to be acquired by any of them, filed a
consent to the application of Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the Company
or any of its subsidiaries.
(k) The deductibility of compensation paid by the Company or its
subsidiaries has not been and will not be limited by Section 162(m) of the Code.
(l) All transactions that could give rise to an understatement of the
federal income tax liability of the Company or any of its subsidiaries within
the meaning of Section 6662(d) of the Code are adequately disclosed on Tax
Returns in accordance with Section 6662(d)(2)(B) of the Code if there is or was
no substantial authority for the treatment giving rise to such understatement.
(m) The Company does not have any liability for Taxes of any person other
than the Company and its subsidiaries.
(n) The Company has made all required estimated Tax Payments sufficient to
avoid any material underpayment penalties.
(o) No closing agreement that could affect the Taxes of the Company for
periods ending after the Effective Time has been entered into by or with respect
to the Company pursuant to section 7121 of the Code or any similar provision of
any state, local or foreign law.
(p) Schedule 3.17 sets forth all elections that have been made or filed by
or with respect to the Company.
(q) None of the assets of the Company constitute tax-exempt use property
within the meaning of section 168(h) of the Code or property that is or will be
required to be treated as owned by any person other than the Company pursuant to
the provisions of section 168(f)(8) of the Internal Revenue Code of 1954, as in
effect immediately prior to the enactment of the Tax Reform Act of 1986.
(r) "Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments (including income, gross receipts, excise, real or personal
property, sales, withholding, social security, occupation, use, service,
license, net worth, payroll, franchise, transfer and recording taxes, fees and
charges) imposed by the Service or any taxing authority (whether domestic or
foreign including any state, county, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest whether paid or received, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments. "Tax
Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including information
returns, any documents with respect to or accompanying payments of estimated
Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
SECTION 3.18 INSURANCE. The Company and each of its subsidiaries are, and
for the last three years continuously have been, insured by insurers, reasonably
believed by the Company to be of recognized financial responsibility and
solvency
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against, or self-insured with revenues sufficient to protect against, such
losses and risks and in such amounts as are customary in the businesses in which
they are engaged. All material policies of insurance and fidelity or surety
bonds insuring the Company or any of its subsidiaries or their respective
businesses, assets, employees, officers and directors are in full force and
effect. All premiums due thereon have been paid, and the Company has complied in
all material respects with the provisions of such policies. No Proceeding is
pending or, to the Company's best knowledge, threatened to revoke, cancel or
limit such policies and no notice of cancellation of any of such material
policies have been received by the Company. The Company has complied with all
material recommendations for the prevention of loss made by all of the Company's
insurance carriers. Schedule 3.18 lists all insurance policies (with a
description of coverage, periods of coverage, limits of coverage, self-insured
retentions or deductibles) and describes all self-insurance arrangements
affecting the Company or any of its subsidiaries and the aggregate amount of all
claims made under such policies or arrangements since January 1, 1994. There are
no material claims by the Company or any of its subsidiaries under any such
policy or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause. All necessary notifications of
claims have been made to insurance carriers other than those which will not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
True, complete and correct copies of all of policies of insurance and fidelity
or surety bonds insuring the Company or any of its subsidiaries or their
respective businesses, assets, employees, officers and directors have been
provided to Parent.
SECTION 3.19 ENVIRONMENTAL MATTERS.
(a) The Company and each of its subsidiaries is in compliance in all
material respects with the Requirements of Environmental Laws (as defined in
Section 3.19(d)) and neither the Company nor any of its subsidiaries has
received any communication within the past three years from a person that
alleges that the Company or any of its subsidiaries is not in such compliance.
(b) There is no Environmental Claim (as defined in Section 3.19(d)) pending
or, to the Company's best knowledge, threatened against the Company or any of
its subsidiaries or, to the Company's best knowledge after due inquiry, against
any person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or by
operation of law.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including the release, emission, discharge or
disposal of any Materials of Environmental Concern (as defined in Section
3.19(d)) that could be expected to result in any Environmental Claim against the
Company, any of its subsidiaries or any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law.
(d) "Environmental Claim" means, with respect to any person, any claim,
demand, action, cause of action, suit, loss, cost, damage, fine, penalty, lien,
expense, liability, judgment, proceeding, whether threatened, sought, brought,
or imposed (referred to in this subsection as a "Claim"), against such person or
any subsidiary thereof by any other person or any public or private entity that
seeks to impose costs or liabilities for (i) pollution or contamination of the
air, surface water, ground water, soil, or subsurface present or existing at the
Properties (as hereinafter defined), or at properties owned by persons other
than such person or any of its subsidiaries, whether known now or discovered at
some future date, (ii) solid, gaseous, or liquid waste generation, handling,
treatment, storage, disposal, or transportation by any person at or from any of
the Properties which activities were conducted on or at any time prior to the
date hereof, (iii) exposure to Materials of Environmental Concern which were
present on, in, under, or upon any of the Properties as of or at any time prior
to the date hereof or which migrated to or from any of the Properties as of or
at any time prior to the date hereof, (iv) the manufacture, processing,
distribution in commerce, use, or storage of Materials of Environmental Concern
by any person at or from any of the Properties, which activities occurred on or
at any time prior to the date hereof, (v) injury to or death of any person or
persons related to the presence of Materials of Environmental Concern on, in,
under or upon any of the Properties as of at any time prior to the date hereof,
or related to Materials of Environmental Concern migrating to or from any of the
Properties as of or at any time prior to the date hereof, (vi) destruction,
damage or contamination of any property directly or indirectly related to the
presence of Materials of Environmental Concern on, in, under or upon any of the
Properties as of or at any time prior to the date hereof, or related to
Materials of Environmental Concern migrating to or from any of the Properties as
of or at any time prior to the date hereof (vii) any claim for a past or present
violation of Requirements of Environmental Law and (viii) any and all penalties
due to the presence of Materials of Environmental Concern on, in, under or upon
any of the Properties as of or at any time prior to the date hereof, or due to
Materials of Environmental concern migrating to or from any of the Properties as
of or at any time prior to the date hereof, in each case described in this item
(viii), which presence of Materials of Environmental Concern are in violation of
the Requirements of Environmental Law. The term "Environmental Claim" also
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shall mean (i) the costs of removal pursuant to the Requirements of
Environmental Law of any and all Materials of Environmental Concern from all or
any portion of any of the Properties, which Materials of Environmental Concern
were disposed, spilled, or released as of or at any time prior to the date
hereof, (ii) costs required pursuant to the Requirements of Environmental Law to
take necessary precautions to protect against the release after the date hereof
of Materials of Environmental Concern on, in, under, upon or from any of the
Properties, or in or into the air, soil, surface water, ground water or
subsurface, any public domain or natural resource, or any surrounding areas,
which Materials of Environmental Concern were disposed, spilled, or released as
of or at any time prior to the date hereof, and (iii) costs incurred to comply,
in connection with all or any portion of any of the Properties, with all
Requirements of Environmental Law due to the presence of Materials of
Environmental Concern on in, under or upon any of the Properties as of or at any
time prior to the date hereof, or due to Materials of Environmental Concern
migrating to or from any of the Properties as of or at time prior to the date
hereof. "Environmental Claim" also shall mean any event, occurrence, or
condition as a consequence of which, pursuant to any Requirements of
Environmental Law, (i) such person, any of its subsidiaries, or any owner,
occupant, or other person having any interest in the Properties shall be liable
or incur any costs due to the presence of Materials of Environmental Concern on,
in, under or upon any of the Properties, which Materials of Environmental
Concern were present at the Properties as of or at any time prior to the date
hereof, or migrated to or from any of the Properties as of or at any time prior
to the date hereof, or (ii) any of the Properties shall be subject to any
material restriction on use, ownership, or transferability due to the presence
of Materials of Environmental Concern on, in, under or upon any of the
Properties, which Materials of Environmental Concern were present at the
Properties as of or at any time prior to the date hereof, or migrated to or from
any of the Properties as of or at any time prior to the date hereof or (iii) any
Remedial Work is required on, in, under or upon any of the Properties.
"Costs" means, with respect to any person, all liabilities, losses, costs,
damages (including consequential damages), expenses, claims, attorneys' fees,
experts' fees, consultants' fees and disbursements of any kind or of any nature
whatsoever imposed upon such person or any of its subsidiaries as a result of an
Environmental Claim by any other person or a public or private entity. For the
purposes of this definition, such losses, costs and damages shall include
remedial, removal, response, abatement, cleanup, legal, investigative and
monitoring costs and related costs, expenses, losses, damages, penalties, fines,
obligations, defenses, judgments, suits, proceedings and disbursements.
"Requirements of Environmental Law" means all federal, state, local and
foreign environmental, ecological, or natural resources laws, regulations,
rules, orders, policies or guidelines, as such may now exist, be enacted,
adopted, promulgated, or issued hereafter or be modified hereafter, as any of
the foregoing are imposed or enforced by any federal, state, or local or foreign
executive, legislative, judicial, regulatory, or administrative agency, board,
or authority.
"Properties" or "Property" means, with respect to any person, all or any
portion of the real property and all buildings and improvements thereon
currently or formerly owned, leased, or otherwise utilized by such person or any
of its subsidiaries or any predecessor in interest for manufacturing,
distribution, storage, treatment, or disposal of Materials of Environmental
Concern.
The term "Materials of Environmental Concern" shall include:
(i) those substances now or hereafter included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," "pollutant,"
"contaminant" or "solid waste" in the Comprehensive Environmental Response
Compensation and Liability Act (42 U.S.C. (section mark) 9601 et seq.)
("CERCLA"), the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
(section mark) 6901 et seq.) ("RCRA"), and the Hazardous Materials
Transportation Act, 49 U.S.C. (section mark) 1801 et seq., and in the
regulations promulgated pursuant to said laws, all as amended from time-to-time;
(ii) those substances now or hereafter listed in the United States
Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);
(iii) any material, waste or substance which is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyl, (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
(section mark) 1251 et seq. (33 U.S.C. (section mark) 1321) or listed pursuant
to Section 307 of the Clean Water Act (33 U.S.C. (section mark) 1317), (E)
flammable explosives, (F) radioactive materials or (G) listed or designated, now
or hereafter, as a "hazardous" or "toxic" air pollutant under the Clean Air Act
(42 U.S.C. (section mark) 7401), as amended;
(iv) those substances defined as "hazardous chemicals" by the Occupational
Safety and Health Administration (29 CFR 1910.1200 and amendments thereto); and
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(v) such other substances, scraps, materials and wastes which are or become
regulated as pollutants, contaminants, hazardous or toxic under applicable
local, state or federal law, or by the United States government, or which are
classified as hazardous or toxic under federal, state, or local laws or
regulations.
"Remedial Work" means, with respect to any person, any investigation,
evaluation, assessment or monitoring of site conditions, including surface and
subsurface, and any clean-up, containment, restoration, removal or other
response work of any kind or nature required of or imposed upon such person or
any of its subsidiaries by any other person or entity under Requirements of
Environmental Law.
SECTION 3.20 RELATED PARTY TRANSACTIONS. Except as set forth in the Company
SEC Reports, no director, officer, partner, employee, affiliate or associate of
the Company or any of its subsidiaries (a) has borrowed money from or has
outstanding any indebtedness or other similar obligations to the Company or any
of its subsidiaries, (b) to the best knowledge of the Company, owns any direct
or indirect interest of any kind in, or is a director, officer, employee, party,
affiliate or associate of, or consultant or lender to, or borrower from, or has
the right to participate in the management, operations or profits of, any person
or entity which is (i) a competitor, supplier, customer, distributor, lessor,
tenant, creditor or debtor of the Company or any of its subsidiaries, (ii)
engaged in a business related to the business of the Company or any of its
subsidiaries or (iii) participating in any transaction to which the Company or
any of its subsidiaries is a party, (c) is otherwise a party to any contract,
arrangement or understanding with the Company or any of its subsidiaries or (d)
has any claim adverse to, or is a party in a proceeding adverse to, the Company
or any of its subsidiaries.
SECTION 3.21 INFORMATION IN PROXY STATEMENT. The Form S-4 (as defined in
Section 5.03(a)) will not, from and after the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading, and the Proxy Statement (as defined in Section
5.03(a)) will not, at the date it is first mailed to Company stockholders and at
the time of the meeting of Company stockholders to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, except that no representation is made by the Company with
respect to statements made therein based on information with respect to Parent
or PFC supplied in writing by Parent or PFC specifically for inclusion in the
Form S-4 or the Proxy Statement. The Form S-4 will, at the time it becomes
effective under the Securities Act, comply in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder. The
Proxy Statement will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
SECTION 3.22 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding Class B Shares are the only votes of the holders of
any class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
SECTION 3.23 NO APPRAISAL RIGHTS. In respect of the Company's capital
stock, no appraisal rights statute or similar statute or regulation of the State
of Delaware (and, to the knowledge of the Company after due inquiry, of any
other state or jurisdiction) applies or purports to apply to this Agreement, the
Merger or any of the other transactions contemplated hereby.
SECTION 3.24 STATE TAKEOVER STATUTES. No state takeover statute or similar
statue, rule or regulation of the State of Delaware (including the restrictions
on "business combinations" imposed by Section 203 of the GCL), and, to the
knowledge of the Company after due inquiry, of any other state or jurisdiction,
applies or purports to apply to this Agreement, the Merger or any of the other
transactions contemplated hereby. No provision of the Certificate of
Incorporation, Bylaws or other governing instruments of the Company or any of
its subsidiaries would, directly or indirectly, restrict or impair the ability
of Parent or its affiliates to vote, or otherwise to exercise the rights of a
stockholder with respect to, securities of the Company and its subsidiaries that
may be acquired or controlled by Parent or its affiliates pursuant to this
Agreement, the Merger or any of the transactions contemplated hereby or
otherwise or permit any stockholder to acquire securities of the Company on a
basis not available to Parent if Parent were to so acquire securities of the
Company, and neither the Company nor any of its subsidiaries has any rights
plan, preferred stock or similar arrangement which have any of the
aforementioned consequences.
SECTION 3.25 BROKERS OR FINDERS. Schedule 3.25 sets forth all agents',
brokers', investment bankers', financial advisors' and finders' fees and other
similar commissions and fees payable by the Company or any of its subsidiaries
in connection with this Agreement and the transactions contemplated hereby. The
fees and expenses of any such agent, broker, investment banker, financial
advisor or other firm or person will be paid by the Company in accordance with
the Company's or any
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subsidiary's agreement with such agent, broker, investment banker, financial
advisor or other firm or person. A true and complete copy of all such agreements
have been delivered to Parent.
SECTION 3.26 OPINION OF FINANCIAL ADVISOR. The Company has received an
opinion from Legg Mason Wood Walker, Inc. ("Legg Mason"), dated the date hereof,
to the effect that, as of such date, the transactions contemplated hereby are
fair to the stockholders of the Company from a financial point of view.
SECTION 3.27 BOARD RECOMMENDATION. The Board of Directors of the Company,
at a meeting duly called and held, has by unanimous vote of those directors
present (who constituted 100% of the directors then in office), (i) approved the
execution of this Agreement, the Stockholders Agreement and the agreements
referred to herein and therein or contemplated hereby or thereby, (ii)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, are in the best interests of the stockholders of the
Company, (iii) has duly and validly approved the transactions contemplated
hereby for purposes of Section 203 of the GCL and taken all appropriate and
necessary action such that the provisions of Section 203 of GCL will not apply
to the transactions contemplated hereby and (iv) resolved to recommend that the
holders of the Shares adopt this Agreement and the transactions contemplated
herein, including the Merger.
SECTION 3.28 STATEMENTS TRUE AND CORRECT. No statement made by the Company
in this Agreement, the Company Disclosure Schedule or any certificate furnished
or to be furnished by the Company, any of its subsidiaries, or any director or
officer of the Company or any subsidiary, contains or will contain any untrue
statement of material fact or omits or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND PFC
As an inducement to the Company to enter into this Agreement, Parent and
PFC hereby make, as of the date hereof, the following representations and
warranties to the Company, except as otherwise set forth in a written disclosure
schedule (the "PFC Disclosure Schedule ") delivered by Parent and PFC to the
Company prior to the date hereof, a copy of which is attached hereto, which
contains schedules numbered to correspond to sections of this Article IV and
which sets forth in reasonable detail exceptions to the representations and
warranties contained in this Article IV and certain other information as
required by this Agreement. Unless otherwise specified, (a) each reference in
this Article IV to a numbered schedule is a reference to that numbered schedule
which is included in the PFC Disclosure Schedule and (b) no disclosure made in
any particular numbered schedule of the PFC Disclosure Schedule shall be deemed
to be made in any other numbered schedule of the PFC Disclosure Schedule unless
expressly made therein (by cross reference or otherwise).
SECTION 4.01 ORGANIZATION.
(a) Each of Parent and PFC is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to have such power or authority would not individually or in the
aggregate have a Material Adverse Effect on Parent or PFC. PFC is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not individually or in the aggregate have a Material Adverse
Effect on PFC.
(b) Parent has heretofore made available to the Company accurate and
complete copies of the Certificate of Incorporation, as amended to date, and
Bylaws, as currently in effect, of PFC.
(c) PFC does not own any equity interest in any corporation or other
entity. PFC is not a party to any partnerships, joint ventures or similar
business organizations.
SECTION 4.02 CAPITALIZATION.
(a) The authorized capital stock of PFC consists of 1,000 shares of common
stock, par value $1.00 per share ("PFC Shares"), of which, as of the date
hereof, one share is issued and outstanding. The outstanding PFC Share is duly
authorized, validly issued, fully paid and non-assessable and not issued in
violation of statutory or contractual preemptive or similar rights. There is no
Voting Debt of PFC issued and outstanding. Except as set forth above and except
for the transactions contemplated by this Agreement, as of the date hereof, (i)
there are no shares of capital stock of PFC authorized, issued or
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outstanding, (ii) there are no existing options, warrants, calls, preemptive
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character, relating to the issued or unissued capital stock of PFC,
obligating PFC to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interest in,
PFC or securities convertible into or exercisable or exchangeable for such
shares or equity interests, or obligating PFC to grant, extend or enter into any
such option, warrant, call, subscription or other right, agreement, arrangement
or commitment and (iii) there are no PFC Contracts (as defined in Section 4.04)
to repurchase, redeem or otherwise acquire or retire any PFC Shares or other
capital stock of PFC, or to provide funds to make any investment in any other
entity.
(b) There are no voting trusts, proxies or other agreements, understandings
or restrictions to which PFC is a party or subject with respect to the voting of
the capital stock of PFC.
(c) PFC is not required to redeem, repurchase or otherwise acquire shares
of capital stock of PFC as a result of the consummation of the transactions
contemplated by this Agreement.
(d) The only indebtedness for borrowed money of PFC is $18.746 million
payable to Parent, $15.0 million of which will be reflected in a promissory note
prior to the Effective Time.
SECTION 4.03 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. Each
of Parent and PFC has full corporate power and authority to execute and deliver
each of this Agreement and the agreements referred to herein or contemplated
hereby and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the agreements referred to herein
or contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Boards of Directors (or any
authorized committee thereof) of Parent and PFC, and by Parent as the sole
stockholder of PFC, and no other corporate proceedings on the part of Parent or
PFC are necessary to authorize this Agreement and the agreements referred to
herein or contemplated hereby or to consummate the transactions contemplated
hereby and thereby. This Agreement has been, and, on the Closing Date, each of
the other agreements referred to herein or contemplated hereby to which Parent
or PFC is a party will be, duly executed and delivered by each of Parent and
PFC, as applicable, and, assuming due and valid authorization, execution and
delivery hereof and thereof by the other parties hereto and thereto, is or will
be, as the case may be, a valid and binding obligation of each of Parent and
PFC, as applicable, enforceable against it in accordance with its terms.
SECTION 4.04 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, state
securities or blue sky laws, and the GCL, neither the execution, delivery or
performance of this Agreement and the agreements referred to herein or
contemplated hereby by Parent or PFC, nor the consummation by Parent or PFC of
the transactions contemplated hereby or thereby, nor compliance by Parent or PFC
with any of the provisions hereof or thereof, will (i) conflict with or result
in any breach of any provision of the Certificate of Incorporation or the Bylaws
of Parent or PFC, (ii) require any filing, notice, declaration or registration
to or with, or any permit, authorization, consent or approval of, any
Governmental Entity, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument, obligation or
commitment to which Parent or PFC is a party or by which any of them or any of
their respective properties or assets may be bound (with respect to PFC only,
the "PFC Contracts ") or (iv) violate any order, writ, injunction, judgment,
decree, settlement, law, statute, rule, regulation or requirement or other
governmental approval or authorization (whether federal, state, local or
foreign) applicable to Parent, PFC or any of their respective businesses,
properties or assets, excluding from the foregoing clauses (ii), (iii) and (iv)
such violations, breaches or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on Parent or PFC. Schedule 4.04 sets
forth a list of all notices and consents required to be given or obtained
pursuant to the PFC Contracts prior to or as a result of the consummation of the
transactions contemplated by this Agreement and the agreements referred to
herein or contemplated hereby.
SECTION 4.05 FINANCIAL STATEMENTS. The financial statements of PFC as of
and for each of the fiscal years of PFC in the two-year period ended December
31, 1995 and for the nine months ended September 30, 1996 (the "PFC Financial
Statements"), copies of which were previously delivered to the Company, have
been prepared from, and are in accordance with, the books and records of PFC,
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the financial position and results of operations and cash flows
(and changes in financial position, if any) of PFC for the respective periods or
as of the respective dates set forth therein.
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SECTION 4.06 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, (a) PFC
has conducted its business only in the ordinary and usual course, consistent
with past practice, and (b) no change has occurred or, to the knowledge of PFC,
is threatened that is reasonably likely to have a Material Adverse Effect on
PFC. Without limiting the generality of the foregoing, since December 31, 1995,
PFC has not:
(i) amended its Certificate of Incorporation or Bylaws;
(ii) authorized for issuance, issued, sold, delivered or agreed or
committed to issue, sell or deliver (whether through the issuance or granting of
options, warrants, convertible, exercisable or exchangeable securities,
subscriptions, calls, rights, or other agreements or commitments) any stock of
any class or any other securities of PFC;
(iii) other than the cancellation of treasury shares, split, combined or
reclassified any shares of its capital stock, declared, set aside or paid any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeemed, repurchased
or otherwise acquired or retired any of its securities;
(iv) incurred or assumed any indebtedness for borrowed money or issued any
debt securities or warrants or rights to acquire debt securities of PFC, or
assumed, guaranteed, endorsed or otherwise became liable (whether directly,
contingently or otherwise) for the obligations of any other person, or made any
loans, advances or capital contributions to, or investments in, any other
person, or mortgaged, pledged or otherwise encumbered any assets or otherwise
created or suffered a lien thereon;
(v) entered into, adopted, terminated or amended any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements for the benefit or welfare of any director, officer or
employee, other than in connection with the hiring and termination of
non-officer employees in the ordinary course of business consistent with past
practices, or materially increased the compensation or fringe benefits of any
director, officer or employee (other than any such increase in the compensation
or fringe benefits of any non-officer employee in the ordinary course of
business consistent with past practices) or paid any benefit not required by any
existing plan and arrangement (including the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units) or entered
into any contract, agreement, commitment or arrangement to do any of the
foregoing;
(vi) paid, discharged or satisfied any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of liabilities or obligations in the
ordinary course of business consistent with past practice and in accordance with
their terms;
(vii) made any capital expenditure or commitment to make any capital
expenditure, except in accordance with PFC's capital expenditure plan for the
year ending December 31, 1996 (the "PFC Capital Expenditure Plan"), a true,
correct and complete copy of which has been made available to the Company, or
acquired, sold, leased, encumbered, transferred or disposed of any real property
or any other material assets, except for the purchase and sale of inventory and
the leasing, closing and renovating of retail stores, in each case in the
ordinary course of business consistent with past practice;
(viii) made any tax elections or settled or compromised any income tax
liability;
(ix) changed any accounting policies, procedures or practices from those
set forth in the PFC Financial Statements; or
(x)(A) entered into, amended or terminated any PFC Contract, except for any
such contract, other than Material PFC Contracts, that (1) does or did not
involve an unpaid amount greater than $200,000, in the case of purchase orders,
and $50,000 in the case of any other PFC Contract, and (2) was entered into,
amended or terminated in the ordinary course of business consistent with past
practice, or (B) taken any action or failed to take any action that, with or
without notice or lapse of time, would constitute a default under any Material
PFC Contract (as defined in Section 4.12).
SECTION 4.07 NO UNDISCLOSED LIABILITIES. Since December 31, 1995, PFC has
not incurred any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that (a) individually or in the aggregate
would be reasonably likely to have a Material Adverse Effect on PFC or (b) would
be required by GAAP to be reflected on a consolidated balance sheet of PFC
(including the notes thereto), except, in the case of clause (b), for this
Agreement and the other agreements referred to herein or contemplated hereby,
and for such liabilities and obligations incurred in the ordinary course of
business consistent with past practices that have not arisen as a result of a
breach by PFC of a PFC Contract.
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SECTION 4.08 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS.
(a) PFC is not in default or violation of any term, condition or provision
of (i) its Certificate of Incorporation or Bylaws or (ii) any order, writ,
injunction, judgment, decree, settlement, law, statute, rule, regulation or
requirement or other governmental approval or authorization (whether federal,
state, local or foreign) applicable to PFC or its business, properties or
assets, excluding from the foregoing clause (ii) defaults or violations which
would not, individually or in the aggregate, have a Material Adverse Effect on
PFC.
(b) PFC holds, and is in compliance with the terms of, all permits,
licenses, variances, orders, approvals and authorizations of all Governmental
Entities required for the lawful conduct of the business of PFC (the "PFC
Permits"), except where the failure to hold or be in compliance with any such
PFC Permits would not, individually or in the aggregate, have a Material Adverse
Effect on PFC.
SECTION 4.09 LITIGATION. There is no Proceeding by any Governmental Entity
or other person or entity with respect to PFC or any of its assets pending or,
to the best knowledge of PFC, threatened, nor has any Governmental Entity or
other person or entity indicated an intention to conduct or prosecute any such
Proceeding, nor does PFC have knowledge of any facts that could reasonably be
expected to form the basis of any such Proceeding, other than, in each case,
those the outcome of which, as far as reasonably can be foreseen after due
inquiry, would not, individually or in the aggregate, have a Material Adverse
Effect on PFC. PFC is not subject to any outstanding order, writ, injunction,
settlement or decree which, insofar as can be reasonably foreseen after due
inquiry, would have, individually or in the aggregate, a Material Adverse Effect
on PFC. PFC has made available to the Company true, complete and correct copies
of all complaints, motions, responses and other documentation and correspondence
relating to any pending or threatened Proceeding.
SECTION 4.10 TITLE TO ASSETS. PFC has good and marketable title to, or a
valid leasehold interest in, all of its business, properties and assets (real,
personal and mixed, tangible and intangible) free and clear of all Liens of any
kind or character, except: (a) Liens for current Taxes not yet due and payable;
(b) Liens, imperfections of title or easements which do not, in the aggregate,
materially detract from the value of, or interfere with the present or proposed
use of, the properties subject thereto or affected thereby, or otherwise
materially impair the operations of the entity which owns or leases such
property or assets or materially impair the use of such property or which
otherwise would not, in the aggregate, have a Material Adverse Effect on PFC;
(c) Liens securing indebtedness, which indebtedness is reflected on the
consolidated balance sheet of PFC in the PFC Financial Statements; and (d)
mechanics', carriers', workers, landlords', and other similar Liens arising or
incurred in the ordinary course of business consistent with past practice.
SECTION 4.11 PROPERTIES.
(a) OWNED REAL PROPERTY. PFC does not own any real property.
(b) LEASED REAL PROPERTY. Schedule 4.11(b) sets forth, by address, owner,
usage and term, a true and complete list of all real property agreements
(including all amendments thereto) pursuant to which PFC leases, subleases or
otherwise occupies any real property (the "PFC Real Property Leases"). Pursuant
to the PFC Real Property Leases, PFC has validly existing and enforceable
leasehold, subleasehold or occupancy interests in the property leased thereunder
("PFC Leased Real Property"), in each case free from defaults (including any
violation of any use provisions thereunder) and events which with the giving of
notice or the passage of time would constitute a default. There are (i) no
outstanding contracts for any improvements to the PFC Leased Real Property which
have not been fully paid and performed that involve the payment of more than
$50,000 individually or $100,000 in the aggregate, (ii) no expenses of any kind
(including brokerage and leasing commissions and lease administration fees) in
excess of an aggregate of $10,000 pertaining to the PFC Leased Real Property
which are due and payable and have not been fully paid and (iii) no deposits
held by any third party with respect to any of the PFC Leased Real Property.
(c) THIRD PARTY LEASES. Schedule 4.11(c) sets forth, by address, owner and
usage, a true and complete list of all real property agreements (including all
amendments thereto) pursuant to which PFC leases, subleases or otherwise permits
any third party to occupy any PFC Leased Real Property (collectively the "PFC
Third Party Leases"). Each of the PFC Third Party Leases is in full force and
effect and in each case free from defaults (including any violation of any use
provisions thereunder) and events which with the giving of notice or passage of
time would constitute a default (by landlord or tenant thereunder) except in
either instance for defaults which individually or in the aggregate, would not
have an Material Adverse Effect on PFC. None of the PFC Third Party Leases
grants any options or other rights to the tenant thereunder to purchase any of
the PFC Leased Real Property.
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(d) DEVELOPMENT AGREEMENTS. Schedule 4.11(d) sets forth a true and complete
list of all agreements (including all amendments thereto) pursuant to which (i)
any third party has been given the right (exclusive or otherwise) to develop any
real property for PFC or (ii) PFC has agreed to develop, construct or occupy in
the future (whether by lease or other occupancy agreement) any real property
(the "PFC Development Agreements"). Each of the PFC Development Agreements is in
full force and effect in each case free from defaults and events which with the
giving of notice or the passage of time would constitute a default thereunder.
(e) VIOLATIONS/CONDEMNATION. PFC has not received, with respect to any PFC
Leased Real Property, any written notice of default or any written notice of
noncompliance with respect to any applicable state, federal or local law,
statute, rule, regulation or requirement relating to zoning, building, fire, use
restriction or safety or health codes which have not been remedied in all
respects which would be reasonably likely to have a Material Adverse Effect on
PFC. There is no pending, or to the knowledge of PFC, threatened condemnation or
other governmental taking of any of the PFC Leased Real Property.
SECTION 4.12 CONTRACTS.
(a) Schedule 4.12(a) sets forth a complete and accurate list of each PFC
Contract (whether written or oral) (i) which relates to the borrowing of money
or a guaranty of any obligation for the borrowing of money, (ii) which prohibits
or limits the ability of PFC to engage in any business or compete with any
person, (iii) for the licensing or use of any PFC Intellectual Property (as
defined in Section 4.13), (iv) for the sale, lease or sublease of real property,
(v) for the sale, lease or sublease of personal property or other assets with a
fair market value or for total consideration exceeding $25,000, (vi) (other than
this Agreement) for the acquisition of PFC or its business, (vii) for the supply
of products and inventory involving after the date hereof more than $50,000,
(viii) which relates to computer hardware, software and systems involving after
the date hereof more than $50,000, (ix) to which PFC, and any affiliate,
director or officer of PFC, is a party, (x) not entered into in the ordinary
course of business consistent with past practice which involves after the date
hereof the receipt or payment of more than $25,000 in any one year, or (xi) the
consequences of a default or termination under which would be reasonably likely
to have a Material Adverse Effect on PFC (collectively, "Material PFC
Contracts").
(b) True, complete and correct copies of all written Material PFC
Contracts, including all amendments, modifications or extensions thereof, have
been previously made available to the Company.
(c) Each Material PFC Contract is valid and binding and in full force and
effect and neither PFC, or, to the best knowledge of PFC, any other parties
thereto, is in default or violation (and no event has occurred which with the
giving of notice or the lapse of time or both would constitute a default or
violation) of any term, condition or provisions of any Material PFC Contract,
except in either instance for defaults or violations, which individually or in
the aggregate, would not be reasonably likely to have a Material Adverse Effect
on PFC.
(d) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not alter or impair any rights of PFC
under any of the Material PFC Contracts; and the PFC Contracts that will be held
by the Surviving Corporation and its subsidiaries at the Effective Time will
include all PFC Contracts necessary to permit the Surviving Corporation and its
subsidiaries to conduct the business conducted by PFC as conducted on the date
hereof.
SECTION 4.13 LICENSES; INTELLECTUAL PROPERTY. Schedule 4.13 sets forth a
list of all federal, state, local and foreign registrations of patents,
trademarks, trade names or other trade rights and copyrights and all pending
applications for any such registrations that are owned by PFC or in which PFC
has any interest, or that are being used in connection with, or relate to, the
business of PFC (collectively, the "PFC Intellectual Property"). PFC has made
available to the Company true, correct and complete copies of each registration,
application and other document relating to the PFC Intellectual Property. PFC
owns, or possesses adequate and enforceable licenses or other rights to use, all
PFC Intellectual Property and all other patents, trademarks, trade names and
other trade rights and copyrights used in or necessary for its business as
currently conducted, except where the failure to own or possess such licenses or
other rights would not, individually or in the aggregate, have a Material
Adverse Effect on PFC; such ownership and licenses will not cease to be valid
and in full force and effect by reason of the execution, delivery and
performance of this Agreement and the agreements referred to herein or
contemplated hereby or the consummation of the transactions contemplated hereby
and thereby. No other entity or person (a) has notified PFC that it is claiming
any ownership of or right to use such PFC Intellectual Property or (b) to the
best knowledge of PFC, has interfered with, infringed upon or otherwise come
into conflict with any such PFC Intellectual Property. The conduct of the
business of PFC has not in the preceding three years, and as currently conducted
does not, conflict with, interfere with, infringe upon or otherwise violate the
rights of any third party in or to patents, trademarks, trade names or
copyrights, and PFC has not received any written notice of any such conflict,
infringement or violation.
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SECTION 4.14 EMPLOYMENT AND CONSULTING AGREEMENTS.
(a) Schedule 4.14 sets forth a complete and correct list of all Employment
Agreements between PFC and its present or former employees, officers, directors
and consultants pursuant to which PFC has any continuing obligations thereunder
(including any severance payments). PFC has made available to the Company true,
complete and correct copies of all such agreements.
(b) PFC is not a party to any Employment Agreement or any agreement
relating to stock options which contains a "change in control," "potential
change in control" or similar provision. Except as set forth in this Agreement,
the execution, delivery and performance of this Agreement and the agreements
referred to herein or contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby, will not (either alone or upon the
occurrence of any additional acts or events) result in any payment (severance
pay or otherwise) becoming due from PFC to any of its present or former
employees, officers, directors or consultants or accelerate the time of payment
or vesting, or increase the amount of compensation or stock options due, any
such person.
SECTION 4.15 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Schedule 4.15 sets forth a list of all material employee benefit plans,
arrangements, contracts or agreements (including Employment Agreements and
severance agreements) of any type in which PFC employees participate or are
eligible to participate (including but not limited to all plans described in
sections 3(1) and 3(2) of ERISA), maintained during the past five years by PFC,
any of its subsidiaries or any trade or business, whether or not incorporated (a
"PFC ERISA Affiliate"), which together with PFC would be deemed a "single
employer" within the meaning of section 4001(b)(15) of ERISA ("PFC Benefit
Plans"). Neither PFC nor any PFC ERISA Affiliate has any formal plan or
commitment, whether legally binding or not, to create any additional PFC Benefit
Plan or modify or change any existing PFC Benefit Plan that would affect any
employee or terminated employee of PFC.
(b) With respect to each PFC Benefit Plan, (i) if intended to qualify under
section 401(a), 401(k) or 403(a) of the Code, such plan so qualifies, and its
trust is exempt from taxation under section 501(a) of the Code, (ii) such plan
has been administered in all material respects in accordance with its terms and
applicable law, (iii) no breaches of fiduciary duty have occurred which might
reasonably be expected to give rise to material liability on the part of PFC,
(iv) no disputes are pending or, to the knowledge of PFC, threatened that are
reasonably likely to give rise to material liability on the part of PFC or
result in a Material Adverse Effect on PFC, (v) no prohibited transaction
(within the meaning of Section 406 of ERISA) has occurred that are reasonably
likely to give rise to material liability on the part of PFC or result in a
Material Adverse Effect on PFC, (vi) all contributions and premiums due as of
the date hereof (without taking into account any extensions for such
contributions and premiums) have been made in full and (vii) all filings and
reports have been made in accordance with sections 101, 104 and 400 of ERISA and
sections 6057, 6058 and 6059 of the Code.
(c) Neither PFC nor any PFC ERISA Affiliate (i) has incurred an accumulated
funding deficiency, as defined in the Code and ERISA, or (ii) has any material
liability under Title IV of ERISA with respect to any employee benefit plan that
is subject to Title IV of ERISA.
(d) With respect to each PFC Benefit Plan that is a "welfare plan" (as
defined in section 3(1) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of PFC beyond their
termination of employment, other than on an employee-pay-all basis.
(e) The execution, delivery and performance of this Agreement and the
agreements referred to herein or contemplated hereby, and the consummation of
the transactions contemplated hereby and thereby, will not (i) entitle any PFC
employee to severance pay or accelerate the time of payment or vesting, or
increase the amount, of compensation or benefits due to any PFC employee, (ii)
constitute or result in a prohibited transaction under section 4975 of the Code
or section 406 or 407 of ERISA under any PFC Benefit Plan or (iii) subject PFC,
any of its subsidiaries, any PFC ERISA Affiliate, any of PFC Benefit Plans, any
related trust, any trustee or administrator of any thereof, or any party dealing
with PFC Benefit Plans or any such trust to either a civil penalty assessed
pursuant to section 409 or 502 (i) of ERISA, a criminal penalty assessed
pursuant to section 501 of ERISA or a tax imposed pursuant to section 4975,
4976, 4977, 4980B or 6652 of the Code.
(f) There is no PFC Benefit Plan that is a "multiemployer plan," as such
term is defined in section 3(37) of ERISA.
(g) With respect to each PFC Benefit Plan, PFC has made available to the
Company or its representatives (i) accurate and complete copies of all plan
texts, summary plan descriptions, summary of material modifications, trust
agreements and other related agreements including all amendments to the
foregoing, and (ii) the most recent annual report, the most recent
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annual and periodic accounting of plan assets, the most recent determination
letter received from the Service and the most recent actuarial valuation, to the
extent any of the foregoing may be applicable to a particular PFC Benefit Plan.
SECTION 4.16 LABOR RELATIONS.
(a) PFC does not have and for the past three years has not had (i) any
unfair labor practice charge or complaint or other proceeding pending or, to
PFC's best knowledge, threatened against PFC before the National Labor Relations
Board, (ii) any labor strike, work slowdown or stoppage pending or, to PFC's
best knowledge, threatened against or affecting PFC, (iii) any pending
collective bargaining negotiations relating to the employees of PFC, (iv) any
pending petitions for recognition of a labor union or association as the
exclusive bargaining agent for any or all of the employees of PFC, (v) to PFC's
knowledge, any general solicitation of representation cards by any union seeking
to represent the employees of PFC as their exclusive bargaining agent, (vi) any
collective bargaining agreements or (vii) any arbitrations, grievances, suits or
administrative proceedings before any Government Entity relating to labor or
employment matters involving any employees of PFC.
(b) PFC is and has been in compliance for the past three years with all
applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, occupational safety and health and
notice and the requirements of the Worker Adjustment Retraining Act of 1988,
Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act of
1993 or similar state or local law, excluding defaults or violations which would
not, individually or in the aggregate, have a Material Adverse Effect on PFC.
SECTION 4.17 TAXES.
(a) Parent or an affiliate of Parent has (i) duly and timely filed (or
there has been filed on its behalf) with the appropriate governmental
authorities all Tax Returns required to be filed by it with respect to PFC on or
prior to the date hereof, other than any filings which the failure to make in a
timely manner would not have a Material Adverse Effect on PFC, it being
understood that the failure to file a federal or state income Tax Return would
have a Material Adverse Effect on PFC, and all such Tax Returns are true,
correct and complete in all material respects, and (ii) duly paid in full or
made provision in accordance with GAAP (or there has been paid or provision has
been made on their behalf) for the payment of all Taxes for all periods ending
on or before the date hereof.
(b) There are no Liens for Taxes upon any property or assets of PFC, except
for liens for Taxes not yet due.
(c) PFC has not made any change in accounting methods or received a ruling
or a proposed ruling from any taxing authority that is reasonably likely to have
a Material Adverse Effect on PFC.
(d) PFC has complied in all material respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes
(including withholding of Taxes pursuant to Sections 1441 and 1442 of the Code
or similar provisions under any foreign laws) and has, within the time and the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and paid
over under applicable laws.
(e) No federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending or, to the best
knowledge, of Parent and PFC, threatened with regard to any Taxes or Tax Returns
of PFC, and neither Parent nor PFC has received a written notice of any pending
audits or proceedings.
(f) There are no outstanding requests, agreements, consents or waivers to
extend the statutory period of limitations applicable to the assessment of any
Taxes or deficiencies against PFC, and no power of attorney granted by PFC with
respect to any Taxes is currently in force.
(g) PFC is not a party to any agreement, contract or arrangement that could
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(h) PFC has not, with regard to any assets or property held, acquired or to
be acquired by it, filed a consent to the application of Section 341(f) of the
Code, or agreed to have Section 341(f)(2) of the Code apply to any disposition
of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by PFC.
(i) The deductibility of compensation paid by PFC has not been and will not
be limited by Section 162(m) of the Code.
(j) All transactions that could give rise to an understatement of the
federal income tax liability of PFC within the meaning of Section 6662(d) of the
Code are adequately disclosed on Tax Returns in accordance with Section
6662(d)(2)(B) of the Code if there is or was no substantial authority for the
treatment giving rise to such understatement.
(k) PFC has made all required estimated Tax Payments sufficient to avoid
any material underpayment penalties.
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(l) No closing agreement that could affect the Taxes of PFC for periods
ending after the Effective Time has been entered into by or with respect to PFC
pursuant to section 7121 of the Code or any similar provision of any state,
local or foreign law.
(m) Schedule 4.17 sets forth all elections that have been made or filed by
or with respect to PFC.
(n) None of the assets of PFC constitute tax-exempt use property within the
meaning of section 168(h) of the Code or property that is or will be required to
be treated as owned by any person other than PFC pursuant to the provisions of
section 168(f)(8) of the Internal Revenue Code of 1954, as in effect immediately
prior to the enactment of the Tax Reform Act of 1986.
(o) Based on the Tax Sharing Agreement, dated as of June 24, 1992 (as
amended), and continued participation by PFC in the consolidated federal tax
return of the consolidated group of which it is currently a member, as of the
date of this Agreement there is not less than $15 million of net operating
losses that can be utilized by PFC.
SECTION 4.18 INSURANCE. PFC is, and for the last three years continuously
has been, insured through group policies with Parent and certain affiliates by
insurers, reasonably believed by Parent to be of recognized financial
responsibility and solvency against, or self-insured with reserves sufficient to
protect against, such losses and risks and in such amounts as are customary in
the businesses in which they are engaged. All material policies of insurance and
fidelity or surety bonds insuring PFC or its business, assets, employees,
officers and directors are in full force and effect. All premiums due thereon
have been paid, and Parent and PFC have complied in all material respects with
the provisions of such policies. No Proceeding is pending or, to Parent's or
PFC's best knowledge, threatened, to revoke, cancel or limit such policies and
no notice of cancellation of any of such material policies have been received by
PFC. Parent and PFC have complied with all material recommendations for the
prevention of loss made by all such insurance carriers. Schedule 4.18 lists all
insurance policies (with a description of coverage, periods of coverage, limits
of coverage, self-insured retentions or deductibles) and describes all self-
insurance arrangements affecting PFC and the aggregate amount of all claims made
under such policies or arrangements with respect to PFC since January 1, 1994.
There are no material claims by or on behalf of PFC under any such policy or
instrument as to which any insurance company is denying liability or defending
under a reservation of rights clause. All necessary notifications of claims have
been made to insurance carriers other than those which will not, individually or
in the aggregate, have a Material Adverse Effect on PFC. True, complete and
correct copies of all of policies of insurance and fidelity or surety bonds
insuring PFC or its business, assets, employees, officers and directors have
been provided to the Company.
SECTION 4.19 ENVIRONMENTAL MATTERS.
(a) PFC is in compliance in all material respects with the Requirements of
Environmental Laws and PFC has not received any communication within the past
three years from a person that alleges that PFC is not in such compliance.
(b) There is no Environmental Claim pending or, to PFC's best knowledge,
threatened against PFC or, to PFC's best knowledge after due inquiry, against
any person or entity whose liability for any Environmental Claim PFC has
retained or assumed either contractually or by operation of law.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including the release, emission, discharge or
disposal of any Materials of Environmental Concern, that could be expected to
result in any Environmental Claim against PFC or any person or entity whose
liability for any Environmental Claim PFC has retained or assumed either
contractually or by operation of law.
SECTION 4.20 RELATED PARTY TRANSACTIONS. Except for Parent, no director,
officer, partner, employee, affiliate or associate of PFC (a) has borrowed money
from or has outstanding any indebtedness or other similar obligations to PFC,
(b) to the best knowledge of PFC, owns any direct or indirect interest of any
kind in, or is a director, officer, employee, party, affiliate or associate of,
or consultant or lender to, or borrower from, or has the right to participate in
the management, operations or profits of, any person or entity which is (i) a
competitor, supplier, customer, distributor, lessor, tenant, creditor or debtor
of PFC, (ii) engaged in a business related to the business of PFC or (iii)
participating in any transaction to which PFC is a party, (c) is otherwise a
party to any contract, arrangement or understanding with PFC or (d) has any
claim adverse to, or is a party in a proceeding adverse to, PFC.
SECTION 4.21 PROXY STATEMENT. None of the information regarding Parent or
PFC supplied in writing by Parent or PFC for inclusion in the Form S-4 or the
Proxy Statement will contain any untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading.
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SECTION 4.22 BROKERS OR FINDERS. Schedule 4.22 sets forth all agents',
brokers', investment bankers', financial advisors' and finders' fees and other
similar commissions and fees payable by Parent or PFC in connection with this
Agreement and the transactions contemplated hereby.
SECTION 4.23 STATEMENTS TRUE AND CORRECT. No statement made by PFC in this
Agreement, the PFC Disclosure Schedule or any certificate furnished or to be
furnished by PFC, any of its subsidiaries, or any director or officer of PFC or
any subsidiary, contains or will contain any untrue statement of material fact
or omits or will omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
ARTICLE V
COVENANTS
SECTION 5.01 CONDUCT OF BUSINESS OF THE COMPANY. Parent and PFC acknowledge
that upon the execution of this Agreement, customers, suppliers, dealers,
employees and others having a relationship with the Company will become aware of
the fact that the Company is a party to this Agreement and that some disruptions
in the business of the Company and in these relationships is inevitable as part
of this process. However, except as provided in this Agreement, during the
period from the date of this Agreement to the Effective Time, the Company shall,
and shall cause each of its subsidiaries to, conduct its operations according to
its ordinary and usual course of business, consistent with past practice, and
use its best efforts, consistent with prudent business judgment, to preserve
intact its business organization, to keep available the services of its officers
and employees and to maintain satisfactory relationships with lessors,
licensors, licensees, suppliers, contractors, distributors, customers and others
having business relationships with it. Without limiting the generality of the
foregoing, and except as otherwise provided in this Agreement, the Company shall
not, and shall not permit any of its subsidiaries to, without the prior written
consent of Parent:
(a) amend its Certificate of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, convertible securities, subscriptions, calls, rights, phantom stock,
stock appreciation rights and any other similar rights or other agreements or
commitments) any capital stock of any class or any other securities, except for
(i) the grant after the date hereof of Company Stock Options to purchase up to
1,000 Class A Shares at an exercise price of 100% of the Fair Market Value (as
defined in the Stock Plan) of the Class A Shares on the date of issuance of such
Company Stock Options pursuant to Section 4 of the Stock Plan, (ii) the grant
after the date hereof of Company Stock Options to purchase up to 20,000 Class A
Shares at an exercise price of not less than 110% of the Fair Market Value (as
defined in the Stock Plan) of the Class A Shares on the date of issuance of such
Company Stock Options and (iii) the issuance of Shares pursuant to the exercise
of Company Stock Options outstanding on the date hereof or issued pursuant to
clause (i) or (ii) of this Section 5.01(b) in accordance with the terms of such
Company Stock Options, or amend any of the terms of any such rights or
securities outstanding, or agreements in effect, on the date hereof (including
any amendment or repricing of any Company Stock Options), other than as
contemplated by Section 2.06 or Section 6.03(m);
(c) other than the cancellation of treasury shares, split, combine or
reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem, repurchase or
otherwise acquire any of its securities or any securities of its subsidiaries;
(d)(i) other than under the Company Credit Facility, incur or assume any
indebtedness for borrowed money or issue any debt securities or warrants or
rights to acquire debt securities of the Company or any of its subsidiaries,
(ii) assume, guarantee, endorse or otherwise become liable (whether directly,
contingently or otherwise) for the obligations of any other person (other than
any subsidiary of the Company), (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than any subsidiary
of the Company) or (iv) mortgage, pledge or otherwise encumber any material
assets or otherwise create or suffer a Lien thereon;
(e) enter into, adopt, terminate or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee welfare or pension benefit agreements,
trusts, plans, funds or other arrangements for the benefit or welfare of any
director, officer or employee, other than in connection with the hiring and
termination of non-officer employees in the ordinary course of business
consistent with past practices, or increase in any manner the compensation or
fringe benefits of any director, officer or employee (other than any increase in
the compensation or fringe benefits of any non-officer employee in the ordinary
course of business consistent with past practices) or pay any benefit not
required by any
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existing plan and arrangement (including the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units) or enter
into any contract, agreement, commitment or arrangement to do any of the
foregoing;
(f) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of liabilities or obligations in the
ordinary course of business consistent with past practice and in accordance with
their terms;
(g) authorize or make any capital expenditures, except in accordance with
the Company Capital Expenditure Plan, and, except for the acquisition and sale
of inventory and the leasing, closing and renovation of retail stores, in each
case in the ordinary course of business consistent with past practice, acquire,
sell, lease, encumber, transfer or dispose of any material assets;
(h) make any tax elections or settle or compromise any income tax
liability;
(i) change any accounting policies, procedures or practices, other than as
set forth in the Company SEC Documents;
(j)(i) enter into, amend or terminate any Company Contract, except for any
such contract that (A) does not involve an amount greater than $200,000, in the
case of purchase orders, and $50,000, in the case of other Company Contracts,
and (B) is entered into, amended or terminated in the ordinary course of
business consistent with past practice, or (ii) take any action or fail to take
any action that, with or without notice or lapse of time, would constitute a
default under any Material Company Contract; or
(k) take, or agree in writing or otherwise to take, any of the foregoing
actions.
SECTION 5.02 CONDUCT OF BUSINESS OF PFC. The Company acknowledges that upon
the execution of this Agreement, customers, suppliers, dealers, employees and
others having a relationship with PFC will become aware of the fact that PFC is
a party to this Agreement and that some disruptions in the business of PFC and
in these relationships is inevitable as part of this process. However, except as
provided in this Agreement, during the period from the date of this Agreement to
the Effective Time, PFC shall conduct its operations according to its ordinary
and usual course of business, consistent with past practice, and use its best
efforts, consistent with prudent business judgment, to preserve intact its
business organization, to keep available the services of its officers and
employees and to maintain satisfactory relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it. Without limiting the generality of the foregoing, and
except as otherwise provided in this Agreement, PFC shall not, without the prior
written consent of the Company:
(a) amend its Certificate of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, convertible securities, subscriptions, calls, rights, or other
agreements or commitments) any capital stock of any class or any other
securities;
(c) other than the cancellation of treasury shares, split, combine or
reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem, repurchase or
otherwise acquire any of its securities or any securities of its subsidiaries;
(d)(i) incur or assume any indebtedness for borrowed money or issue any
debt securities or warrants or rights to acquire debt securities of the Company
or any of its subsidiaries, except for the issuance of a promissory note in a
principal amount not to exceed $15 million, (ii) assume, guarantee, endorse or
otherwise become liable (whether directly, contingently or otherwise) for the
obligations of any other person, except to the extent required under Parent's
credit facilities in effect from time to time, (iii) make any loans, advances or
capital contributions to, or investments in, any other person or (iv) mortgage,
pledge or otherwise encumber any material assets or otherwise create or suffer a
lien thereon, except to the extent required under Parent's credit facilities in
effect from time to time;
(e) enter into, adopt, terminate or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements for the benefit or welfare of any director, officer or
employee, other than in connection with the hiring and termination of
non-officer employees in the ordinary course of business consistent with past
practices, or increase in any manner the compensation or fringe benefits of any
director, officer or employee (other than any increase in the compensation or
fringe benefits of any non-officer employee in the ordinary course of business
consistent with past practices) or pay any benefit not required by any existing
plan and
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arrangement (including the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units) or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing;
(f) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of liabilities or obligations in the
ordinary course of business consistent with past practice and in accordance with
their terms;
(g) authorize or make any capital expenditures, except in accordance with
the PFC Capital Expenditure Plan, and except for the acquisition and sale of
inventory and the leasing, closing and renovation of retail stores, in each case
in the ordinary course of business consistent with past practice, acquire, sell,
lease, encumber, transfer or dispose of any material assets;
(h) make any tax elections or settle or compromise any income tax
liability;
(i) change any accounting policies, procedures or practices other than
those set forth in the PFC Financial Statements;
(j)(i) enter into, amend or terminate any PFC Contract, except for any such
contract that (A) does not involve an amount greater than $200,000, in the case
of purchase orders, and $50,000 in the case of other PFC Contracts, and (B) is
entered into, amended or terminated in the ordinary course of business
consistent with past practice, or (ii) take any action or fail to take any
action that, with or without notice or lapse of time, would constitute a default
under any Material PFC Contract; or
(k) take, or agree in writing or otherwise to take, any of the foregoing
actions.
SECTION 5.03 PREPARATION OF FORM S-4 AND PROXY STATEMENT; STOCKHOLDER
MEETING.
(a) Promptly following the date of this Agreement, the Company shall
prepare and file with the SEC, and Parent and PFC shall reasonably cooperate
with the Company in preparing and filing with the SEC, (i) a proxy statement
with respect to the Company's annual meeting of stockholders, the Merger and the
transactions contemplated hereby (the "Proxy Statement") and (ii) a Registration
Statement on Form S-4 (the "Form S-4"), in which the Proxy Statement will be
included. The Company shall use its best efforts to have the Form S-4 and any
Registration Statement on Form S-8, or any amendment thereto, contemplated by
Sections 2.06 and 5.11 declared effective under the Securities Act as promptly
as practicable after such filing. The Company shall cause the Proxy Statement to
be mailed to the Company's stockholders as promptly as practicable after the
Form S-4 is declared effective under the Securities Act. The Company shall also
take any action required to be taken under any applicable state securities laws
in connection with the registration and qualification in connection with Merger
of Common Stock of the Company following the Merger. The Company and Parent each
agree to correct any information provided by it for use in the Form S-4 and any
Registration Statement on Form S-8, or any amendment thereto, contemplated by
Sections 2.06 and 5.11 which shall have become false or misleading.
(b) The Company shall promptly notify Parent of (i) the effectiveness of
the Form S-4 and any Registration Statement on Form S-8, or any amendment
thereto, contemplated by Sections 2.06 and 5.11 or (ii) any request by the SEC
for any amendment to the Form S-4 and any Registration Statement on Form S-8, or
any amendment thereto, contemplated by Sections 2.06 and 5.11 or for additional
information. All filings with the SEC, including the Form S-4 and any amendment
thereto and any Registration Statement on Form S-8, or any amendment thereto,
contemplated by Sections 2.06 and 5.11, and all mailings to the Company'
stockholders in connection with the Merger, including the Proxy Statement, shall
be subject to the prior review and comment of Parent, and no such filing or
mailing shall be made without the prior consent of Parent, which shall not
unreasonably be withheld, unless the Company reasonably concludes, upon the
advice of counsel, that such filing or mailing is required by applicable law.
(c) The Company shall, as promptly as practicable following the
effectiveness of the Form S-4 and any Registration Statement on Form S-8, or any
amendment thereto, contemplated by Sections 2.06 and 5.11, and in consultation
with Parent, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders Meeting") for the purpose of approving this
Agreement and the transactions contemplated by this Agreement to the extent
required by Delaware law. Subject to the provisions of Section 5.04, (i) the
Company shall, through its Board of Directors, recommend to its stockholders
approval of the foregoing matters, as set forth in Section 3.27; (ii) such
recommendation, together with a copy of the opinion referred to in Section
6.01(e), shall be included in the Proxy Statement; and (iii) the Company shall
use its best efforts to hold such meeting as soon as practicable after the date
hereof.
(d) The Company shall cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
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(e) The Company shall use its best efforts to cause the New Shares to be
listed, at the Effective Time, on the Nasdaq National Market.
(f) The Company shall use its best efforts to obtain the opinion referred
to in Section 6.01(e).
SECTION 5.04 NO SOLICITATION.
(a) Neither the Company nor any of its subsidiaries shall, and the Company
shall ensure that none of its affiliates, officers, directors, employees,
representatives or agents shall, after the date hereof, directly or indirectly,
solicit or engage in negotiations with, or provide any information to, or
otherwise cooperate with, any person or entity that seeks to acquire or
expresses an interest in acquiring all or any substantial part of any class of
the securities, business or assets of the Company or any subsidiary thereof, or
for the purpose of otherwise effecting any transaction or business combination
inconsistent with the Merger, and neither the Company nor any of its
subsidiaries shall, and the Company shall ensure that none of its affiliates,
officers, directors, employees, representatives or agents shall, enter into any
agreement with or grant any proxy, option or other similar right to any third
person or entity in connection with any transaction or business combination
inconsistent with the Merger; PROVIDED, HOWEVER, that (i) the filing of reports
and other information with the SEC and the distribution of reports and other
information to stockholders shall be deemed not to violate this Section 5.04(a)
and (ii) nothing contained in this Section 5.04(a) or elsewhere herein shall
prohibit the Board of Directors of the Company from furnishing information to,
or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide proposal in writing to acquire the Company,
whether by merger, consolidation, or stock acquisition, or acquisition of
substantially all of the assets of the Company, on terms which, in the exercise
of their fiduciary duty after the consideration of advice from the Company's
legal and financial advisors, a majority of the Company's directors determines
is likely to be more beneficial to each of the holders of the Shares than the
Merger, and PROVIDED, FURTHER, that the Company's legal and financial advisors
may engage in discussions regarding such written offer to clarify the terms of
such offer for the purpose of rendering the advice referred to above to the
Board of Directors of the Company, in each case, provided that, the Company and
its advisors, prior to furnishing such information to, or entering into
discussions or negotiations with, such a person or entity, shall provide written
notice to Parent to the effect that the Company is furnishing information to, or
entering into discussions with, such a person or entity, and shall keep Parent
informed of the status (including the identity of such person or entity and the
terms of any proposal) of such discussions or negotiations. Nothing in this
Section 5.04(a) shall (A) permit the Company to terminate this Agreement, (B)
permit the Company to enter into any agreement with respect to a Cosmetic Center
Alternate Transaction (as defined in Section 8.02(b)) prior to the termination
of this Agreement in accordance with its terms or (C) affect any other
obligation of any party under the Agreement.
(b) Neither Parent nor PFC shall, and Parent shall ensure that none of its
affiliates, officers, directors, employees, representatives or agents shall,
after the date hereof, directly or indirectly, solicit or engage in negotiations
with, or provide any information to, or otherwise cooperate with, any person or
entity that seeks to acquire or expresses an interest in acquiring all or any
substantial part of any class of the securities, business or assets of PFC, or
for the purpose of otherwise effecting any transaction or business combination
inconsistent with the Merger, and neither Parent nor PFC shall, and Parent shall
ensure that none of its affiliates, officers, directors, employees,
representatives or agents shall, enter into any agreement with or grant any
proxy, option or other similar right to any third person or entity in connection
with any transaction or business combination inconsistent with the Merger.
SECTION 5.05 ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Time, the Company,
during normal business hours and upon reasonable notice, (i) shall give Parent
and its representatives full and complete access to all retail stores, offices,
warehouses and other facilities, to all books and records and to all employees
and representatives (including accountants and legal counsel) of the Company and
its subsidiaries, (ii) shall permit Parent and its representatives to make such
inspections and to conduct such interviews and inquiries as Parent or its
representatives may reasonably require and (iii) shall cause its officers and
those of its subsidiaries and representatives to furnish Parent and its
representatives with such financial and operating data and other information
with respect to the business and properties of the Company and its subsidiaries
as Parent may reasonably request from time to time.
(b) Between the date of this Agreement and the Effective Time, PFC, during
normal business hours and upon reasonable notice, (i) shall give the Company and
its representatives full and complete access to all retail stores, offices,
warehouses and other facilities, to all books and records and to all employees
and representatives of PFC, (ii) shall permit the Company and
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its representatives to make such inspections and to conduct such interviews and
inquiries as the Company or its representatives may reasonably require and (iii)
shall cause its officers to furnish the Company and its representatives with
such financial and operating data and other information with respect to the
business and properties of PFC as the Company may reasonably request from time
to time; PROVIDED, HOWEVER, that access to any federal and consolidated and
combined state tax records shall be limited to the PFC pro forma sections of
such records.
(c) Subject to Section 5.08 hereof, all information provided pursuant to
Sections 5.05(a) and (b) shall be kept confidential in accordance with the
Confidentiality Agreement, dated May 13, 1996 (the "Confidentiality Agreement"),
between the Company and Parent.
SECTION 5.06 SATISFACTION OF CLOSING CONDITIONS.
(a) Subject to the terms and conditions hereof, each of the parties hereto
agrees to use commercially reasonable efforts to take, or cause to be taken, all
other action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations or otherwise to consummate and
effect the transactions contemplated by this Agreement as promptly as
practicable, including obtaining all required consents and approvals, making all
required filings and applications and complying with or responding to any
requests by governmental agencies. In addition, no party hereto shall knowingly
take any action or fail to take any action which is reasonably likely to make
any representation or warranty of such party contained in this Agreement untrue
or incorrect as of the date when made or as of any future date or which could
prevent the satisfaction of any condition to closing set forth herein.
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall take all such
necessary or desirable action. Each of the parties hereto will execute any
additional instruments necessary to consummate the transactions contemplated
hereby.
SECTION 5.07 FINANCINGS.
(a) The Company agrees to provide, and shall cause its subsidiaries and its
and their respective officers and employees to provide, all necessary
cooperation in connection with the arrangement of any commercially reasonable
financing to be consummated contemporaneous with or at or after the Closing in
respect of the transactions contemplated by this Agreement and the refinancing
of the indebtedness of the Surviving Corporation, including the execution and
delivery of any commercially reasonable commitment and fee letters, term sheets,
underwriting or placement agreements, pledge and security documents, other
commercially reasonable definitive financing documents, or other reasonably
requested certificates or documents, including a certificate of the chief
financial officer of the Company with respect to solvency matters, as may be
reasonably requested by Parent, subject in each case to customary conditions. In
addition, in conjunction with the obtaining of any such financing, the Company
agrees, at the request of Parent, to call for prepayment or redemption, or to
prepay, redeem and/or renegotiate, as the case may be, any then existing
indebtedness of the Company; provided that no such prepayment or redemption
shall themselves actually be made until contemporaneously with or after the
Effective Time.
(b)(i) Parent hereby agrees to use commercially reasonable efforts, subject
to normal conditions, to arrange the financing in respect of the transactions
contemplated by this Agreement described in Section 6.03(d), including, subject
to customary conditions, using commercially reasonable efforts to assist the
Company in the negotiation of definitive agreements with respect thereto,
including the execution and delivery of any reasonably requested certificates or
documents. Parent will keep the Company informed of the status of its efforts to
arrange such financing, including making reports with respect to significant
developments.
SECTION 5.08 PUBLIC ANNOUNCEMENTS. Parent and the Company will consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger or the other
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement with
any national securities exchange or The National Association of Securities
Dealers, Inc.
SECTION 5.09 OBLIGATION TO INFORM.
(a) The Company shall promptly inform Parent of any material change in the
business operations, financial or other condition or prospects of the Company
occurring subsequent to the date hereof and of the happening of any event that
would cause any representation or warranty of the Company set forth herein to be
untrue; PROVIDED, HOWEVER, that such disclosure shall not relieve the Company of
any liability with respect to the breach of such representation or warranty.
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(b) Parent shall promptly inform the Company of any material change in the
business operations, financial or other condition or prospects of PFC occurring
subsequent to the date hereof and of the happening of any event that would cause
any representation or warranty of PFC or Parent set forth herein to be untrue;
PROVIDED, HOWEVER, that such disclosure shall not relieve PFC or Parent of any
liability with respect to the breach of such representation or warranty.
SECTION 5.10 INSURANCE POLICIES.
(a) If any third party claim against the Company or any of its subsidiaries
is covered by self-insurance, deductibles or self-insured retentions of the
Company or any of its subsidiaries, or the Company or any of its subsidiaries is
uninsured for any such claim, the Company shall promptly notify Parent of any
such third party claim prior to making any determination to settle or not to
settle any such third party claim, and the Company shall afford Parent the
opportunity to review, comment and consent upon any such determination, such
consent not to be unreasonably withheld. The Company shall maintain in effect
and/or renew (as applicable) all present insurance policies and shall take all
necessary action to protect all past, present and future insurance policies of
the Company; PROVIDED, HOWEVER, that neither the Company nor any of its
subsidiaries shall take any such action that will materially increase the cost
of any insurance policy and shall not renew, replace or amend any such policies
without prior written notice to Parent. The Company shall not act or fail to act
in any manner that could give rise to an event of default thereunder.
(b) If any third party claim against PFC is covered by self-insurance,
deductibles or self-insured retentions of PFC, or PFC is uninsured for any such
claim, Parent shall promptly notify the Company of any such third party claim
prior to making any determination to settle or not to settle any such third
party claim, Parent shall afford the Company the opportunity to review, comment
and consent upon any such determination, such consent not to be unreasonably
withheld. PFC shall maintain in effect and/or renew (as applicable) all present
insurance policies and shall take all necessary action to protect all past,
present and future insurance policies of PFC; provided, however, that PFC shall
not take any such action that will materially increase the cost of any insurance
policy and shall not renew, replace or amend any such policies without prior
written notice to the Company. PFC shall not act or fail to act in any manner
that could give rise to an event of default thereunder.
SECTION 5.11 NEW STOCK OPTION PLAN. The Company shall take all action
necessary to adopt a new stock option plan (including the preparation and filing
of a Registration Statement on Form S-8), in form and substance reasonably
satisfactory to Parent and PFC (the "New Stock Plan").
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 CONDITIONS TO EACH PARTIES OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) This Agreement shall have been adopted by the affirmative vote of the
holders of a majority of the outstanding Class B Shares at a meeting duly called
and held for such purpose in accordance with applicable law (or by consents duly
executed in lieu thereof).
(b) No statute, rule, regulation, order, decree or injunction shall have
been enacted, entered, promulgated or enforced by any federal, state or foreign
court or Government Entity of competent jurisdiction which restrains, enjoins or
otherwise prohibits the consummation of the Merger.
(c) The applicable waiting period under the HSR Act shall have terminated
or expired.
(d) The Form S-4 and any Registration Statement on Form S-8, or any
amendment thereto, contemplated by Sections 2.06 and 5.11, shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the registration and qualification of the
Common Stock of the Company following the Merger shall have been complied with.
(e) The Company shall have received an opinion from Legg Mason to the
effect that, as of the date of such opinion, the transactions contemplated
hereby are fair to the stockholders of the Company from a financial point of
view, and Legg Mason shall not have withdrawn or, in a manner not favorable to
the adoption of this Agreement or the consummation of the Merger, modified such
opinion.
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(f) The Company shall have financing availability, on terms satisfactory to
the Company and Parent, in an amount not less than $50 million to fund the
payment of the Cash Election, refinancing of existing indebtedness and the
working capital needs of the Surviving Corporation.
SECTION 6.02 CONDITIONS OF OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the Merger are further subject to the satisfaction at or
prior to the Effective Time of the following conditions, unless waived by the
Company:
(a) The representations and warranties of Parent and PFC set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Effective Time, as if made as of such time, except where the untruth or
incorrectness of such representations and warranties (i) resulted solely from
actions specifically permitted pursuant to Section 5.02 or (ii) would not,
individually or in the aggregate, have a Material Adverse Effect on PFC. For
purposes of this Section 6.02(a), the representations and warranties of Parent
and PFC shall be deemed to have been made without any qualification as to
knowledge or materiality and, accordingly, all references in such
representations and warranties to "material," "Material Adverse Effect," "in all
material respects," "knowledge," "best knowledge" and similar terms and phrases,
and to specific dollar thresholds, shall be deemed to be deleted therefrom.
(b) Each of Parent and PFC shall have performed and complied, in all
material respects, with all obligations and covenants required to be performed
or complied with by it under this Agreement at or prior to the Effective Time.
(c) From the date of this Agreement through the Effective Time, PFC shall
not have suffered a Material Adverse Effect.
(d) The Company shall have received a certificate from the Chief Executive
Officer and the Chief Financial Officer of Parent, dated the date of the
Closing, to the effect that the conditions to closing set forth in Sections
6.02(a)-(c) have been satisfied.
(e) All permits, authorizations, consents or approvals of, or declarations
or filings with, or expirations or terminations of waiting periods imposed by,
any Government Entity, and all third party permits, authorizations, consents or
approvals (collectively, the "Authorizations"), required to be obtained, filed
or made by Parent or PFC in order to consummate the transactions contemplated
hereby shall have been obtained, filed or made, and all Authorizations required
to be filed or obtained by Parent or PFC, the failure to obtain which would have
a Material Adverse Effect on PFC or the Surviving Corporation, shall have been
filed or obtained.
(f) Parent shall have executed lease agreements substantially in the form
of Exhibit F with respect to the lease by the Company of PFC's employee stores
located at certain of Parent's facilities.
(g) Parent shall have executed supply and services agreements substantially
in the forms of Exhibits G and H.
(h) Wade H. Nichols, III, General Counsel of Parent, shall have delivered
an opinion in substantially the form attached hereto as Exhibit I.
SECTION 6.03 CONDITIONS OF OBLIGATIONS OF PARENT AND PFC. The obligation of
Parent and PFC to effect the Merger are further subject to the satisfaction at
or prior to the Effective Time of the following conditions, unless waived by
Parent or PFC:
(a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Effective Time, as if made as of such time, except where the untruth or
incorrectness of such representations and warranties (i) resulted solely from
actions specifically permitted pursuant to Section 5.01 or (ii) would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
For purposes of this Section 6.03(a), the representations and warranties of the
Company shall be deemed to have been made without any qualification as to
knowledge or materiality and, accordingly, all references in such
representations and warranties to "material," "Material Adverse Effect," "in all
material respects," "knowledge," "best knowledge" and similar terms and phrases,
and to specific dollar thresholds, shall be deemed to be deleted therefrom.
(b) The Company shall have performed and complied, in all material
respects, with all obligations and covenants required to be performed or
complied with by it under this Agreement at or prior to the Effective Time.
(c) From the date of this Agreement through the Effective Time, the Company
shall not have suffered a Material Adverse Effect.
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(d) Parent shall have received a certificate from the Chief Executive
Officer, the President and the Chief Financial Officer of the Company, dated the
date of the Closing, to the effect that the conditions to closing set forth in
Sections 6.01(a) and 6.03(a)-(d) have been satisfied.
(e) All Authorizations required to be obtained, filed or made by the
Company in order to consummate the transactions contemplated hereby shall have
been obtained, filed or made, and all Authorizations required to be filed or
obtained by the Company, the failure to obtain which would have a Material
Adverse Effect on the Company or the Surviving Corporation, shall have been
filed or obtained.
(f) The Company shall have executed the Parent Registration Rights
Agreement.
(g) The Company shall have executed lease agreements substantially in the
form of Exhibit F with respect to the lease by the Company of PFC's employee
stores located at certain of Parent's facilities.
(h) The Company shall have executed supply and services agreements
substantially in the forms of Exhibits G and H.
(i) The Company shall have executed the Employment Agreements and the
Consulting Agreement.
(j) Arent Fox Kintner Plotkin & Kahn, counsel to the Company, shall have
delivered an opinion in substantially the form attached hereto as Exhibit J.
(k) No Principal Stockholder shall have defaulted in the performance of any
of its material obligations under the Stockholders Agreement.
(l) Each individual who is a director of the Company, other than the
individuals listed on Annex A, shall have tendered his or her resignation,
effective no later than the Effective Time.
(m) The Company shall have amended the terms of the Stock Plan and each
Company Stock Option to be consistent with Section 2.06 and obtained the consent
of each holder of Company Stock Options to such amendment.
(n) The New Stock Plan shall have been adopted by the Company and approved
by the requisite vote of the stockholders of the Company.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.01 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) By mutual written consent of Parent and the Company.
(b) By Parent or the Company if the Merger shall not have been consummated
before March 17, 1997 (the "Drop Dead Date"), unless the failure to consummate
the Merger by such date is due to the action or failure to act of the party
seeking to terminate in breach of its obligations under this Agreement.
(c) By Parent or the Company if any federal, state or foreign court or
Government Entity of competent jurisdiction shall have enacted, entered,
promulgated or enforced a statute, rule, regulation, order, decree or injunction
which restrains, enjoins or otherwise prohibits the consummation of the Merger.
(d) By Parent if the Board of Directors of the Company does not recommend
in the Proxy Statement or any amendments or supplements thereto that the
stockholders of the Company adopt this Agreement, or withdraws or, in a manner
not favorable to the adoption of this Agreement or the consummation of the
Merger, modifies such recommendation.
(e) By Parent or the Company if the holders of a majority of the
outstanding Class B Shares shall fail to adopt this Agreement at a meeting duly
called and held for such purpose in accordance with applicable law (or by
consents duly executed in lieu thereof).
SECTION 7.02 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.01 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers, agents or stockholders, other than
the provisions of this Section 7.02 and of Sections 5.05(c), 8.02 and 8.03,
which provisions shall survive any such termination. Nothing contained in this
Section 7.02 shall relieve any party from liability for any willful breach of
this Agreement.
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SECTION 7.03 AMENDMENT. This Agreement may be amended by action taken by
the Company, Parent and PFC at any time before or after approval of the Merger
by the stockholders of the Company but, after any such approval, no amendment
shall be made which alters or changes the form or decreases the amount of the
consideration per Share to be paid in the Merger or which alters or changes any
of the terms or conditions of this Agreement if such alteration or change would
adversely affect the rights of the Company's stockholders hereunder, without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of the parties.
SECTION 7.04 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by or on behalf of
such party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES. The
representations and warranties made herein shall not survive beyond the
Effective Time.
SECTION 8.02 EXPENSES.
(a) Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses except as expressly
provided herein and except that the filing fee in connection with the filing in
accordance with the HSR Act shall be paid 20% by the Company and 80% by Parent.
(b) Notwithstanding Section 8.02(a), if (i) any of the events set forth in
clauses (1), (2) or (3) below (each of clauses (1), (2) and (3) being
hereinafter referred to as a "Cosmetic Center Triggering Event") occurs prior to
the termination of this Agreement in accordance with its terms or (ii) any
Cosmetic Center Alternate Transaction (as such term is defined in this Section
8.02(b)) is consummated during the 90-day period immediately following the later
of (A) the Drop Dead Date and (B) the termination of this Agreement in
accordance with its terms, unless this Agreement is terminated by Parent (other
than due to a material breach by the Company of its obligations hereunder or due
to a material breach by the Principal Stockholders of their obligations under
the Stockholders Agreement) or as a result of the failure of a condition to
either party's obligation to close under this Agreement (other than due to a
material breach by the Company of its obligations hereunder or due to a material
breach by the Principal Stockholders of their obligations under the Stockholders
Agreement) (the later of (A) and (B) being the "Cosmetic Center Termination Date
"), the Company shall pay to Parent within two business days after such event,
an amount in immediately available funds equal to the documented fees and
expenses (up to a maximum of $1,000,000) incurred since June 1, 1996 (including
after the date hereof) by Parent, PFC and their respective representatives and
agents in connection with the due diligence, preparation and negotiation of
legal documents, and preparation of financial statements of PFC related to the
Merger (including legal, tax and accounting fees (other than accounting fees to
the extent attributable to the audit of PFC's financial statements) and
disbursements). The Cosmetic Center Triggering Events are as follows:
(1) the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement in principle, letter of
intent, definitive agreement or other similar arrangement, whether binding
or non-binding, with any person other than Parent and its affiliates with
respect to any sale, merger, consolidation or other similar transaction
involving the Company, any class of its equity securities or securities
convertible into equity securities or all or substantially all of its
assets;
(2) the Board of Directors of the Company shall (A) recommend or have
recommended that stockholders of the Company sell shares of any class of
equity securities or securities convertible into equity securities of the
Company to another person or group or recommend or approve any sale of all
or substantially all of the Company's assets to another person or group,
(B) recommend or have recommended to stockholders of the Company any
Cosmetic Center Alternate Transaction involving such person or group or (C)
in the absence of the Company learning of circumstances regarding PFC which
could reasonably be expected to have a Material Adverse Effect on PFC,
shall withdraw or have withdrawn or modify or have modified in a manner
adverse to Parent or PFC (including by no longer taking any position with
33
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respect to the Merger), its support for the Merger (the events described in
subparagraphs (b)(1), (b)(2)(A) and (b)(2)(B) being referred to herein as
"Cosmetic Center Alternate Transactions"); or
(3) the Company shall breach in any material respect any of its
obligations under this Agreement.
The Company shall advise Parent of the receipt of any proposal for a
Cosmetic Center Alternate Transaction and the details thereof within 48 hours of
the receipt thereof, and the Board of Directors of the Company shall not act
with respect to any such proposal for three business days after the delivery of
such notice to Parent. Nothing in Sections 8.02(b) or 8.03(a) shall be deemed to
limit in any way any claims Parent may have at law or equity with respect to any
breach by the Company of any of its obligations under this Agreement.
(c) Notwithstanding Section 8.02(a), if (i) any of the events set forth in
clauses (1), (2), (3) or (4) below (each of clauses (1), (2), (3) and (4) being
hereinafter referred to as a "Revlon Triggering Event") occurs prior to the
termination of this Agreement in accordance with its terms or (ii) any PFC
Alternate Transaction (as defined below) is consummated during the 90-day period
immediately following the later of (A) the Drop Dead Date and (B) the
termination of this Agreement in accordance with its terms, unless this
Agreement is terminated by the Company (other than due to a material breach by
Parent or PFC) or as a result of the failure of a condition to either party's
obligation to close under this Agreement (other than due to a material breach by
Parent or PFC) (the later of (A) and (B) being the "Revlon Termination Date"),
Parent shall pay to the Company within two business days after such event an
amount in immediately available funds equal to the documented fees and expenses
(up to a maximum of $1,000,000) incurred since June 1, 1996 (including after the
date hereof) by the Company and its representatives and agents in connection
with the due diligence, preparation and negotiation of legal documents, and
preparation of financial statements of the Company related to the Merger
(including legal, tax and accounting fees (other than accounting fees to the
extent attributable to the audit of the Company's financial statements) and
disbursements). The Revlon Triggering Events are as follows:
(1) Revlon or PFC shall have entered into, or shall have publicly
announced its intention to enter into, an agreement in principle, letter of
intent, definitive agreement or other similar arrangement, whether binding
or non-binding, with any person other than the Company and its affiliates
with respect to any sale, merger, consolidation or other similar
transaction involving PFC, any class of its equity securities or securities
convertible into equity securities or all or substantially all of its
assets (including a public offering of the equity securities of PFC);
(2) the Board of Directors of Parent or PFC shall (A) recommend or
have recommended that stockholders of PFC sell shares of any class of
equity securities or securities convertible into equity securities of PFC
to another person or group or recommend or approve any sale of all or
substantially all of PFC's assets to another person or group; (B) recommend
or have recommended to stockholders of Parent or PFC any PFC Alternate
Transaction involving such person or group; or (C) in the absence of PFC
learning of circumstances regarding the Company which could reasonably be
expected to have a Material Adverse Effect on the Company, shall withdraw
or have withdrawn or modify or have modified in a manner adverse to the
Company;
(3) Parent or PFC sells or agrees to sell any shares of the equity
securities or securities convertible into equity securities of PFC (other
than sales or transfers to any subsidiary or affiliate of Parent) to any
person or group other than the Company (the events described in
subparagraphs (c)(1), (c)(2)(A), (c)(2)(B) and (c)(3) being referred to
herein as "PFC Alternate Transactions"); or
(4) Revlon or PFC shall breach in any material respect any of their
respective obligations under this Agreement.
Parent shall advise the Company of the receipt of any proposal for a PFC
Alternate Transaction and the details thereof within 48 hours of the receipt
thereof, and neither Parent nor the Board of Directors of PFC shall not act with
respect to any such proposal for three business days after the delivery of such
notice to the Company. Nothing in Sections 8.02(c) or 8.03(b) shall be deemed to
limit in any way any claims the Company may have at law or equity with respect
to any breach by Parent or PFC of any of their obligations under this Agreement.
SECTION 8.03 BREAK-UP FEE.
(a) In addition to any amounts payable pursuant to SeCTION 8.02(B), if
Cosmetic Center shall consummate any Cosmetic Center Alternate Transaction at
any time prior to the Cosmetic Center Termination Date or during the 90-day
period immediately following the Cosmetic Center Termination Date, Cosmetic
Center shall pay to Revlon upon the date of consummation of such Cosmetic Center
Alternate Transaction a break-up fee equal to $1 million.
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(b) In addition to any amounts payable pursuant to Section 8.02(c), if
Parent or PFC shall consummate any PFC Alternate Transaction at any time prior
to the Revlon Termination Date or during the 90-day period immediately following
the Revlon Termination Date, Parent shall pay to the Company upon the date of
consummation of such PFC Alternate Transaction a break-up fee equal to $1.25
million.
SECTION 8.04 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof,
other than the Confidentiality Agreement and the Stockholders Agreement, and (b)
shall not be assigned by operation of law or otherwise, provided that Parent may
cause PFC to assign its rights and obligations to Parent or any other wholly
owned subsidiary of Parent, PROVIDED, that no such assignment by PFC shall
relieve PFC of its obligations hereunder if such assignee does not perform such
obligations.
SECTION 8.05 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 8.06 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon receipt by the respective parties at the following addresses (or
such other address for a party as shall be specified by like notice):
if to Parent or PFC:
Revlon Consumer Products Corporation
625 Madison Avenue
New York, New York 10022
Attention: Vice President and Secretary
with a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Steven Della Rocca
if to the Company:
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Attention: Mark S. Weinstein
Chairman of the Board
with a copy to:
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attention: Carter Strong
SECTION 8.07 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.08 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.09 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 8.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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SECTION 8.11 INTERPRETATION.
(a) When used in this Agreement, the words "hereof," "herein" and
"hereunder" and words of similar import, unless otherwise specifically provided,
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement.
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
(c) References to "Sections," "Exhibits" and "Schedules" are to Sections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided.
(d) Unless the context clearly requires otherwise, the term "including" is
not limiting.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed as of the day and year first above written.
THE COSMETIC CENTER, INC.
By: /s/_MARK S. WEINSTEIN
Name: Mark S. Weinstein
Title:
REVLON CONSUMER PRODUCTS CORPORATION
By: /s/_JERRY W. LEVIN
Name: Jerry W. Levin
Title: Chief Executive Officer
PRESTIGE FRAGRANCE & COSMETICS, INC.
By: /s/_WADE H. NICHOLS
Name: Wade H. Nichols
Title: Vice President
36
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ANNEX II
FORM OF AMENDMENTS TO COSMETIC'S CERTIFICATE OF INCORPORATION
1. THE CLASS C AMENDMENT. Article Fourth of the Restated Certificate of
Incorporation of The Cosmetic Center, Inc., filed with the Delaware Secretary of
State on June 1, 1992 (the "Restated Certificate"), as part of the Merger is
proposed to be amended by deleting the present paragraph (a) in its entirety and
adding new paragraphs (a) and (g) to read as follows:
(a) The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is fifty million (50,000,000)
shares of common stock which shall be divided into classes, of which five
million (5,000,000) shares with a par value of one cent ($.01) per share
shall be Class A Common Stock ("Class A Common Shares"), five million
(5,000,000) shares with a par value of one cent ($.01) per share shall be
Class B Common Stock ("Class B Common Shares") and forty million
(40,000,000) shares with a par value of one cent ($.01) per share shall be
Class C Common Stock ("Class C Common Shares").
* * *
(g) Upon the exchange of the outstanding Class A Common Shares and
Class B Common Shares for Class C Common Shares pursuant to the terms of
the merger between the Corporation and Prestige Fragrance & Cosmetics,
Inc., the Class C Common Shares shall have all the rights of common stock
as provided in the Delaware General Corporation Law, including the right to
vote on the election of directors and all other matter submitted to a vote
of the holders of the Corporation's common stock. Each Class C Common Share
shall have one vote per share.
2. THE BOARD AMENDMENT. In addition, provided that the holders of at least
80 percent of the outstanding Cosmetic Class B common stock vote in favor of the
Board Amendment, Article Fifth of the Restated Certificate is proposed to be
amended by deleting the present Article Fifth in its entirety and substituting
therefor a new Article Fifth to read as follows:
Fifth: The number of directors of the Corporation shall be fixed from
time to time in the manner specified in the by-laws of the Corporation. The
previous classification of the Corporation's directors is hereby repealed.
To the extent permitted by the Delaware General Corporation Law, upon and
following the adoption of this amended Article Fifth, all of the
Corporation's directors shall be elected at each annual meeting of
stockholders of the Corporation.
<PAGE>
ANNEX III
December 17, 1996
The Board of Directors
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, MD 20763
Members of the Board:
The Cosmetic Center, Inc. ("Cosmetic"), Prestige Fragrance & Cosmetics,
Inc. ("PFC") (a subsidiary of Revlon Consumer Products Corporation ("Revlon")),
and Revlon have entered into an Agreement and Plan of Merger (the "Agreement")
dated November 27, 1996, which provides, among other things, for the merger of
PFC with and into Cosmetic (the "Merger"). This letter confirms the oral opinion
we provided to the Board of Directors of Cosmetic (the "Cosmetic Board") on
November 15, 1996.
Pursuant to the Agreement and as a result of the Merger: (a) the
Certificate of Incorporation of Cosmetic would be amended to create a new class
of voting Common Stock ("Class C Common Stock") of Cosmetic, (b) Revlon would
receive newly issued Class C Common Stock, and (c) at the time of the Merger,
each existing stockholder of Cosmetic could elect to receive, in exchange for
each share of Class A Common Stock or Class B Common Stock held by such
stockholder, either (i) one share of Class C Common Stock or (ii) cash in the
amount of $7.63 per share (the "Cash Election"). The Cash Election is subject to
the limitation that not more than 2,829,065 shares of Class A Common Stock and
Class B Common Stock and options on Class A and Class B Common Stock will be
exchangeable for cash pursuant to the Cash Election (the "Limit"). To the extent
that the aggregate shares and options as to which a Cash Election has been made
exceed the Limit, each stockholder's and optionholder's Cash Election will be
reduced pro rata. Mark S. Weinstein, Anita J. Weinstein, Susan K. Magenheim and
a partnership composed of Mr. Weinstein, Mrs. Weinstein and Mrs. Magenheim (the
"Principal Stockholders") have agreed to elect to make the Cash Election for all
of their Class A and Class B Common Stock and all options which have an exercise
price of less than $7.63. Based on the number of Class C Common shares to be
issued to Revlon, Revlon's ownership of Cosmetic after giving effect to the
Merger (the "Combined Company") would be at least 65%; after giving effect to
the Cash Election by the Principal Stockholders, Revlon's ownership would be
approximately 74%; and if the Limit is reached, then Revlon's ownership would be
increased to approximately 83%. The terms and conditions of the Merger are more
fully set forth in the Agreement.
We have acted as financial advisor to the Cosmetic Board in connection with
the Merger and will receive a fee for our services, a portion of which is
contingent upon the consummation of the transaction. In addition, we will
receive a separate fee for providing this opinion.
In arriving at our opinion set forth below, we have, among other things:
(i) reviewed the Merger Agreement; (ii) reviewed certain publicly available
audited and unaudited financial statements of Cosmetic and certain other
publicly available information of Cosmetic; (iii) reviewed certain internal
information, primarily financial in nature, concerning Cosmetic and PFC,
prepared by their respective managements; (iv) discussed the past and current
operations and financial condition and prospects of Cosmetic with the senior
management of Cosmetic; (v) discussed the past and current operations and
financial condition and prospects of PFC with the senior management of PFC; (vi)
reviewed forecast financial statements of Cosmetic prepared and furnished to us
by the senior management of Cosmetic; (vii) reviewed forecast financial
statements of PFC prepared and furnished to us by the senior management of PFC;
(viii) reviewed pro forma Combined Company financial statements prepared jointly
by the managements of Cosmetic and PFC; (ix) held meetings and discussions with
certain officers and employees of Cosmetic and PFC, concerning the operations,
financial condition and future prospects of the Combined Company; (x) reviewed
recent stock market data relating to Cosmetic; (xi) reviewed certain publicly
available financial and stock market data relating to selected public companies
that we considered relevant to our inquiry; (xii) analyzed certain publicly
available information concerning the terms of selected merger and acquisition
transactions that we considered relevant to our inquiry; (xiii) considered the
pro forma financial effects of the Merger on Cosmetic; and (xiv) conducted such
other financial studies, analyses and investigations and considered such other
information as we deemed necessary or appropriate.
We are not expressing an opinion as to what the value of Cosmetic Class C
Common Stock actually will be when issued to current holders of Cosmetic's Class
A and Class B Common Stock pursuant to the Merger Agreement, or as to the price
or trading range at which Cosmetic Class C Common Stock may trade following the
Merger.
In connection with our review, we have assumed and relied upon the accuracy
and completeness of all financial and other information supplied to us by
Cosmetic and PFC, and all publicly available information, and we have not
independently
<PAGE>
The Board of Directors December 17, 1996
The Cosmetic Center, Inc. Page 2
verified such information. We also have relied upon the managements of Cosmetic
and PFC, as to the reasonableness and achievability of the financial projections
(and the assumptions and bases therein) provided to us for Cosmetic, PFC and the
Combined Company, respectively, and we have assumed that such projections have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management as to the future operating performance of
each respective entity, including without limitation the tax benefits, cost
savings and operating synergies to be enjoyed by the Combined Company. Neither
of Cosmetic nor PFC publicly discloses internal management projections of the
type provided to Legg Mason in connection with Legg Mason's review of the
Merger. Such projections were not prepared with the expectation of public
disclosure. The projections were based on numerous variables and assumptions
that are inherently uncertain, including without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in such projections.
We have not been requested to make, and we have not made, an independent
appraisal or evaluation of the assets, properties, facilities or liabilities of
either Cosmetic or PFC and we have not been furnished with any such appraisals
or evaluations. Estimates of values of companies and assets do not purport to be
appraisals or necessarily reflect the prices at which companies and assets may
actually be sold. Because such estimates are inherently subject to uncertainty,
Legg Mason assumes no responsibility for their accuracy. Furthermore, Legg Mason
did not consider the range of possible tax consequences facing individual
Cosmetic stockholders, and the valuations per share derived by Legg Mason are
prior to any tax impact on individual Cosmetic stockholders.
Our opinion is necessarily based on stock prices and economic and other
conditions and circumstances as in effect on, and the information made available
to us as of, November 15, 1996. In arriving at our opinion, we were not
authorized to solicit, and did not solicit, third party indications of interest
from any party with respect to an acquisition of Cosmetic, its assets, or any
part thereof. In this regard, we have been advised by Cosmetic's senior
management that since the first public announcement of the Merger, no person has
contacted Cosmetic's senior management, the Cosmetic Board or the Principal
Stockholders regarding any potential alternative transaction to the Merger. We
have assumed that the Merger and related transactions described above will be
consummated on the terms and conditions described in the forms of the agreements
reviewed by us, without any waiver of material terms or conditions by Cosmetic
or PFC, and that obtaining any necessary regulatory approvals or satisfying any
other conditions for consummation of the Merger will not have an adverse effect
on the Combined Company.
It is understood that this letter is directed solely to the Cosmetic Board
and does not constitute a recommendation to any stockholder of Cosmetic as to
how such stockholder should vote on the Merger. This letter is not to be quoted
or referred to, in whole or in part, in any registration statement, prospectus
or proxy statement, or in any other document used in connection with the
offering or sale of securities, nor shall this letter be used for any other
purposes, without the prior written consent of Legg Mason Wood Walker,
Incorporated, provided that this opinion may be included in its entirety in any
filing made by Cosmetic with the Securities and Exchange Commission with respect
to the Merger and the transactions related thereto.
Based upon and subject to the foregoing, we are of the opinion that, as of
November 15, 1996, the consideration to be paid for the Class A Common Stock and
Class B Common Stock pursuant to the Agreement is fair to the stockholders of
Cosmetic, from a financial point of view.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporate Law ("DGCL") provides
that a business corporation may indemnify directors and officers against
liabilities they may incur in such capacities provided certain standards are
met, including good faith and the reasonable belief that the particular action
was in, or not opposed to, the best interests of the corporation. Subsection (a)
of Section 145 of the DGCL empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth above, except that no indemnification
may be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation, unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that, among other things, to
the extent that a director or officer of a corporation has been successful in
the defense of any action, suit or proceeding referred to in Subsections (a) and
(b) of Section 145, or in the defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and that a corporation is empowered
to purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify against such liability under
Section 145.
<PAGE>
Cosmetic's Certificate of Incorporation and Bylaws provide for the
mandatory indemnification of directors and officers to the fullest extent
permitted by law.
Section 102(b)(7) of the DGCL permits the certificate of incorporation
of a Delaware corporation to provide that a director shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
his fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (dealing with
unlawful dividends or unlawful stock purchases or redemptions), or (iv) for any
transaction from which the director derived an improper personal benefit.
Cosmetic's Certificate of Incorporation provides that the liability of
Cosmetic's directors to Cosmetic or its stockholders shall be eliminated to the
fullest extent permitted by law.
Cosmetic has a directors' and officers' liability insurance policy
which affords directors and officers insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts.
Item 21. Exhibits
2.1 (A) Agreement and Plan of Merger among Cosmetic, Revlon
and PFC made as of November 27, 1996 (attached as
Annex I to the Proxy Statement/Prospectus)
*3 (C) Cosmetic's Certificate of Incorporation, as amended
3 (D) Proposed Amendments to Cosmetic's Certificate of
Incorporation (attached as Annex II to the Proxy
Statement/Prospectus)
*3 (E) Bylaws of Cosmetic, as amended
3 (F) Proposed Amended & Restated Bylaws of Cosmetic
Center, Inc.
****5 Opinion of Arent Fox Kintner Plotkin & Kahn
*10 (D) Cosmetic 1991 Stock Option Plan, as amended
**10 (E) Employment Agreement dated February 28, 1991 between
Cosmetic and Louis R. Weinstein
**10 (F) Employment Agreement dated February 28, 1991 between
Cosmetic and Mark S. Weinstein
**10 (G) Employment Agreement dated February 28, 1991 between
Cosmetic and Ben S. Kovalsky
<PAGE>
***10 (H) Employment Agreement dated August 1, 1995 between
Cosmetic and Michael J. Lewis
10 (I) Employment Agreement dated August 1, 1995 between
Cosmetic and Bruce E. Strohl
10 (J) Form of Employment and Non-Competition Agreement to
be entered into between Cosmetic and Mark S.
Weinstein
10 (K) Form of Employment and Non-Competition Agreement to
be entered into between Cosmetic and Anita J.
Weinstein
10 (L) Form of Consulting and Non-Competition Agreement to
be entered into between Cosmetic and Susan K.
Magenheim
10 (M) Amendment to Employment Agreement dated as of to
October 15, 1996 between Cosmetic and Ben S. Kovalsky
10 (N) Form of Supply Agreement to be entered into between
Revlon and Cosmetic
10 (O) Form of Services Agreement to be entered into between
Revlon and Cosmetic
10 (P) Form of Lease to be entered into between Revlon and
Cosmetic with respect to employee stores
10 (Q) Form of Sublease to be entered into between Revlon
and Cosmetic with respect to New York City employee
store
10 (R) Form of Lease to be entered into between Revlon and
Cosmetic with respect to Holmdel facility
10 (S) Stockholders Agreement dated as of November 27, 1996
among Anita J. Weinstein, Mark S. Weinstein, Susan K.
Magenheim, Weinstein Family Limited Partnership and
Revlon
10 (T) Form of Registration Rights Agreement to be entered
into between Revlon and Cosmetic
****10 (U) Cosmetic 1997 Stock Option Plan (to be attached as
Annex IV to the Proxy Statement/ Prospectus).
10 (V) Employment Agreement dated October 1, 1996 between
Cosmetic and Allan Goodman
<PAGE>
21 Subsidiaries of Cosmetic
23 (A) Consent of Arthur Andersen LLP
23 (B) Consent of KPMG Peat Marwick LLP
23 (C) Consent of Arent Fox Kintner Plotkin & Kahn (to be
included in Exhibit 5)
23 (D) Consent of Ronald O. Perelman
23 (E) Consent of Howard Gittis
23 (F) Consent of Jerry W. Levin
23 (G) Consent of Howard Diener
23 (H) Consent of William J. Fox
23 (I) Consent of Wade H. Nichols
23 (J) Consent of David N. Dinkins
23 (K) Consent of Harvey Rosenthal
23 (L) Consent of Legg Mason Wood Walker, Incorporated
24 Power of Attorney (set forth on the signature page)
27 Financial Data Schedule
99 (A) Form of proxy
****99 (B) Form of Cash Election
* Incorporated by reference to Exhibits to Cosmetic's Registration
Statement on Form S-1 dated February 28, 1992, File No. 33-46094.
** Incorporated by reference to Cosmetic's Form 10-K for the year ended
September 27, 1991.
*** Incorporated by reference to Cosmetic's Form 10-K for the year ended
September 29, 1995
**** To be filed by amendment
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act
<PAGE>
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington,
District of Columbia, on December 19, 1996.
THE COSMETIC CENTER, INC.
By: /s/ Mark S. Weinstein
----------------------------------
Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Mark S. Weinstein and Bruce E. Strohl, and each
of them his true and lawful attorney-in-fact and agent with power of
substitution and resubstitution, for him, and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post effective
amendments) to this Registration Statement on Form S-4, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done to comply with the provisions of the
Securities Act and all requirements of the Commission, hereby ratifying and
confirming all that said attorney-in-fact or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date
/s/ Mark S. Weinstein Chairman of the Board of Directors 12/19/96
- ------------------------------
Mark S. Weinstein
/s/ Anita J. Weinstein Vice Chairman, Vice President, 12/19/96
- ------------------------------ Secretary, and Director
Anita J. Weinstein
/s/ Ben S. Kovalsky President, Chief Executive Officer, 12/19/96
- ------------------------------ Chief Operating Officer and Director
Ben S. Kovalsky
<PAGE>
/s/ Susan K. Magenheim Vice President, Assistant Secretary 12/19/96
- ------------------------------ and Director
Susan K. Magenheim
/s/ Donald R. Rogers Director 12/19/96
- ------------------------------
Donald R. Rogers
/s/ Ronald M. Hirschel Director 12/19/96
- ------------------------------
Ronald M. Hirschel
/s/ Bruce E. Strohl Vice President - Finance 12/19/96
- ------------------------------ and Chief Financial Officer
Bruce E. Strohl
/s/ Arlene H. Wright Controller and Chief Accounting 12/19/96
- ------------------------------ Officer
Arlene H. Wright
Exhibit 3(F)
AMENDED AND RESTATED
BY-LAWS
OF
THE COSMETIC CENTER, INC.
Dated_______________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I OFFICES
Section 1. Registered Office..................................................................................1
Section 2. Other Offices......................................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings..................................................................................1
Section 2. Annual Meetings....................................................................................1
Section 3. Special Meetings...................................................................................1
Section 4. Quorum.............................................................................................2
Section 5. Proxies............................................................................................2
Section 6. Voting.............................................................................................2
Section 7. Organization and Order of Business.................................................................3
Section 8. Consent of Stockholders in Lieu of Meeting.........................................................3
Section 9. List of Stockholders Entitled to Vote..............................................................3
Section 10. Stock Ledger.......................................................................................4
Section 11. Record Date........................................................................................4
Section 12. Inspectors of Election.............................................................................4
ARTICLE III DIRECTORS
Section 1. Number and Election of Directors...................................................................5
Section 2. Vacancies..........................................................................................5
Section 3. Duties and Powers..................................................................................6
Section 4. Organization.......................................................................................6
Section 5. Resignations and Removals of Directors.............................................................6
Section 6. Meetings...........................................................................................6
Section 7. First Yearly Meeting...............................................................................6
Section 8. Quorum and Manner of Acting........................................................................7
Section 9. Action by Written Consent..........................................................................7
Section 10. Meetings by Means of Conference Telephone..........................................................7
Section 11. Compensation.......................................................................................7
Section 12. Interested Directors...............................................................................7
ARTICLE IV COMMITTEES
Section 1. How Constituted and Powers.........................................................................8
Section 2. Executive Committee................................................................................8
Section 3. Organization.......................................................................................9
Section 4. Meetings...........................................................................................9
Section 5. Quorum and Manner of Acting........................................................................9
Section 6. General............................................................................................9
ARTICLE V OFFICERS
Section 1. Officers...........................................................................................9
Section 2. Term of Office and Qualifications..................................................................9
Section 3. Subordinate Officers...............................................................................9
Section 4. Removal...........................................................................................10
Section 5. Resignations......................................................................................10
Section 6. Vacancies.........................................................................................10
Section 7. Compensation......................................................................................10
Section 8. Chairman of the Board of Directors................................................................10
Section 9. Vice Chairman of the Board of Directors...........................................................10
Section 10. President.........................................................................................11
Section 11. Vice Presidents...................................................................................11
Section 12. Treasurer.........................................................................................12
Section 13. Controller........................................................................................12
Section 14. Secretary.........................................................................................13
Section 15. Duties of Assistant Treasurers, Assistant Secretaries and Other Subordinate Officers..............13
Section 16. Appointed Officers................................................................................13
ARTICLE VI CONTRACTS, VOTING OF STOCK HELD,CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Contracts............................................................................14
Section 2. Loans and Loan Guarantees.........................................................................14
Section 3. Voting of Stock Held..............................................................................14
Section 4. Checks, Drafts, etc...............................................................................15
Section 5. Deposits..........................................................................................15
ARTICLE VII STOCK AND DIVIDENDS
Section 1. Form of Certificates..............................................................................15
Section 2. Signatures........................................................................................16
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates.................................................16
Section 4. Transfers.........................................................................................16
Section 5. Transfer and Registry Agents......................................................................17
Section 6. Beneficial Owners.................................................................................17
Section 7. Dividends.........................................................................................17
Section 8. Limitations on Transfer...........................................................................17
ARTICLE VIII NOTICES
Section 1. Notices...........................................................................................18
Section 2. Waivers of Notice.................................................................................18
ARTICLE IX BOOKS
Section 1. Books.............................................................................................18
Section 2. Form of Books.....................................................................................19
ARTICLE X INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of
the Corporation................................................................................19
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation.........19
Section 3. Authorization of Indemnification..................................................................20
Section 4. Good Faith Defined................................................................................20
Section 5. Indemnification by a Court........................................................................21
Section 6. Expenses Payable in Advance.......................................................................21
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses.....................................21
Section 8. Insurance.........................................................................................22
Section 9. Certain Definitions...............................................................................22
Section 10. Survival of Indemnification and Advancement of Expenses...........................................22
Section 11. Limitation on Indemnification.....................................................................22
Section 12. Indemnification of Appointed Officers, Employees and Agents.......................................23
ARTICLE XI AMENDMENT OF BY-LAWS
Section 1. Amendment of By-Laws..............................................................................23
Section 2. Entire Board of Directors.........................................................................23
ARTICLE XII GENERAL PROVISIONS
Section 1. Seal..............................................................................................23
Section 2. Fiscal Year.......................................................................................23
</TABLE>
<PAGE>
BY-LAWS
(as restated and amended)
OF
THE COSMETIC CENTER, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of
the Corporation shall be in the City of Wilmington, County of New Castle,
State of Delaware.
Section 2. Other Offices. The Corporation may also
have offices at such other places both within and without the State of
Delaware as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the
stockholders for the election of directors or for any other purpose shall be
held at and place, either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings
of Stockholders shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, at which meetings the stockholders shall elect a Board of
Directors, and transact such other business as may properly be brought before
the meeting. Written notice of the Annual Meeting of Stockholders stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting.
Section 3. Special Meetings. Unless otherwise
prescribed by law or by the Certificate of Incorporation, Special Meetings
of Stockholders, for any purpose or purposes, may be called by either (i) the
Board of Directors, (ii) the Chairman of the Board of Directors or (iii) the
Chairman of the Executive Committee of the Board of Directors (if any). Such
request shall state the purpose or purposes of the proposed meeting. Written
notice of a Special Meeting of Stockholders stating the place, date and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise required by law
or by the Certificate of Incorporation, the holders of a majority in total
number of votes of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave less
than a quorum. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the Chairman of the meeting or the holders of a
majority in number of votes of the capital stock entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the meeting
of the time and place of the adjourned meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a written notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 5. Proxies. Any stockholder entitled to vote
may do so in person or by his proxy appointed by an instrument in writing
subscribed by such stockholder or by his attorney thereunto authorized,
delivered to the Secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date, unless said proxy
provides for a longer period. All proxies must be filed with the Secretary of
the Corporation at the beginning of the meeting in order to be counted in any
vote at the meeting.
Section 6. Voting. At all meetings of the
stockholders at which a quorum is present, except as otherwise required by
law, the Certificate of Incorporation or these By-Laws, any question brought
before any meeting of stockholders shall be decided by the affirmative vote of
the holders of a majority of the total number of votes of the capital stock
present in person or represented by proxy and entitled to vote thereat voting as
a single class. At the Annual Meeting of Stockholders, or any Special Meeting of
Stockholders at which directors are to be elected, the directors shall be
elected by a plurality vote.
Section 7. Organization and Order of Business. At
every meeting of stockholders, the Chairman of the Board of Directors or, in
such person's absence, such person as shall have been designated by the Board of
Directors or, if none, by the Chairman of the Board of Directors, shall act as
Chairman of the meeting. The Secretary or, in such person's absence, an
Assistant Secretary, shall act as Secretary of the meeting. The Chairman of the
meeting shall have the sole authority to prescribe the agenda and rules of order
for the conduct of any Annual or Special Meeting of Stockholders and to
determine all questions arising thereat relating to the order of business and
the conduct of the meeting, except as otherwise required by law. Unless
otherwise directed by the Chairman of the meeting, the vote at any meeting of
the stockholders need not be by written ballot. In case none of the officers
above designated to act as Secretary of the meeting shall be present, the
Chairman of the meeting or Secretary of the meeting shall be appointed by vote
of a majority of the total number of votes of the capital stock present in
person or represented by proxy and entitled to vote thereat.
Section 8. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the Certificate of Incorporation, any action
required or permitted to be taken at any Annual or Special Meeting of
Stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. In the event that the action which is consented
to is such as would have required the filing of a certificate under the General
Corporation Law of the State of Delaware ("DGCL") if such action had been voted
on by stockholders at a meeting thereof, the certificate filed shall state, in
lieu of any statement concerning any vote of stockholders, that written consent
and written notice has been given as provided in this Section 8.
Section 9. List of Stockholders Entitled to Vote.
The officer of the Corporation who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the
Corporation shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list required by Section 9 of this
Article II or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
Section 11. Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors and
which record date: (1) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall not be more
than sixty nor less than ten days before the date of such meeting; (2) in the
case of determination of stockholders entitled to express consent to corporate
action in writing without a meeting, shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation in accordance with applicable law, or if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 12. Inspectors of Election. The
Corporation shall, in advance of any meeting of stockholders, appoint one
or more inspectors of elections to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the Chairman of the
meeting shall appoint one or more inspectors to act at the meeting. Unless
otherwise required by law, inspectors may be officers, employees or agents of
the Corporation. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. The
inspector shall take charge of the polls and, when the vote is completed, shall
make a certificate of the result of the vote taken and of such other facts as
may be required by law.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The
Board of Directors shall consist of not less than three members, the exact
number of which shall from time to time be determined by resolution of the Board
of Directors. Except as provided in Section 2 of this Article, directors shall
be elected by the stockholders at the Annual Meetings of Stockholders, and each
director so elected shall hold office until his successor is duly elected and
qualified, or until his death, or until his earlier resignation or removal.
Directors need not be stockholders. [The directors shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible, one class to be originally elected for a
term expiring at the annual Stockholders Meeting to be held in 1998, another
class to be originally elected for a term expiring at the annual Stockholders
Meeting to be held in 1999, and another class to be originally elected for a
term expiring at the annual Stockholders Meeting to be held in 2000, with each
director in each class to hold office until his successor is elected and
qualified. At each annual Stockholders Meeting, the successors of the class of
directors whose term expires at the meeting shall be elected to hold office for
a term expiring at the annual Stockholders Meeting held in the third year
following the year of their election, or until each such director's successor is
elected and qualified.](1)
Section 2. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, except that any vacancy resulting from
the death, resignation, removal or disqualification of a director elected by the
holders of any class or classes of the stock of the Corporation voting as a
class, or from an increase in the number of directors which such holders are
entitled to elect, may be filled by the affirmative vote of a majority of the
directors elected by such class or classes, or by a sole remaining director so
elected, and each director so chosen shall hold office until his successor is
duly elected and qualified or until his death, or until his earlier resignation
or removal, or disqualification.
Section 3. Duties and Powers. The business of the
Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
Section 4. Organization. At each meeting of the Board
of Directors, the Chairman of the Board of Directors, or, in such person's
absence, a director chosen by a majority of the directors present, shall act as
Chairman. The Secretary of the Corporation shall act as Secretary at each
meeting of the Board of Directors. In case the Secretary shall be absent from
any meeting of the Board of Directors, an Assistant Secretary shall perform the
duties of Secretary at such meeting; and in the absence from any such meeting of
the Secretary and all the Assistant Secretaries, the Chairman of the meeting may
appoint any person to act as Secretary of the meeting.
Section 5. Resignations and Removals of Directors.
Any director of the Corporation may resign at any time, by giving written
notice to the Chairman of the Board of Directors, the Chairman of the Executive
Committee of the Board of Directors (if any), the President or the Secretary of
the Corporation. Such resignation shall take effect at the time therein
specified or, if no time is specified, immediately; and, unless otherwise
specified in such notice, the acceptance of such resignation shall not be
necessary to make it effective. Except as otherwise required by law, any
director or the entire Board of Directors may be removed, with or without cause,
by the affirmative vote or written consent of a majority in total voting power
of the issued and outstanding capital stock of the Corporation represented and
entitled to vote in the election of directors.
- --------
1 To be deleted if the provision in the Corporation's certificate of
incorporation requiring a classified board of directors is repealed by the
stockholders.
Section 6. Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware. Regular meetings of the Board of Directors may be
held at such time and at such place as may from time to time be determined by
the Board of Directors and, unless required by resolution of the Board of
Directors, without notice. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, the Chairman of the Executive
Committee of the Board of Directors (if any), or a majority of directors then in
office. Notice thereof stating the place, date and hour of the meeting shall be
given to each director either by mail not less than forty-eight hours before the
date of the meeting; by telephone, telecopy or telegram on twenty-four hours
notice; or on such shorter notice as the person or persons calling such meeting
may deem necessary or appropriate in the circumstances.
Section 7. First Yearly Meeting. The Board of
Directors shall meet for the purpose of organization, the election of officers
and the transaction of other business, as soon as practicable after each Annual
Meeting of Stockholders, and no notice of such meeting to the existing or newly
elected directors shall be necessary in order to legally constitute the meeting,
provided a quorum is present. Such first meeting may be held at any other time
or place specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or in a waiver of notice thereof.
Section 8. Quorum and Manner of Acting. Except as
otherwise required by law, the Certifiate of Incorporation or these By-Laws,
at all meetings of the Board of Directors, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting of the time and place of the adjourned meeting, until a quorum shall be
present.
Section 9. Action by Written Consent. Unless otherwise
required by the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 10. Meetings by Means of Conference Telephone.
Unless otherwise required by the Certificate of Incorporation or these
By-Laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 10 shall
constitute presence in person at such meeting.
Section 11. Compensation. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary, or such other emoluments, as the Board of
Directors shall from time to time determine. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Each director who shall serve as a member or Chairman of
special or standing committee may be allowed like compensation for attending
committee meetings.
Section 12. Interested Directors. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers, are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
COMMITTEES
Section 1. How Constituted and Powers. The Board of
Directors may, by resolution passed by a majority of the entire Board of
Directors, designate one or more committees, each committee to consist of one or
more of the directors of the Corporation, except as otherwise provided in these
By-Laws. The Board of Directors may designate one or more directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of any such committee. In the absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act in the place of any absent or
disqualified. Each committee, to the extent permitted by law, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation as provided in the
resolution establishing such committee.
Section 2. Executive Committee. The Board of
Directors may designate an Executive Committee, to consist of not less than
three members of the Board of Directors, which shall have and may exercise, to
the extent permitted by law, all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, including, unless
otherwise specified by a resolution or resolutions of the Board of Directors,
the power and authority to declare dividends, to authorize the issuance of stock
and to adopt a certificate of ownership and merger pursuant to Section 253 of
the DGCL.
Section 3. Organization. The Board of Directors or
each such committee may choose its Chairman and Secretary, and shall keep and
record all its acts and proceedings and report the same from time to time to the
Board of Directors.
Section 4. Meetings. Regular meetings of any such
committee, of which no notice shall be necessary, shall be held at such times
and in such places as shall be fixed by the committee or by the Board of
Directors. Special meetings of any such committee shall be held at the request
of any member of the committee.
Section 5. Quorum and Manner of Acting. A majority
of the members of any such committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of the committee.
Section 6. General. The Board of Directors shall
have the power at any time to change the members of, fill vacancies in, and
discharge or disband any such committee, either with or without cause.
ARTICLE V
OFFICERS
Section 1. Officers. The Board of Directors shall
elect a Chairman of the Board of Directors, a President, one or more Vice
Presidents, a Treasurer, a Controller and a Secretary. The Board of Directors
may designate one or more Vice Presidents as Senior Executive Vice Presidents,
Executive Vice Presidents or Senior Vice Presidents, and may use such other
descriptive words as it may determine to designate the seniority or areas of
special competence or responsibility of the officers. Any two or more offices
may be held by the same person.
Section 2. Term of Office and Qualifications. Each
such officer shall hold office until such officer's successor shall have been
duly chosen and shall qualify, or until such officer's death, resignation or
removal in the manner hereinafter provided. The Chairman of the Board of
Directors shall be chosen from among the directors, but no other officer need be
a director. Each officer shall have such functions or duties as are provided in
these By-Laws, or as the Board of Directors may from time to time determine.
Section 3. Subordinate Officers. The Board of
Directors may from time to time elect such other officers or assistant officers
as it may deem necessary, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these By-Laws, or as
the Board of Directors may from time to time determine.
Section 4. Removal. Any officer may be removed, either
with or without cause, by the Board of Directors, and any officer also may be
removed in such other manner as may be specified by the Board of Directors in
the resolution or resolutions electing such officer. Any officer may be
suspended by the Chairman of the Board of Directors either with or without
cause.
Section 5. Resignations. Any officer may resign at any
time by giving written notice to the Board of Directors, the Chairman of the
Board of Directors or the Secretary of the Corporation. Any such resignation
shall take effect at the time therein specified or if no time is specified,
immediately; and, unless otherwise specified in such notice, the acceptance of
such resignation shall not be necessary to make it effective.
Section 6. Vacancies. A vacancy in any office because
of death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these By-Laws for the regular election to
that office.
Section 7. Compensation. Salaries or other
compensation of the officers may be fixed from time to time by the Board of
Directors or any duly authorized committee of directors and shall be so fixed by
the Board of Directors or such committee as to any officer serving the
Corporation as a director. No officer shall be prevented from receiving proper
compensation for such officer's services by reason of the fact that such officer
is also a director of the Corporation.
Section 8. Chairman of the Board of Directors. The
Chairman of the Board of Directors, if present, shall preside at all meetings
of the stockholders and of the Board of Directors. The Chairman of the Board of
Directors may, with the Treasurer or the Secretary or an Assistant Treasurer or
an Assistant Secretary, sign certificates for stock of the Corporation. The
Chairman of the Board of Directors may enter into and execute in the name of the
Corporation deeds, mortgages, bonds, guarantees, contracts and other
instruments, except in cases where the making and execution thereof shall be
expressly restricted or delegated by the Board of Directors or by a duly
authorized committee of directors or by these By-Laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be made or
executed. In general, the Chairman of the Board of Directors shall have all
authority incident to the office of Chairman of the Board of Directors and shall
have such other authority and perform such other duties as may from time to time
be assigned by the Board of Directors or by any duly authorized committee of
directors.
Section 9. Vice Chairman of the Board of Directors. The
Vice Chairman shall be an officer of the Corporation and, in general, the Vice
Chairman will render such services to the Corporation as are customarily
rendered by the Vice Chairman of comparable publicly held companies. The Vice
Chairman also generally shall assist the Chairman of the Board.
Section 10. President. The President shall be the
chief executive officer of the Corporation and shall have general supervision
of the business, affairs and property of the Corporation and over its several
officers, subject, however, to the control of the Board of Directors. The
President also shall be the chief operating officer of the Corporation and,
subject to the direction of the Board of Directors and any duly authorized
committee of directors, shall have general supervision of the operations of the
Corporation. The President may, with the Treasurer or the Secretary or an
Assistant Treasurer or an Assistant Secretary, sign certificates for stock of
the Corporation. The President may enter into and execute in the name of the
Corporation deeds, mortgages, bonds, guarantees, contracts and other
instruments, except in cases where the making and execution thereof shall be
expressly restricted or delegated by the Board of Directors or by a duly
authorized committee of directors, or by these By-Laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be made or
executed. The President shall have the power to fix the compensation of elected
officers whose compensation is not fixed by the Board of Directors or a
committee thereof in accordance with Section 7 of this Article V, and also to
engage, discharge, determine the duties and fix the compensation of all
employees and agents of the Corporation necessary or proper for the transaction
of the business of the Corporation. In general, the President shall have all
authority incident to the office of President, chief executive officer and chief
operating officer and shall have such other authority and perform such their
duties as may from time to time be assigned by the Board of Directors or by any
duly authorized committee of directors.
Section 11. Vice Presidents. The Vice Presidents
shall have supervision over the operations of the Corporation within their
respective areas of special competence or responsibility and in accordance with
policies, procedures and practices in effect from time to time, subject,
however, to the control of the Board of Directors, any duly authorized committee
of directors, the Chairman of the Board of Directors, the President and any
other officer to whom they report. They shall, within such areas (in the order
of their designation, or in the absence of such designation, in the order of
their seniority based on title or, in the case of officers of equal title, in
order of their tenure), at the request or in the absence or disability of the
President, perform the duties and exercise the powers of such officer. They may,
with the Treasurer or the Secretary or an Assistant Treasurer or an Assistant
Secretary, sign certificates for stock of the Corporation. They may enter into
and execute in the name of the Corporation deeds, mortgages, guarantees, bonds,
contracts and other instruments, except in cases where the making and execution
thereof shall be expressly restricted or otherwise delegated by these By-Laws or
by the Board of Directors, a duly authorized committee of directors, the
Chairman of the Board of Directors, the President or any other officer to whom
they report, or shall be required by law otherwise to be made or executed. In
general, they shall have all authority incident to their respective offices and
shall have such other authority and perform such other duties as may from time
to time be assigned to them by the Board of Directors, any duly authorized
committee of directors, the Chairman of the Board of Directors, the President or
any other officer to whom they report.
Section 12. Treasurer. The Treasurer shall, if
required by the Board of Directors, the Chairman of the Board of Directors,
the President or any other officer to whom the Treasurer reports, give a bond
for the faithful discharge of duties, in such sum and with such sureties as may
be so required. The Treasurer shall have custody of, and be responsible for, all
funds and securities of the Corporation; receive and give receipts for money due
and payable to the Corporation from any source whatsoever; deposit all such
money in the name of the Corporation in such banks, trust companies, or other
depositories as shall be selected in accordance with the provisions of Section 5
of Article VI of these By-Laws; against proper vouchers, cause such funds to be
disbursed by check or draft on the authorized depositories of the Corporation
signed in such manner as shall be determined in accordance with the provisions
of Section 4 of Article VI of these By-Laws and be responsible for the accuracy
of the amounts of all funds so disbursed; regularly enter or cause to be entered
in books to be kept by the Treasurer or under the Treasurer's direction, full
and adequate accounts of all money received and paid by the Treasurer for the
account of the Corporation; have the right to require, from time to time,
reports or statements giving such information as the Treasurer may determine to
be necessary or desirable with respect to any and all financial transactions of
the Corporation from the officers and agents transacting the same; render to the
Board of Directors, any duly authorized committee of directors, the Chairman of
the Board of Directors, the President or any officer to whom the Treasurer
reports, whenever they or any of them, respectively, shall require the Treasurer
so to do, an account of the financial condition of the Corporation and of all
transactions of the Treasurer; exhibit at all reasonable times the books of
accounts and other records provided for herein to any of the directors of the
Corporation; and, in general, have all authority incident to the office of
Treasurer and such other authority and perform such other duties as from time to
time may be assigned by the Board of Directors, any duly authorized committee of
directors, the Chairman of the Board of Directors, the President or any other
officer to whom the Treasurer reports, and may sign with the Chairman of the
Board of Directors, the President or any Vice President, certificates for stock
of the Corporation.
Section 13. Controller. The Controller shall be
responsible for preparing and maintaining reasonable and adequate books of
account and other accounting records of the assets, liabilities and transactions
of the Corporation in accordance with generally accepted accounting principles
and procedures, shall see that reasonable and adequate audits thereof are
regularly made and that reasonable and adequate systems of financial control are
maintained, shall examine and certify the financial accounts of the Corporation,
shall prepare and render such budgets and other financial reports as the Board
of Directors, the Chairman of the Board of Directors, the President or any other
officer to whom the Controller reports may require, and shall, in general, have
all authority incident to the office of Controller and such other authority and
perform such other duties as from time to time may be assigned by the Board of
Directors, any duly authorized committee of directors, the Chairman of the Board
of Directors, the President or any other officer to whom the Controller reports.
Section 14. Secretary. The Secretary shall act as
Secretary of all meetings of the stockholders and of the Board of Directors of
the Corporation; shall keep the minutes thereof in the proper book or books to
be provided for that purpose; shall see that all notices required to be given by
the Corporation in connection with meetings of stockholders and of the Board of
Directors are duly given; may, with the Chairman of the Board of Directors, the
President or any Vice President, sign certificates for stock of the Corporation;
shall be the custodian of the seal of the Corporation and shall affix the seal
or cause it or a facsimile thereof to be affixed to all certificates for stock
of the Corporation and to all documents or instruments requiring the same, the
execution of which on behalf of the Corporation is duly authorized in accordance
with the provisions of these By-Laws; shall have charge of the stock records and
also of the other books, records and papers of the Corporation relating to its
organization and acts as a corporation, and shall see that the reports,
statements and other documents related thereto required by law are properly kept
and filed; and shall, in general, have all authority incident to the office of
Secretary and such other authority and perform such other duties as from time to
time may be assigned by the Board of Directors, any duly authorized committee of
directors, the Chairman of the Board of Directors, the President or any other
officer to whom the Secretary reports.
Section 15. Duties of Assistant Treasurers, Assistant
Secretaries and Other Subordinate Officers. The Assistant Treasurers shall,
respectively, if required by the Board of Directors, the Chairman of the Board
of Directors, the President or any other officer to whom they report, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as may be so required. Assistant Treasurers and Assistant Secretaries may, with
the Chairman of the Board of Directors, the President or any Vice President,
sign certificates for stock of the Corporation. Subordinate officers shall have
all authority incident to their respective offices and such other authority and
perform such other duties as shall be assigned to them by the Board of
Directors, any duly authorized committee of directors, the Chairman of the Board
of Directors, the President or the officers to whom they report.
Section 16. Appointed Officers. The Chairman of the
Board of Directors and the President may appoint or cause to be appointed, in
accordance with the policies and procedures established by them, such
Presidents, Vice Presidents and other officers of the Divisions, Groups and
Staffs of the Corporation (each an "Appointed Officer") as each of them shall
determine to be necessary or desirable in furtherance of the business and
affairs of such Divisions, Groups and Staffs, may designate such Vice Presidents
as Senior Executive Vice Presidents, Executive Vice Presidents or Senior Vice
Presidents, and may use such other descriptive words as each of them may
determine to designate the seniority or areas of special competence or
responsibility of the Appointed Officers appointed in accordance with this
Section 15. Appointed Officers appointed in accordance with this Section 15
shall not be deemed to be officers as elsewhere referred to in this Article V or
in Article X hereof but as between themselves and the Corporation shall have
such authority and perform such duties in the management and operations of the
Divisions, Groups and Staffs of the Corporation of which they are appointed
officers as the officer appointing them and the persons to whom they report may
from time to time determine. Such Appointed Officers shall have the authority as
between themselves and third parties to bind the Corporation solely to the
extent of their apparent authority based upon their titles and solely in
relation to the business affairs of the Divisions, Groups and Staffs of which
they are appointed officers.
ARTICLE VI
CONTRACTS, VOTING OF STOCK HELD,CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Contracts. The Board of
Directors or any duly authorized committee of directors, except as by these
By-Laws otherwise require, may authorize any officer other than or in addition
to the officers authorized by Article V of these By-Laws, including Appointed
Officers, and any employee or agent or agents, in the name and on behalf of the
Corporation, to enter into and execute any deed, mortgage, bond, guarantee,
contract or other instrument, and any such authority may be general or may be
confined to specific instances or otherwise limited.
Section 2. Loans and Loan Guarantees. Any officer,
employee or agent of the Corporation thereunder authorized by the Board of
Directors or by any duly authorized committee of directors may effect in the
name and on behalf of the Corporation, loans or advances from, or guarantees of
loans or advances to, any bank, trust company or other institution or any firm,
corporation or individual, and for such loans and advances or guarantees may
make, execute and deliver promissory notes bonds or other certificates or
evidences of indebtedness or guaranty of the Corporation, and may pledge or
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans, advances or guarantees. Such authority conferred by
the Board of Directors or any duly authorized committee of directors may be
general or may be confined to specific instances or otherwise limited.
Section 3. Voting of Stock Held. The Chairman of the
Board of Directors and the President and, unless otherwise provided by
resolution of the Board of Directors or directed by the Chairman of the Board of
Directors or the President, the Secretary may from time to time personally or by
an attorney or attorneys or agent or agents of the Corporation, in the name and
on behalf of the Corporation, cast the votes which the Corporation may be
entitled to cast as a stockholder or otherwise in any other corporation, any of
the stock or securities of which may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporations, or
consent in writing to any action by any such other corporation, and may instruct
any person or persons so appointed as to the manner of casting such votes or
giving such consent, and may execute or cause to be executed on behalf of the
Corporation and under its corporate seal, or otherwise, such written proxies,
consents, waivers or other instruments as the Secretary may deem necessary or
proper in the premises; or may attend any meeting of the holders of stock or
other securities of any such other corporation and thereat vote or exercise any
or all other powers of the Corporation as the holder of such stock or other
securities of such other corporation.
Section 4. Checks, Drafts, etc. All checks, drafts
and other orders for payment of money out of the funds of the Corporation and
all notes and other evidences of indebtedness of the Corporation shall be signed
on behalf of the Corporation by the Treasurer or an Assistant Treasurer or by
any other officer, employee or agent of the Corporation to whom such power may
from time to time be delegated by the Board of Directors or any duly authorized
committee of directors or by any officer, employee or agent of the Corporation
to whom the power of delegation may from time to time be granted by the Board of
Directors or any duly authorized committee of directors.
Section 5. Deposits. The funds of the Corporation not
otherwise employed shall be deposited from time to time to the order of the
Corporation in such banks, trust companies or other depositories as the Board of
Directors or any duly authorized committee of directors may from time to time
select, or as may be selected by any officer, employee or agent of the
Corporation to whom such power may from time to time be delegated by these
By-Laws, the Board of Directors or any duly authorized committee of directors.
ARTICLE VII
STOCK AND DIVIDENDS
Section 1. Form of Certificates. (a) Every holder of
stock in the Corporation shall be entitled to have a certificate signed, in
the name of the Corporation (i) by the Chairman of the Board of Directors, the
President or one of the Vice Presidents and (ii) by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
(b) If the Corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise required by Section 202 of the DGCL, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Signatures. Any or all signatures on the
certificate may be a facsimile. In case an officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, unless otherwise ordered by the Board of
Directors, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost, Destroyed, Stolen or Mutilated
Certificates. The Board of Directors may direct a new certificate to be issued
in place of any certificate theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit or such
other proof satisfactory to the Board of Directors of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation and its
transfer agents and registrars with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Except as otherwise prescribed
by law or the Certificate of Incorporation, stock of the Corporation shall be
transferable in the manner prescribed in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by such person's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary of the Corporation or a
transfer agent of the Corporation, and upon surrender of the certificate or
certificates for such stock properly endorsed for transfer and payment of all
necessary transfer taxes; provided, however, that such surrender and endorsement
or payment of taxes shall not be required in any case in which the officers of
the Corporation shall determine to waive such requirement. Every certificate
exchanged, returned or surrendered to the Corporation shall be marked
"Cancelled," with the date of cancellation, by the Secretary or an Assistant
Secretary of the Corporation or the transfer agent thereof. No transfer of stock
shall be valid as against the Corporation, its stockholders or creditors for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
Section 5. Transfer and Registry Agents. The
Corporation may from time to time maintain one or more transfer offices or
agencies and registry offices or agencies at such place or places as may be
determined from time to time by the Board of Directors.
Section 6. Beneficial Owners. The Corporation shall
be entitled to recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends, and to vote as such owner,
and to hold liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise required by law.
Section 7. Dividends. Dividends upon the capital
stock of the Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, and may be paid in cash, in property, or in shares of the
Corporation's capital stock. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for purchasing
any of the shares of capital stock, warrants, rights, options, bonds,
debentures, notes, scrip or other securities or evidences of indebtedness of the
Corporation, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 8. Limitations on Transfer. A written
restriction on the transfer or registration of transfer of a security of
the Corporation, if permitted by Section 202 of the DGCL and noted conspicuously
on the certificate representing the security or, in the case of uncertificated
shares, contained in the notice sent pursuant to Section 151(f) of the DGCL, may
be enforced against the holder of the restricted security or any successor or
transferee of the holder including an executor, administrator, trustee, guardian
or other fiduciary entrusted with like responsibility for the person or estate
of the holder. Unless noted conspicuously on the certificate representing the
security or, in the case of uncertificated shares, contained in the notice sent
pursuant to Section 151(f) of the DGCL, a restriction, even though permitted by
Section 202 of the DGCL, is ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or registration of
transfer of securities of the Corporation may be imposed either by the
Certificate of Incorporation or by these By-laws or by an agreement among any
number of security holders or among such holders and the Corporation. No
restriction so imposed shall be binding with respect to securities issued prior
to the adoption of the restriction unless the holders of the securities are
parties to an agreement or voted in favor of the restriction.
ARTICLE VIII
NOTICES
Section 1. Notices. Whenever written notice is
required by law, the Certificate of Incorporation or these By-Laws to be given
to any director, member of a committee or stockholder, such notice may be given
by mail, addressed to such director, member of a committee or stockholder, at
such person's address as it appears on the records of the Corporation, with
postage thereon prepaid, and such notice shall be deemed to be given at the time
when the same shall be deposited in the United States mail. Written notice may
also be given personally or by courier service, facsimile transmission,
telegram, telex or cable.
Section 2. Waivers of Notice. (a) Whenever any notice
is required by law, the Certificate of Incorporation or these By-Laws, to be
given to any director, member of a committee or stockholder, a waiver thereof in
writing, signed, by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting, present by person or represented by proxy,
shall constitute a waiver of notice of such meeting, except where the person
attends the meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
(b) Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by law, the Certificate of
Incorporation or these By-Laws.
ARTICLE IX
BOOKS
Section 1. Books. The Corporation shall keep in
accordance with applicable law correct and adequate books and records of
account and minutes of proceedings of the stockholders, the Board of Directors
and any committees of the Board of Directors. The Corporation shall keep in
accordance with applicable law at the office designated in the Certificate of
Incorporation or at the office of the transfer agent or registrar of the
Corporation, a record containing the names and addresses of all stockholders,
the number and class of shares held by each and the dates when they respectively
became the owners of record thereof.
Section 2. Form of Books. Any books maintained by the
Corporation, including its stock ledger, books of account and minute books,
may be kept on, or be in the form of, electronic data storage, computer discs,
punch cards, magnetic tape, photographs, microphotographs or any other
information storage device, provided that the records so kept can be converted
into clearly legible written form within a reasonable time. The Corporation
shall so convert any records so kept upon the request of any person entitled to
inspect the same.
ARTICLE X
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or
Proceedings other Than Those by or in the Right of the Corporation. Subject to
Section 3 of this Article X, the Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that such person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of the Corporation. Subject to Section 3 of
this Article X, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that such person is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other entity or enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article X (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2, and in each case Section 11, of this Article X, as the
case may be. Such determination shall be made (i) by a majority vote of the
directors who were not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article X, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other entity or
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2, and in each case Section 11,
of this Article X, as the case may be.
Section 5. Indemnification by a Court.
Notwithstanding any contrary determination in the specific case under Section
3 of this Article X, and notwithstanding the absence of any determination
thereunder, any director or officer may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2, and in each case Section 11, of
this Article X. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Sections 1 or 2, and in each case Section 11, of this
Article X, as the case may be. Neither a contrary determination in the specific
case under Section 3 of this Article X nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses
(including attorneys' fees) incurred by a director or officer in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Article X.
Section 7. Nonexclusivity of Indemnification and
Advancement of Expenses. The indemnification and advancement of expenses
provided by or granted pursuant to this Article X shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, contract, vote of
stockholders or disinterested directors or pursuant to the direction (howsoever
embodied) of any court of competent jurisdiction or otherwise, both as to action
in such person's official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of the persons specified in Sections 1 and 2 of this Article X shall be made to
the fullest extent permitted by law. The provisions of this Article X shall not
be deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article X but whom the Corporation has the power or
obligation to indemnify under the provisions of the DGCL, or otherwise.
Section 8. Insurance. The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director or
officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power or the obligation to indemnify such person against such
liability under the provisions of this Article X.
Section 9. Certain Definitions. For purposes of this
Article X, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise, shall
stand in the same position under the provisions of this Article X with respect
to the resulting or surviving corporation as such person would have with respect
to such constituent corporation if its separate existence had continued. For
purposes of this Article X, references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article X. For purposes of this Article X, the term
"officers" shall not include "Appointed Officers" as defined in Section 15 of
Article V.
Section 10. Survival of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article X shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification.
Notwithstanding anything contained in this Article X to the contrary,
except for proceedings to enforce rights to indemnification (which shall be
governed by Section 5 hereof), the Corporation shall not be obligated to
indemnify any director or officer in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors of the Corporation.
Section 12. Indemnification of Appointed Officers,
Employees and Agents. The Corporation may, to the extent authorized from time to
time by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to Appointed Officers, employees and agents of the
Corporation similar to those conferred in this Article X to directors and
officers of the Corporation.
ARTICLE XI
AMENDMENT OF BY-LAWS
Section 1. Amendment of By-Laws. These By-Laws may be
altered, amended or repealed, in whole or in part, or new By-Laws may be
adopted by the stockholders or by the Board of Directors; provided, however,
that notice of such alteration, amendment, repeal or adoption of new By-Laws be
contained in the notice of such meeting of stockholders or Board of Directors as
the case may be. All such amendments must be approved by either the affirmative
vote of the holders of a majority in total number of votes of the outstanding
capital stock entitled to vote thereon or by a majority of the directors then in
office.
Section 2. Entire Board of Directors. As used in
this Article XI and in these By-Laws generally, the term "entire Board of
Directors" means the total number of directors which the Corporation would have
if there were no vacancies.
ARTICLE XII
GENERAL PROVISIONS
Section 1. Seal. The Board of Directors shall approve
a corporate seal which shall be in the form of a circle and shall bear the name
of the Corporation, the year of its incorporation and the word "Delaware." The
Seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Section 2. Fiscal Year. The fiscal year of the
Corporation shall be determined and may be changed by resolution of the Board
of Directors, and unless and until otherwise so determined, shall be the
calendar year.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of August 1995, by and between The Cosmetic Center, Inc. a
Delaware corporation qualified to do business in Maryland with its principal
place of business located at 8839 Greenwood Place, Savage, Maryland 20763
("COMPANY"), and Bruce E. Strohl, now residing at 8414 Flowering Cherry Lane,
Laurel, Maryland 20723 ("EMPLOYEE").
RECITALS
1. The COMPANY is engaged in the specialty retail sale and wholesale
distribution of a wide range of brand name cosmetic, fragrance, beauty aides and
related items.
2. EMPLOYEE is Vice President - Finance and Chief Financial
Officer of the COMPANY.
3. The COMPANY desires to employ and retain the unique experience,
ability and services of EMPLOYEE and EMPLOYEE desires and is willing to
undertake and continue such employment with the COMPANY, all upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the recitals, and of the mutual
covenants and agreements herein contained, and of other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
COMPANY hereby employs EMPLOYEE, and EMPLOYEE hereby accepts employment with the
COMPANY, upon the terms and conditions set forth in this Agreement:
<PAGE>
1. EMPLOYMENT AND DUTIES
During the term of this Agreement, EMPLOYEE shall continue in
the employ of the COMPANY and shall devote his entire time and attention to the
business and affairs of the COMPANY. During such period EMPLOYEE shall serve as
Vice President - Finance and Chief Financial Officer and shall serve in such
other capacities and perform such duties as the COMPANY shall require from time
to time.
Further, with respect to any sole proprietorship, firm,
company, corporation, joint venture, general or limited partnership, trust or
other entity (collectively a "Business Entity") which is a subsidiary or
otherwise affiliated with the COMPANY, whether or not controlled by the COMPANY
(collectively, an "Affiliate"), EMPLOYEE hereby agrees, at the request of the
President of the COMPANY made at any time and from time to time, to serve in
such other offices, positions and/or capacities with an Affiliate as to which he
may be elected or appointed, and to perform the duties required of him as such.
2. TERM OF EMPLOYMENT
A. Term. The term of EMPLOYEE'S employment hereunder shall
commence on August 1, 1995 and continue until July 31, 1996 (the "Original
Term"). The term of EMPLOYEE's employment hereunder shall be automatically
extended for successive additional twelve (12) month periods ("Additional
Terms") unless a notice to terminate this Agreement is given by the COMPANY to
EMPLOYEE, or by EMPLOYEE to the COMPANY, at least ninety (90) days prior to the
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expiration of the Original Term or of the then-applicable Additional Term (if
any). The Original Term and any Additional Terms are together referred to herein
as the "Entire Term" of this Agreement. On or before the last day of EMPLOYEE's
employment hereunder, EMPLOYEE shall execute and deliver to the COMPANY a letter
of resignation from all offices then held by EMPLOYEE with the COMPANY and with
any Affiliates effective upon said last day of employment hereunder.
B. Earlier Termination. Notwithstanding the aforesaid
provisions of this Section 2, this Agreement may be terminated
pursuant to the terms and conditions of Section 6 prior to what
would otherwise be the expiration of this Agreement's Term.
3. COMPENSATION OF EMPLOYEE
A. Salary. The COMPANY hereby agrees to pay to EMPLOYEE
for all services to be rendered by EMPLOYEE in any capacity
hereunder (including, but not limited to, services as an officer of
the COMPANY and/or of any Affiliate, and with respect to any other
offices, positions and/or capacities to which he is elected, or
which are assigned to him by the President of the COMPANY and/or by
the President of any Affiliate) an annual base salary ("Base
Salary") of One Hundred Seventeen Thousand Four Hundred Twenty
Dollars ($117,420.00), which shall be paid in accordance with the
COMPANY's normal payroll schedule, as maybe increased from time to
time by the President.
B. Withholding. There shall be deducted from each
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installment of EMPLOYEE's Salary, and from any other payments to or for the
benefit of EMPLOYEE pursuant to this Agreement, all amounts which are at any
time and from time to time by applicable laws, (federal, state, county or
municipal) required to be deducted by reason of withholding taxes, Social
Security contributions and other requisite governmental imposed deductions from
the income of employees.
4. EMPLOYEE BENEFITS
During the Term of this Agreement, the COMPANY shall provide
EMPLOYEE with the following benefits, which may be adjusted from time to time:
A. Insurance Plans. The COMPANY shall provide EMPLOYEE with
benefits, including major medical health insurance for EMPLOYEE and his
immediate family, group life and accident insurance, disability income
insurance, or similar group insurance plans which the Company may from time to
time make available to other employees, all in accordance with the COMPANY's
Employee Handbook as then in effect. All matters of eligibility for benefits
under any plan or plans of group health, life, accident, disability, medical
expense or similar group insurance plans which the COMPANY may at any time and
from time to time make available shall be determined in accordance with the
provisions of the insurance policies.
B. Vacation and Sick Leave. EMPLOYEE shall be
entitled to paid vacation and paid sick leave in the manner
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provided for in the COMPANY's Employee Handbook as then in effect. Upon
termination of EMPLOYEE'S employment hereunder, Company shall pay EMPLOYEE for
all unused vacation days at the then prevailing salary rate.
C. Profit-Sharing and Pension Plans. To the same extent and on
the same basis as the COMPANY makes available to all other employees, EMPLOYEE
shall have the right to participate in any profit-sharing or pension plan
established by COMPANY under the terms and conditions therein contained in such
plans and as many be governed by rules established under ERISA.
D. Deferred Compensation Plan. To the same extent and on the
same basis as the COMPANY makes available to all other employees holding
comparable management positions to that of the EMPLOYEE, EMPLOYEE shall have the
right to participate in any deferred compensation plan established by COMPANY
under the terms and conditions therein contained.
5. PROPRIETARY DATA.
A. Trade Secrets and Other Confidential Information. During
the term of this Agreement and for three (3) years thereafter, EMPLOYEE shall
keep confidential any data, documents, or financial or other information of a
trade secret or confidential nature relating to the COMPANY's past, present or
future operations (the "Proprietary Data"), shall not disclose the Proprietary
Data to any third parties other than officers, employees or agents of the
COMPANY on a "need to know" basis, shall take all necessary steps to ensure that
such officers,
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employees or agents keep such Proprietary Data confidential, and shall use the
Proprietary Data only in connection with rendering services to the COMPANY. Upon
the end EMPLOYEE's employment with the COMPANY, EMPLOYEE shall promptly return
to the COMPANY the originals and all copies of the Proprietary Data in the
possession of EMPLOYEE, and shall not use any of the Proprietary Data for his
own benefit or for the benefit of any third parties. The covenants contained in
this Section 5(a) shall not apply to Proprietary Data which is or becomes a
matter of general knowledge in the industry otherwise than by a breach of the
provisions of this Section 5(a).
B. Injunctive Relief. EMPLOYEE acknowledges that the covenants
contained in Sections 5(a) are necessary for the protection of the legitimate
business interests of the COMPANY and are reasonable limitations of activities,
that the rights of the COMPANY are of a specialized and unique character, and
that immediate and irreparable damage will result to the COMPANY if EMPLOYEE
fails to or refuses to perform or comply with such covenants. Therefore,
notwithstanding any election by the COMPANY to claim damages from EMPLOYEE as a
result of any such failure or refusal, the COMPANY may, in addition to any other
remedies and damages available, seek an injunction in a court of competent
jurisdiction to restrain any such failure or refusal (and no bond or other
security shall be required in connection therewith) as applicable to companies
that compete with the COMPANY or any of its subsidiaries and which operate
within the same geographic area as the COMPANY or any of its subsidiaries.
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6. TERMINATION
A. Death. The term of this Agreement shall forthwith
terminate upon the death of EMPLOYEE, whereupon the COMPANY shall
not have any further obligations or liability hereunder except to
pay the EMPLOYEE's estate the unpaid portion, if any, of
EMPLOYEE's compensation accrued for the period up to the date of
EMPLOYEE's death, plus any other employee benefits due the
EMPLOYEE under Section 4 of this Agreement, in such manner as may
be prescribed in the applicable plan.
B. Total Disability. In the event of the Total Disability (as
that term is hereafter defined) of EMPLOYEE for a period of four (4) consecutive
calendar months, or for eighty percent (80%) or more of the normal working days
during a period of six (6) consecutive full calendar months, the COMPANY shall
have the right to end the term of this Agreement by giving EMPLOYEE ten (10)
days' written notice. Upon the expiration of such ten (10) days period, the term
of this Agreement shall end and the COMPANY shall not have any further
obligations hereunder except to pay EMPLOYEE the unpaid portion, if any, of
EMPLOYEE's compensation accrued for the period up to the date of termination of
EMPLOYEE's employment, plus any other employee benefits due the EMPLOYEE under
Section 4 of this Agreement, in such manner as may be prescribed in the
applicable plan. As used in this Agreement, the term "Total Disability" shall
mean a mental or
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physical condition which, in the opinion of the COMPANY and in the opinion of
two consulting physicians, renders EMPLOYEE unable or incompetent to carry out
his obligations hereunder.
C. With Cause. The COMPANY shall have the right to terminate
the employment of EMPLOYEE at any time for cause (as hereinafter defined) upon
at least five (5) days' written notice setting forth the specific details of the
action or inaction of EMPLOYEE which constitutes cause. For purposes of the
foregoing, "cause" shall mean (i) conviction of a felony or other crime
involving moral turpitude or pursuant to which EMPLOYEE is imprisoned, (ii) the
use of narcotics or alcohol by EMPLOYEE to an extent which materially interferes
with his performance of his duties under this Agreement, (iii) dishonesty of
EMPLOYEE in a material matter, (iv) repeated failure by EMPLOYEE to devote
proper time and attention to the business of the COMPANY and/or of an Affiliate
employing EMPLOYEE in accordance with this Agreement, (v) failure by EMPLOYEE to
carry out the directions, policies, instructions and/or decisions of the
President of the COMPANY, (vi) repeated and unexcused absenteeism by EMPLOYEE,
or (vii) the material breach by EMPLOYEE of any of his obligations or agreements
contained herein. Upon such termination, the COMPANY shall have no further
obligations or liability hereunder except to pay EMPLOYEE the unpaid portion, if
any, of EMPLOYEE's compensation accrued for the period up to the date of
termination of EMPLOYEE's employment, plus any other employee benefits due the
EMPLOYEE under Section 4 of this Agreement, in such manner as
may be prescribed in the applicable plan.
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D. Without Cause. If the COMPANY at any time during the term
of this Agreement desires to terminate EMPLOYEE for any reason other than for
cause, the COMPANY shall have the right to terminate the employment of EMPLOYEE
at anytime. If the COMPANY shall terminate the employment of EMPLOYEE pursuant
to this Section 6D, the term of this Agreement shall end and the COMPANY shall
not have any further obligations or liability hereunder except to pay EMPLOYEE
the unpaid portion, if any, of EMPLOYEE's compensation accrued for the period up
to the date of termination of EMPLOYEE's employment, plus any other employee
benefits due the EMPLOYEE under Section 4 of this Agreement, in such manner as
may be prescribed in the applicable plan, together with an additional amount of
one year's Base Salary, said payment is to be payable in accordance with the
COMPANY's normal payroll schedule and is to commence immediately following the
effective date of the termination of EMPLOYEE's employment hereunder.
E. By EMPLOYEE. If EMPLOYEE at any time is for any reason
dissatisfied with the terms and conditions of his employment hereunder, EMPLOYEE
shall have the right to terminate his employment upon no less than sixty days'
notice to the COMPANY; provided, however, the term of this Agreement shall
terminate upon the date set by EMPLOYER which shall in no event be greater than
sixty days' from the giving of EMPLOYEE's notice. If EMPLOYEE shall terminate
his employment pursuant to this Section 6E, the term of this Agreement shall end
at the
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expiration of the notice period and the COMPANY shall have no further
obligations or liability hereunder except to pay to EMPLOYEE the unpaid portion,
if any, of EMPLOYEE's compensation accrued for the period up to the date of
termination, plus any other employee benefits due the EMPLOYEE under Section 4
of this Agreement, in such manner as may be prescribed in the applicable plan.
F. After the Expiration of the Term. In the event that,
following the expiration of the term of this Agreement, EMPLOYEE shall be
terminated by the COMPANY prior to his 65th birthday and the termination shall
be for other than "cause" , the COMPANY shall pay EMPLOYEE as a severance
allowance an amount equal to one year's annual compensation, plus any other
employee benefits due the EMPLOYEE under Section 4 of this Agreement, in such
manner as may be prescribed in the applicable plan. The EMPLOYEE's annual
compensation shall be the total of his base salary at the rate paid for the
month prior to such termination of employment.
7. ARBITRATION.
Any controversy or claim arising out of or in any way relating
to this Agreement, the performance of the parties thereunder, the termination
thereof, or the breach thereof, shall be settled by arbitration in Howard
County, Maryland, in accordance with the Commercial Arbitration Rules of the
American
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Arbitration Association, and judgment upon the award rendered by the arbitrator
may be entered in any court of the State of Maryland having jurisdiction
thereof. The parties agree that any controversy or claim subject to arbitration
will be submitted to single arbitrator selected from the panels of Arbitrators
of the American Arbitration Rules unless some other method is agreed to by the
parties to this Agreement. Additionally, the discovery provisions of the Federal
Rules of Civil Procedure then in effect shall apply in any such arbitration and
the arbitrator is hereby directed to enforce such Rules. The losing party in any
such arbitration shall pay the prevailing party's legal fees and costs as well
as the costs of the arbitration. The foregoing agreement to arbitrate shall be
specifically enforceable.
8. NON-ASSIGNABILITY BY EMPLOYEE
EMPLOYEE shall have no right to assign this Agreement or any
of his rights or obligations hereunder to another party or parties.
9. ASSIGNABILITY BY THE COMPANY
the COMPANY shall have the right to assign this
Agreement or any of its rights or obligations hereunder, provided that such
assignment shall not alter the financial arrangements or basic duties of
EMPLOYEE as provided in this Agreement.
10. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland applicable to
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contracts made and to be performed therein, without giving effect to the
principles of conflicts of law.
11. NON-WAIVER OF BREACH
No failure of either party to exercise any power, right or
remedy given such party hereunder, or to insist upon the strict compliance by
the other party of any obligation, covenant, term, condition, warranty or
agreement hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of such party's rights to demand exact
compliance with the terms hereof.
12. NUMBER AND GENDER
Where text required, words in the singular shall be deemed to
include the plural and vice-versa, and words of any gender shall be deemed to
include all genders.
13. HEADINGS NOT PART OF AGREEMENT
Any headings preceding the text of the several Sections and
subparagraphs of this Agreement are inserted solely for convenience of reference
and shall not constitute a part of this Agreement nor shall they affect its
meaning, construction or effect.
14. NOTICES
No notice, request, consent, approval, waiver or other
communication which may be or is required or permitted to be given under this
Agreement shall be effective unless the same is in writing and is delivered in
person, or sent by registered or certified mail, return receipt requested,
first-class postage
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prepaid, (1) if to the COMPANY to the first grammatical paragraph of this
Agreement, Attention: President, with a copy to Ronald M. Hirschel, Esquire, 481
North Frederick Avenue, Suite 200, Gaithersburg, Maryland 20877, and (2) if to
EMPLOYEE to the address set forth in the first grammatical paragraph of this
Agreement, or (effective upon receipt) at any other address that may be given by
one party to the other by notice pursuant to this Paragraph 14. Such notices, if
sent by registered or certified mail, return receipt requested, first-class
postage prepaid, shall be deemed to have been given at the time of mailing.
15. ENTIRE AGREEMENT
This Agreement contains all of the agreements and
understandings between the parties hereto with respect to the employment of
EMPLOYEE by the COMPANY, and no oral agreements or written correspondence shall
be held to affect the provisions hereof.
16. PARTIAL INVALIDITY
Should any part of this Agreement for any reason be declared
or held invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity and enforceability of any remaining portion, which remaining
portion shall remain in force and effect as of this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated.
17. AMENDMENTS
Neither this Agreement nor any provision hereof may be
amended, modified, changed, waived, discharged or terminated
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orally, but only by an instrument in writing signed by the party against which
enforcement of the amendment, modification, change, waiver, discharge or
termination is sought.
18. BURDEN AND BENEFIT
This Agreement is binding upon, and inures to the benefit of,
the parties hereto and their respective spouses, heirs, executors,
administrators, personal and legal representatives, successors and assigns.
19. COUNTERPARTS
This Agreement may be executed in one or more counterparts
and, in such event, all such counterparts shall constitute originals and all
such counterparts shall constitute a single agreement.
20. NO INFERENCE AGAINST AUTHOR
No provision of this Agreement shall be interpreted against
any party because such party or its legal representative drafted such provision.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year hereinabove first written.
COMPANY:
THE COSMETIC CENTER, INC.
/s/Ben Kolvalsky (SEAL)
Ben Kovalsky,
President
WITNESS: EMPLOYEE:
/s/Michael J. Lewis /s/Bruce E. Strohl (SEAL)
Bruce E. Strohl
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EXHIBIT 10(J)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
February , 1997 by and between The Cosmetic Center, Inc., a Delaware
corporation qualified to do business in Maryland with its principal place of
business located at 8839 Greenwood Place, Savage, Maryland 20763 ("EMPLOYER"),
and Mark S. Weinstein, now residing at 8020 Summer Mill Court, Bethesda,
Maryland 20817 ("EMPLOYEE").
RECITALS
1. EMPLOYER is engaged in the specialty retail sale and wholesale
distribution of a wide range of brand name cosmetic, fragrance, skin care and
personal care products.
2. Prior to the date hereof, EMPLOYEE was Chairman and, until July 1995,
Chief Executive Officer of EMPLOYER.
3. On the date hereof, Prestige Fragrance & Cosmetics, Inc., a Delaware
corporation engaged in the retail distribution of cosmetics, fragrances, skin
care and personal care products at discounted prices ("PFC"), was merged into
EMPLOYER, with EMPLOYER being the survivor of such merger.
4. From and after the date hereof, EMPLOYER desires to employ and retain
the unique experience, ability and services of EMPLOYEE in the position of Vice
Chairman of the Board of Directors of EMPLOYER and EMPLOYEE desires and is
willing to undertake and continue such employment with EMPLOYER, all upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the recitals, and of the mutual
covenants and agreements herein contained, and of other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
EMPLOYER hereby employs EMPLOYEE, and EMPLOYEE hereby accepts employment with
EMPLOYER, upon the terms and conditions set forth in this Agreement:
1. EMPLOYMENT
EMPLOYER hereby employs EMPLOYEE and EMPLOYEE hereby accepts employment as
Vice Chairman of the Board of EMPLOYER. EMPLOYEE will render such services to
the Corporation as are customarily rendered by the Vice Chairman of comparable
publicly held companies. EMPLOYER agrees that EMPLOYEE shall have no obligation
to provide such services outside of the State of Maryland and its surrounding
states (other than any travel required in the ordinary course of providing such
services).
Notwithstanding anything herein to the contrary, it is specifically agreed
that EMPLOYEE's duties and responsibilities hereunder will be rendered on a
part-time basis and nothing in this employment agreement shall prohibit EMPLOYEE
from engaging, directly or indirectly, in activities with other companies,
ventures, or investments in any capacity whatsoever, provided only that such
activities or any of them do not interfere with EMPLOYEE's performance of his
duties hereunder.
2. TERM OF EMPLOYMENT
The term of EMPLOYEE's employment hereunder shall commence on the date
hereof and continue until the fourth anniversary of the date hereof (the
"Term"). On or before the last day of EMPLOYEE's employment hereunder, EMPLOYEE
shall execute and deliver to EMPLOYER a letter of resignation from all offices
then held by EMPLOYEE with EMPLOYER and with any affiliates effective upon said
last day of employment hereunder. This Section 2 is subject to the provisions of
Section 9 of this Agreement.
3. COMPENSATION OF EMPLOYEE
A. COMPENSATION. During the Term, EMPLOYER hereby agrees to pay to EMPLOYEE
for all services to be rendered by EMPLOYEE in any capacity hereunder
(including, but not limited to, services as a Director and officer of EMPLOYER
and/or of any affiliate, and with respect to any other offices, positions and/or
capacities to which he is elected) an annual salary of Three Hundred Fifteen
Thousand ($315,000) ("Salary") and agrees to pay to EMPLOYEE for the
non-competition covenant pursuant to Section 13 annual payments of One Hundred
Fifty Thousand ($150,000) ("Non-Compete Payments"), in each case, payable
bi-weekly.
B. WITHHOLDING. There shall be deducted from each installment of EMPLOYEE's
Salary and Non-Compete Payments, and from any other payments to or for the
benefit of EMPLOYEE pursuant to this Agreement, all amounts which are at any
<PAGE>
time and from time to time by applicable federal, state, county or municipal
laws required to be deducted by reason of withholding taxes, Social Security
contributions and other requisite governmental imposed deductions from the
income of employees.
C. REIMBURSEMENT FOR BUSINESS EXPENSES AND OTHER PERQUISITES. EMPLOYER
shall promptly reimburse EMPLOYEE for all reasonable business, travel and
miscellaneous expenses incurred by EMPLOYEE during the Term in the furtherance
of EMPLOYER's business, upon the submission to EMPLOYER of proper vouchers
authenticating such expenditures. In addition, EMPLOYER shall, during the Term,
continue to furnish EMPLOYEE an office and suitable office fixtures, telephone
service and secretarial assistance, all of which shall be appropriate to his
position and status as Vice Chairman of the Board of EMPLOYER.
D. VEHICLE. In order to facilitate EMPLOYEE's performance of his duties
under this Agreement, EMPLOYER hereby agrees to furnish EMPLOYEE with the
vehicle furnished as of the date hereof to EMPLOYEE by EMPLOYER. For so long as
EMPLOYER shall furnish EMPLOYEE with such vehicle pursuant to the preceding
sentence, EMPLOYER shall pay directly all properly documented gas, oil, repair,
maintenance and insurance expenses associated with such vehicle. Upon the
earlier of (i) EMPLOYEE's request prior to the termination of this Agreement for
Good Cause or (ii) termination of this Agreement other than for Good Cause,
EMPLOYER shall transfer (without cost other than the payment by EMPLOYEE of any
withholding or transfer taxes) to EMPLOYEE title to the vehicle furnished
hereunder to EMPLOYEE by EMPLOYER.
4. GROUP INSURANCE BENEFITS
While in the employment of EMPLOYER, EMPLOYEE will be made a party insured
under any policies of group health, life, accident, disability, medical expense
or similar group insurance plans which EMPLOYER may from time to time make
available generally to other employees holding comparable senior management
positions to that of EMPLOYEE and on the same basis as those so employed. All
matters of eligibility for benefits under any plan or plans of group health,
life, accident, disability, medical expense or similar group insurance plans
which EMPLOYER may at any time and from time to time make available shall be
determined in accordance with the provisions of the insurance policies. Upon
termination or expiration of the Term, EMPLOYEE shall be entitled to continued
medical coverage in accordance with the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
5. MEDICAL REIMBURSEMENT. EMPLOYER has established a medical reimbursement
plan for certain of its key executive officers including EMPLOYEE. During the
Term, EMPLOYER shall maintain such plan and shall pay all premiums in connection
with such medical reimbursement plan.
6. SPLIT DOLLAR AND KEY-MAN INSURANCE. At any time during the Term and
within 30 days after the expiration of the Term, EMPLOYEE shall be entitled to
terminate that certain Split-Dollar Insurance Agreement dated September 22, 1994
between EMPLOYEE and EMPLOYER (the "Split-Dollar Insurance Agreement") relating
to that certain life insurance policy (Pacific Mutual Life Insurance Policy No.
1A2285224-0) in the face amount of $1,000,000 (the "Split-Dollar Insurance
Policy") in accordance with the terms of the Split-Dollar Insurance Agreement by
payment to the EMPLOYER of an amount equal to the premiums paid by EMPLOYER
through the time of purchase. Until the earlier of the termination of the Split-
Dollar Insurance Agreement as provided in the prior sentence and the termination
of the Term, EMPLOYER shall continue to pay premiums in accordance with the
terms of the Split-Dollar Insurance Agreement. As of, and for 30 days after, the
expiration of the Term, EMPLOYEE shall be entitled to purchase from EMPLOYER
that certain life insurance policy (Mass Mutual Life Insurance Policy No.
9655632) in the face amount of $1,000,000 (the "Key Man Insurance Policy") for
an amount equal to the premiums paid by EMPLOYER through the time of purchase.
Until the earlier of the purchase of the Key Man Insurance Policy as provided in
the prior sentence and the termination of the Term, EMPLOYER shall continue in
effect the Key Man Insurance Policy. Unless and until purchased by EMPLOYEE as
provided herein, EMPLOYER shall continue being the owner of the Key Man Policy
and the death benefits under the Key Man Insurance Policy shall be payable to
EMPLOYER. Until the earlier of the termination of the Split-Dollar Insurance
Agreement as provided above and the termination of the Term, the death benefits
under the Split-Dollar Insurance Policy shall be payable (i) to EMPLOYER to the
extent of the premiums paid by it and (ii) the balance of the benefit to the
beneficiaries designated by EMPLOYEE in accordance with the Split-Dollar
Insurance Agreement.
7. PROFIT-SHARING AND PENSION PLANS
To the same extent and on the same basis as EMPLOYER makes available
generally to other employees holding comparable senior management positions to
that of EMPLOYEE, EMPLOYEE shall have the right to participate in any profit
2
<PAGE>
sharing or pension plan established by EMPLOYER under the terms and conditions
therein contained (but not including any stock option or bonus plans).
8. VACATIONS
EMPLOYEE shall be entitled each year during the Term to paid vacation time
of four (4) weeks. Any part of such vacation time that is not used during any
year shall not cumulate and shall be forfeited. Upon termination of EMPLOYEE's
employment hereunder, EMPLOYER shall have no obligation to pay EMPLOYEE for any
unused vacation days.
9. TERMINATION OF EMPLOYMENT
A. DEFINITION OF GOOD CAUSE. For purpose of this Agreement, the term "Good
Cause" shall be construed to mean the following: (i) conviction of a felony or
other crime involving moral turpitude or pursuant to which EMPLOYEE is
imprisoned, in each case, that has a material adverse effect on EMPLOYER's
financial condition, assets or operations, (ii) dishonesty of EMPLOYEE after the
date hereof in a material matter that that has a material adverse effect on
EMPLOYER's financial condition, assets or operations or (iii) the material
breach by EMPLOYEE of any of his obligations or agreements contained in Section
13.
B. TERMINATION FOR GOOD CAUSE WITHOUT RIGHT TO CURE. EMPLOYER shall have
the right to immediately cancel and terminate this Agreement and to immediately
discharge EMPLOYEE for Good Cause which falls within the meanings of Sections
9(A) (i) or (ii).
C. TERMINATION FOR GOOD CAUSE WITH RIGHT TO CURE. Following reasonable
notice and failure to promptly cure, EMPLOYER shall have the right to cancel and
terminate this Agreement and to discharge EMPLOYEE for Good Cause which falls
within the meaning of Section 9(A)(iii); provided, however, that EMPLOYEE shall
not be entitled to cure such a default under Section 9(A)(iii) pursuant to this
Section 9C if EMPLOYEE previously cured a default under the same subparagraph of
Section 9A pursuant to this Section 9C. Any notice provided to EMPLOYEE under
this Section 9C shall be in writing and shall set forth with reasonable
specificity and detail the nature of the default and the specific curative
action which needs to be taken to cure such default if such default is curable.
D. DISABILITY. The inability of EMPLOYEE to render services to EMPLOYER as
a result of any temporary or permanent Disability (as defined below) of EMPLOYEE
shall not constitute a failure by EMPLOYEE to perform his obligations under this
Agreement and shall not be deemed a breach or default by EMPLOYEE hereunder. The
Salary and Non-Compete Payments to be paid to EMPLOYEE during the Term shall
continue and not be terminated if EMPLOYEE incurs a temporary or permanent
Disability during the Term; provided, however, that such Salary and Non-Compete
Payments shall be reduced by any disability payments received by EMPLOYEE from
any insurance policies paid for by EMPLOYER. For purposes of this Agreement,
"Disability" shall mean a mental or physical illness or condition rendering
EMPLOYEE incapable of performing the duties for EMPLOYER required of him under
this Agreement.
E. DEATH. Upon EMPLOYEE's death, EMPLOYER's obligations under the Agreement
shall remain in full force and effect, except that all Salary and Non-Compete
Payments that EMPLOYEE was entitled to receive hereunder in respect of the
balance of the Term shall be paid to EMPLOYEE's estate or successor-in-interest,
as the case may be.
10. EMPLOYEE'S REMEDY FOR BREACH.
A. CANCELLATION OR TERMINATION. If EMPLOYER cancels and terminates this
Agreement and discharges EMPLOYEE prior to the expiration of the Term as
specified in Section 2 without reason or for any reason other than for Good
Cause, then, as EMPLOYEE's sole and exclusive remedy, EMPLOYER shall pay
EMPLOYEE an amount equal to the balance of his Salary and Non-Compete Payments
for the remainder of the Term as specified in Section 2 and EMPLOYEE shall not
be obligated to mitigate EMPLOYEE's damages. Said amount shall be paid to
EMPLOYEE over the remainder of the Term in installments to be paid on the same
schedule as EMPLOYEE was paid immediately prior to EMPLOYEE's discharge, each
installment to be in the same amount EMPLOYEE would have been paid under this
Agreement if EMPLOYEE had not been discharged; provided, however, that if
EMPLOYER shall fail to pay any such installment when due, then, after notice and
failure to cure within five business days, all remaining installments shall be
accelerated and immediately due and payable in full. EMPLOYER agrees that this
provision represents liquidated damages and not a penalty, and that it
represents a reasonable forecast of EMPLOYEE's anticipated and actual economic
damages. Notwithstanding anything herein to the contrary, no such cancellation
or termination of this Agreement shall adversely affect any of EMPLOYEE's rights
or benefits accrued prior to the date of such cancellation or termination or
that are triggered by such cancellation or termination.
3
<PAGE>
B. FAILURE TO PAY SALARY AND NON-COMPETE PAYMENTS WHEN DUE. If EMPLOYER
fails to pay any regular Salary and Non-Compete Payments when due as specified
in Section 3, or to pay accelerated amount due if such Salary and Non-Compete
Payments are accelerated as specified in Section 10A, in addition to such amount
which is due to EMPLOYEE, EMPLOYEE shall be entitled to receive interest on the
unpaid balance thereof at the rate of 15% per annum.
C. CHANGE OF CONTROL. If there is a change of control of EMPLOYER (as
defined below), EMPLOYEE may elect to treat such change in control as a
termination by EMPLOYER without Good Cause except that the payment of an amount
equal to the balance of his Salary and Non-Compete Payments for the balance of
the Term shall be paid in a single lump sum payment (rather than installment
payments as provided in Section 10A). Failure to take any action upon a change
of control for a period of time up to 180 days shall not be deemed a waiver of
EMPLOYEE's right to treat such change of control as a termination. A "change in
control" of EMPLOYER for purposes of this Agreement shall be deemed to have
taken place if (A) Revlon Consumer Products Corporation together with its
affiliates no longer has the power to vote, directly or indirectly, whether
through record or beneficial ownership, a voting trust arrangement, or other
contractual arrangement, a majority of the voting power of outstanding shares of
EMPLOYER or (B) all or substantially all of EMPLOYER's assets are sold to any
person other than an affiliate, or (C) EMPLOYER is liquidated or dissolved or
adopts a plan of liquidation or (D) EMPLOYER shall: (i) file a voluntary
petition in bankruptcy or file a voluntary petition or otherwise commence any
action or proceeding seeking reorganization, arrangement or readjustment of its
debts or for any other relief under the Federal Bankruptcy Code, as amended, or
under any other bankruptcy or insolvency act or law, state or federal, now or
hereafter existing, or consent to, approve of, or acquiesce in, any such
petition, action or proceeding; (ii) apply for or acquiesce in the appointment
of a receiver, assignee, liquidator, sequestrator, custodian, trustee or similar
officer for it or for all or any part of its Property; (iii) make an assignment
for the benefit of creditors; or (iv) be unable generally to pay its debts as
they become due; or (E) an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of EMPLOYER's debts or for any other relief under the Federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or
law, state or federal, now or hereafter existing and such petition, action or
proceeding shall not be dismissed within 60 days from such filing or
commencement. For purposes of this Section 10C, a "person" includes an
individual, corporation, partnership, trust, association, joint venture, pool,
syndicate, unincorporated organization, joint-stock company, or similar
organization or group acting in concert. A person for these purposes shall be
deemed to be a beneficial owner as that term is used in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
D. SURVIVAL OF REMEDIES. This Section 9 shall survive any termination of
this Agreement other than for Good Cause.
11. ARBITRATION.
Any controversy or claim arising out of or in any way relating to this
Agreement, the performance of the parties thereunder, the termination thereof,
or the breach thereof, shall be settled by arbitration in either Montgomery or
Prince George's County, Maryland, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator may be entered in any court of the State of Maryland
having jurisdiction thereof. The parties agree that any controversy or claim
subject to arbitration will be submitted to a single arbitrator selected from
the panels of Arbitrators of the American Arbitration Rules unless some other
method is agreed to by the parties to this Agreement. Additionally, the
discovery provisions of the Federal Rules of Civil Procedure then in effect
shall apply in any such arbitration and the arbitrator is hereby directed to
enforce such Rules. The losing party in any such arbitration shall pay the
prevailing party's legal fees and costs as well as the costs of the arbitration.
The foregoing agreement to arbitrate shall be specifically enforceable.
12. STOCK OPTIONS.
Upon the termination of EMPLOYEE's employment for any reason, other than
Good Cause, including death or the expiration of this Agreement pursuant to
Section 2, EMPLOYER shall offer to repurchase all unexpired options (whether
vested or not) to purchase securities of EMPLOYER ("Options") from EMPLOYEE or
his estate or other successor-in-interest, as the case may be. The price to be
paid for each such option shall be the excess, if any, of the then Market Price
(as defined below) of EMPLOYER's common stock (or other securities for which the
option is then exercisable) on the date of termination over the option exercise
price. EMPLOYEE (or his estate or other successor-in-interest) shall have the
right to sell all or a portion of such Options to EMPLOYER. EMPLOYER shall
purchase and pay for all such Options within sixty (60) days of the date of
EMPLOYEE's termination.
For the purpose of this Agreement, "Market Price" shall mean the closing
sale price on the date in question of a share of such stock on the composite
tape for the principal United States securities exchange registered under the
Exchange Act on
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<PAGE>
which such stock is listed, or, if such stock is not listed on any such
exchange, the closing sale price or bid quotation with respect to a share of
such stock on the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if no
such quotations are available, or if shares of such stock are not traded on any
United States registered securities exchange or in the over-the-counter market,
the fair market value on the date in question of a share of such stock as
determined by an investment banker selected by a majority of the members of the
Board of Directors of EMPLOYER in good faith.
13. NON-COMPETITION AND CONFIDENTIALITY
A. NON-COMPETITION. In consideration of the knowledge EMPLOYEE has gained
of EMPLOYER's management and overall business operation during his employment
and to prevent unfair competition with EMPLOYER based on this knowledge,
EMPLOYEE agrees that during the Term and for two years thereafter, he will not,
directly or indirectly, for his own benefit, or for or with any person, firm or
corporation whatsoever other than EMPLOYER, own, control, manage or operate
stores similar in respect of products to those operated by EMPLOYER during such
period of employment in Maryland, Virginia, Illinois or the District of Columbia
or within a 50-mile radius of any other city where EMPLOYER is operating retail
stores; provided, however, that nothing herein shall prohibit or restrict
EMPLOYEE from owning up to 1% of the outstanding capital stock of any publicly
traded corporation.
B. CONFIDENTIALITY. EMPLOYEE shall keep confidential any and all nonpublic
information obtained by him during the term of his employment about EMPLOYER and
its affairs, its goods, techniques, processes, procedures, materials, know-how,
labeling, its leases, its relationship to actual and potential customers, and
needs and requirements of any such actual or potential customers and similar
trade information, and he shall make no disclosure thereof to third persons in a
manner that would be injurious to EMPLOYER.
14. NON-ASSIGNABILITY BY EMPLOYEE
EMPLOYEE shall have no right to assign this Agreement or any of its rights
or obligations hereunder to another party or parties.
15. ASSIGNABILITY BY EMPLOYER
EMPLOYER shall have the right to assign this Agreement or any of its rights
or obligations hereunder to any of its affiliates or to any successor to the
business (by merger, consolidation, sale of stock or assets, or otherwise);
provided that no assignment shall release EMPLOYER from its obligations and
liabilities under this Agreement.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland applicable to contracts made and to be performed
therein, without giving effect to the principles of conflicts of law.
17. NON-WAIVER OF BREACH
No failure of either party to exercise any power, right or remedy given
such party hereunder, or to insist upon the strict compliance by the other party
of any obligation, covenant, term, condition, warranty or agreement hereunder,
and no custom or practice at variance with the terms hereof, shall constitute a
waiver of such party's rights to demand exact compliance with the terms hereof.
18. NUMBER AND GENDER
Where text required, words in the singular shall be deemed to include the
plural and vice-versa, and words of any gender shall be deemed to include all
genders.
19. HEADINGS NOT PART OF AGREEMENT
Any headings preceding the text of the several Sections and subparagraphs
of this Agreement are inserted solely for convenience of reference and shall not
constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
20. NOTICES
No notice, request, consent, approval, waiver or other communication which
may be or is required or permitted to be given under this Agreement shall be
effective unless the same is in writing and is delivered in person, or sent by
registered or
5
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certified mail, return receipt requested, first-class postage prepaid, (1) if
EMPLOYER to The Cosmetic Center, Inc., 8839 Greenwood Place, Savage, Maryland
20763, Attention: President, with a copy to Revlon Consumer Products
Corporation, 625 Madison Avenue, New York, New York 10022, Attention: Vice
President and Corporate Secretary, and (2) if to EMPLOYEE to 8020 Summer Mill
Court, Bethesda, Maryland 20817, or (effective upon receipt) at any other
address that may be given by one party to the other by notice pursuant to this
Section 20. Such notices, if sent by registered or certified mail, return
receipt requested, first-class postage prepaid, shall be deemed to have given at
the time of mailing.
21. ENTIRE AGREEMENT
This Agreement contains all of the agreements and understandings between
the parties hereto with respect to the employment of EMPLOYEE by EMPLOYER, and
no oral agreements or written correspondence shall be held to affect the
provisions hereof.
22. TERMINATION OF PRIOR AGREEMENTS AND RELEASE. In consideration for
EMPLOYER's execution of this Agreement and for other good and valuable
consideration the receipt and adequacy of which is hereby acknowledged, EMPLOYEE
for himself, his heirs, executors, administrators and assigns, hereby release
and forever discharge EMPLOYER and its predecessors, successors and assigns, and
each of them (collectively, the "Releasees"), from all manner of actions, causes
of action, suits, debts, sums of money, accounts, covenants, controversies,
agreements, promises, damages, judgments, claims and demands whatsoever, at law,
in equity or otherwise, of any nature, whether known or unknown, EMPLOYEE ever
had or may have against each or any of the Releasees arising out of or in
connection with (a) his employment by EMPLOYER or any of its affiliates prior to
the date hereof and (b) any employment agreement, severance agreement and any
other contracts, agreements or commitments prior to the date hereof regarding
salary, bonus, stock options or other compensation relating to such employment,
including, without limitation, that certain Employment Agreement between
EMPLOYEE and EMPLOYER dated February 28, 1991; provided, however that this
release shall not affect and shall not be deemed to affect EMPLOYEE's rights and
the liability of EMPLOYER in respect of claims EMPLOYEE may have (a) for salary
or expense reimbursement in the ordinary course of business through the date
hereof, (b) for indemnification under EMPLOYER's certificate of incorporation
and bylaws and under applicable law, including the General Corporation Law of
Delaware and (c) under EMPLOYER's 1991 Stock Option Plan, the Split-Dollar
Insurance Agreement and that certain Split-Dollar Insurance Benefit Plan
relating to deferred compensation dated as of January 2, 1994 between EMPLOYEE
and EMPLOYER. This release is valid whether any claim or right arises under any
federal, state or local statute (including, without limitation, Title VII of the
Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination
in Employment Act of 1967, the Equal Pay Act, the Americans with Disabilities
Act of 1990, the Employee Retirement Income Security Act of 1974, the Family and
Medical Leave Act of 1993, the Fair Labor Standards Act, and all other statues
regulating the terms and conditions of employment), regulation or ordinance,
under the common law or in equity (including any claims for wrongful discharge
or otherwise), or under any agreement referred to above.
23. PARTIAL INVALIDITY
Should any part of this Agreement for any reason be declared or held
invalid or unenforceable, such invalidity or unenforceability shall not affect
the validity and enforceability of any remaining portion, which remaining
portion shall remain in force and effect as of this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated.
24. AMENDMENTS
Neither this Agreement nor any provision hereof may be amended, modified,
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the amendment,
modification, change, waiver, discharge or termination is sought.
25. BURDEN AND BENEFIT
This Agreement is binding upon, and inures to the benefit of, the parties
hereto and their respective spouses, heirs, executors, administrators, personal
and legal representatives, successors and assigns.
26. COUNTERPARTS
This Agreement may be executed in one or more counterparts and, in such
event, all such counterparts shall constitute originals and all such
counterparts shall constitute a single agreement.
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27. HOLIDAYS, ETC.
Whenever the last day for the performance of any act required by any party
under this Agreement shall fall upon a Saturday, Sunday or legal holiday in the
State of Maryland, the date for the performance of any such act shall be
extended to the next succeeding business day which is not a Saturday, Sunday or
such legal holiday.
28. NO INFERENCE AGAINST AUTHOR.
No provision of this Agreement shall be interpreted against any party
because such party or its legal representative drafted such provision.
IN WITNESS WHEREOF, EMPLOYER has caused this Agreement to be executed and
sealed on its behalf by its duly authorized officers, and EMPLOYEE has hereunto
set his hand and seal, all done as of the day and year hereinabove first
written.
<TABLE>
<S> <C>
ATTEST: EMPLOYER:
THE COSMETIC CENTER, INC.
- ----------------------------- -----------------------------------
Name:
Title:
WITNESS: EMPLOYEE:
- ----------------------------- -----------------------------------
Anita J. Weinstein
</TABLE>
7
EXHIBIT 10(K)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
February , 1997 by and between The Cosmetic Center, Inc., a Delaware
corporation qualified to do business in Maryland with its principal place of
business located at 8839 Greenwood Place, Savage, Maryland 20763 ("EMPLOYER"),
and Anita J. Weinstein, now residing at 8008 Summer Mill Court, Bethesda,
Maryland 20817 ("EMPLOYEE").
RECITALS
1. EMPLOYER is engaged in the specialty retail sale and wholesale
distribution of a wide range of brand name cosmetic, fragrance, skin care and
personal care products.
2. Prior to the date hereof, EMPLOYEE was Vice Chairman, Vice President and
Secretary of EMPLOYER.
3. On the date hereof, Prestige Fragrance & Cosmetics, Inc., a Delaware
corporation engaged in the retail distribution of cosmetics, fragrances, skin
care and personal care products at discounted prices ("PFC"), was merged into
EMPLOYER, with EMPLOYER being the survivor of such merger.
4. From and after the date hereof, EMPLOYER desires to employ and retain
the unique experience, ability and services of EMPLOYEE in the position of a
Vice President of EMPLOYER and EMPLOYEE desires and is willing to undertake and
continue such employment with EMPLOYER, all upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the recitals, and of the mutual
covenants and agreements herein contained, and of other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
EMPLOYER hereby employs EMPLOYEE, and EMPLOYEE hereby accepts employment with
EMPLOYER, upon the terms and conditions set forth in this Agreement:
1. EMPLOYMENT
EMPLOYER hereby employs EMPLOYEE and EMPLOYEE hereby accepts employment as
a Vice President of EMPLOYER. EMPLOYEE will render such services to the
Corporation as are customarily rendered by a Vice President of comparable
publicly held companies. EMPLOYER agrees that EMPLOYEE shall have no obligation
to provide such services outside of the State of Maryland and its surrounding
states (other than any travel required in the ordinary course of providing such
services).
Notwithstanding anything herein to the contrary, it is specifically agreed
that EMPLOYEE's duties and responsibilities hereunder will be rendered on a
part-time basis and nothing in this employment agreement shall prohibit EMPLOYEE
from engaging, directly or indirectly, in activities with other companies,
ventures, or investments in any capacity whatsoever, provided only that such
activities or any of them do not interfere with EMPLOYEE's performance of her
duties hereunder.
2. TERM OF EMPLOYMENT
The term of EMPLOYEE's employment hereunder shall commence on the date
hereof and continue until the fourth anniversary of the date hereof (the
"Term"). On or before the last day of EMPLOYEE's employment hereunder, EMPLOYEE
shall execute and deliver to EMPLOYER a letter of resignation from all offices
then held by EMPLOYEE with EMPLOYER and with any affiliates effective upon said
last day of employment hereunder. This Section 2 is subject to the provisions of
Section 9 of this Agreement.
3. COMPENSATION OF EMPLOYEE
A. COMPENSATION. During the Term, EMPLOYER hereby agrees to pay to EMPLOYEE
for all services to be rendered by EMPLOYEE in any capacity hereunder
(including, but not limited to, services as a Director and officer of EMPLOYER
and/or of any affiliate, and with respect to any other offices, positions and/or
capacities to which she is elected) an annual salary of Fifty Thousand ($50,000)
("Salary") and agrees to pay to EMPLOYEE for the non-competition covenant
pursuant to Section 13 annual payments of Fifty Thousand ($50,000) ("Non-Compete
Payments"), in each case, payable bi-weekly.
B. WITHHOLDING. There shall be deducted from each installment of EMPLOYEE's
Salary and Non-Compete Payments, and from any other payments to or for the
benefit of EMPLOYEE pursuant to this Agreement, all amounts which are at any
time and from time to time by applicable federal, state, county or municipal
laws required to be deducted by reason of
<PAGE>
withholding taxes, Social Security contributions and other requisite
governmental imposed deductions from the income of employees.
C. REIMBURSEMENT FOR BUSINESS EXPENSES. EMPLOYER shall promptly reimburse
EMPLOYEE for all reasonable business, travel and miscellaneous expenses incurred
by EMPLOYEE during the Term in the furtherance of EMPLOYER's business, upon the
submission to EMPLOYER of proper vouchers authenticating such expenditures.
D. VEHICLE. In order to facilitate EMPLOYEE's performance of her duties
under this Agreement, EMPLOYER hereby agrees to furnish EMPLOYEE with the
vehicle furnished as of the date hereof to EMPLOYEE by EMPLOYER. For so long as
EMPLOYER shall furnish EMPLOYEE with such vehicle pursuant to the preceding
sentence, EMPLOYER shall pay directly all properly documented gas, oil, repair,
maintenance and insurance expenses associated with such vehicle. Upon the
earlier of (i) EMPLOYEE's request prior to the termination of this Agreement for
Good Cause or (ii) termination of this Agreement other than for Good Cause,
EMPLOYER shall transfer (without cost other than the payment by EMPLOYEE of any
withholding or transfer taxes) to EMPLOYEE promptly following the date hereof
title to the vehicle previously furnished to EMPLOYEE by EMPLOYER.
4. GROUP INSURANCE BENEFITS
While in the employment of EMPLOYER, EMPLOYEE will be made a party insured
under any policies of group health, life, accident, disability, medical expense
or similar group insurance plans which EMPLOYER may from time to time make
available generally to other employees holding comparable senior management
positions to that of EMPLOYEE and on the same basis as those so employed. All
matters of eligibility for benefits under any plan or plans of group health,
life, accident, disability, medical expense or similar group insurance plans
which EMPLOYER may at any time and from time to time make available shall be
determined in accordance with the provisions of the insurance policies. Upon
termination or expiration of the Term, EMPLOYEE shall be entitled to continued
medical coverage in accordance with the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
5. MEDICAL REIMBURSEMENT. EMPLOYER has established a medical reimbursement
plan for certain of its key executive officers including EMPLOYEE. During the
Term, EMPLOYER shall maintain such plan and shall pay all premiums in connection
with such medical reimbursement plan.
6. SPLIT DOLLAR INSURANCE. At any time during the Term and within 30 days
after the expiration of the Term, EMPLOYEE shall be entitled to terminate that
certain Split-Dollar Insurance Agreement dated June 11, 1992 between EMPLOYER
and The L&A Weinstein Trust (the "Split-Dollar Insurance Agreement") relating to
that certain life insurance policy (New York Life Insurance Policy No. 44505886)
in the face amount of $4,000,000 (the "Policy") in accordance with the terms of
the Split-Dollar Insurance Agreement by payment to the EMPLOYER of an amount
equal to the premiums paid by EMPLOYER through the time of purchase. Until the
earlier of the termination of the Split-Dollar Insurance Agreement as provided
in the prior sentence and the termination of the Term, EMPLOYER shall continue
to pay premiums in accordance with the terms of the Split-Dollar Insurance
Agreement. Unless and until the Split-Dollar Insurance Agreement is terminated
as provided herein, the death benefits under the Policy shall be payable (i) to
EMPLOYER to the extent of the premiums paid by it and (ii) the balance of the
benefit to the beneficiaries designated by EMPLOYEE in accordance with that the
Split-Dollar Insurance Agreement.
7. PROFIT-SHARING AND PENSION PLANS
To the same extent and on the same basis as EMPLOYER makes available
generally to other employees holding comparable senior management positions to
that of EMPLOYEE, EMPLOYEE shall have the right to participate in any profit
sharing or pension plan established by EMPLOYER under the terms and conditions
therein contained (but not including any stock option or bonus plans).
8. VACATIONS
EMPLOYEE shall be entitled each year during the Term to paid vacation time
of four (4) weeks. Any part of such vacation time that is not used during any
year shall not cumulate and shall be forfeited. Upon termination of EMPLOYEE's
employment hereunder, EMPLOYER shall have no obligation to pay EMPLOYEE for any
unused vacation days.
2
<PAGE>
9. TERMINATION OF EMPLOYMENT
A. DEFINITION OF GOOD CAUSE. For purpose of this Agreement, the term "Good
Cause" shall be construed to mean the following: (i) conviction of a felony or
other crime involving moral turpitude or pursuant to which EMPLOYEE is
imprisoned, in each case, that has a material adverse effect on EMPLOYER's
financial condition, assets or operations, (ii) dishonesty of EMPLOYEE after the
date hereof in a material matter that has a material adverse effect on
EMPLOYER's financial condition, assets or operations or (iii) the material
breach by EMPLOYER of any of her obligations or agreements contained in Section
13.
B. TERMINATION FOR GOOD CAUSE WITHOUT RIGHT TO CURE. EMPLOYER shall have
the right to immediately cancel and terminate this Agreement and to immediately
discharge EMPLOYEE for Good Cause which falls within the meanings of Sections
9(A)(i) or (ii).
C. TERMINATION FOR GOOD CAUSE WITH RIGHT TO CURE. Following reasonable
notice and failure to promptly cure, EMPLOYER shall have the right to cancel and
terminate this Agreement and to discharge EMPLOYEE for Good Cause which falls
within the meaning of Section 9(A)(iii); provided, however, that EMPLOYEE shall
not be entitled to cure such a default under Section 9(A)(iii) pursuant to this
Section 9C if EMPLOYEE previously cured a default under the same subparagraph of
Section 9A pursuant to this Section 9C. Any notice provided to EMPLOYEE under
this Section 9C shall be in writing and shall set forth with reasonable
specificity and detail the nature of the default and the specific curative
action which needs to be taken to cure such default if such default is curable.
D. DISABILITY. The inability of EMPLOYEE to render services to EMPLOYER as
a result of any temporary or permanent Disability (as defined below) of EMPLOYEE
shall not constitute a failure by EMPLOYEE to perform her obligations under this
Agreement and shall not be deemed a breach or default by EMPLOYEE hereunder. The
Salary and Non-Compete Payments to be paid to EMPLOYEE during the Term shall
continue and not be terminated if EMPLOYEE incurs a temporary or permanent
Disability during the Term; provided, however, that such Salary and Non-Compete
Payments shall be reduced by any disability payments received by EMPLOYEE from
any insurance policies paid for by EMPLOYER. For purposes of this Agreement,
"Disability" shall mean a mental or physical illness or condition rendering
EMPLOYEE incapable of performing the duties for EMPLOYER required of her under
this Agreement.
E. DEATH. Upon EMPLOYEE's death, EMPLOYER's obligations under the Agreement
shall remain in full force and effect, except that all Salary and Non-Compete
Payments that EMPLOYEE was entitled to receive hereunder in respect to the
balance of the Term shall be paid to EMPLOYEE's estate or successor-in-interest,
as the case may be.
10. EMPLOYEE'S REMEDY FOR BREACH.
A. CANCELLATION OR TERMINATION. If EMPLOYER cancels and terminates this
Agreement and discharges EMPLOYEE prior to the expiration of the Term as
specified in Section 2 without reason or for any reason other than for Good
Cause, then, as EMPLOYEE's sole and exclusive remedy, EMPLOYER shall pay
EMPLOYEE an amount equal to the balance of her Salary and Non-Compete Payments
for the remainder of the Term as specified in Section 2 and EMPLOYEE shall not
be obligated to mitigate EMPLOYEE's damages. Said amount shall be paid to
EMPLOYEE over the remainder of the Term in installments to be paid on the same
schedule as EMPLOYEE was paid immediately prior to EMPLOYEE's discharge, each
installment to be in the same amount EMPLOYEE would have been paid under this
Agreement if EMPLOYEE had not been discharged; provided, however, that if
EMPLOYER shall fail to pay any such installment when due, then, after notice and
failure to cure within five business days, all remaining installments shall be
accelerated and immediately due and payable in full. EMPLOYER agrees that this
provision represents liquidated damages and not a penalty, and that it
represents a reasonable forecast of EMPLOYEE's anticipated and actual economic
damages. Notwithstanding anything herein to the contrary, no such cancellation
or termination of this Agreement shall adversely affect any of EMPLOYEE's rights
or benefits accrued prior to the date of such cancellation or termination or
that are triggered by such cancellation or termination.
B. FAILURE TO PAY SALARY AND NON-COMPETE PAYMENTS WHEN DUE. If EMPLOYER
fails to pay any regular Salary and Non-Compete Payments when due as specified
in Section 3, or to pay accelerated amount due if such Salary and Non-Compete
Payments are accelerated as specified in Section 10A, in addition to such amount
which is due to EMPLOYEE, EMPLOYEE shall be entitled to receive interest on the
unpaid balance thereof at the rate of 15% per annum.
C. CHANGE OF CONTROL. If there is a change of control of EMPLOYER (as
defined below), EMPLOYEE may elect to treat such change in control as a
termination by EMPLOYER without Good Cause except that the payment of an amount
equal to the balance of her Salary and Non-Compete Payments for the balance of
the Term shall be paid in a single lump sum payment (rather than installment
payments as provided in Section 10A). Failure to take any action upon a change
of control for a
3
<PAGE>
period of time up to 180 days shall not be deemed a waiver of EMPLOYEE's right
to treat such change of control as a termination. A "change in control" of
EMPLOYER for purposes of this Agreement shall be deemed to have taken place if
(A) Revlon Consumer Products Corporation together with its affiliates no longer
has the power to vote, directly or indirectly, whether through record or
beneficial ownership, a voting trust arrangement, or other contractual
arrangement, a majority of the voting power of outstanding shares of EMPLOYER or
(B) all or substantially all of EMPLOYER's assets are sold to any person other
than an affiliate, or (C) EMPLOYER is liquidated or dissolved or adopts a plan
of liquidation or (D) EMPLOYER shall: (i) file a voluntary petition in
bankruptcy or file a voluntary petition or otherwise commence any action or
proceeding seeking reorganization, arrangement or readjustment of its debts or
for any other relief under the Federal Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency act or law, state or federal, now or hereafter
existing, or consent to, approve of, or acquiesce in, any such petition, action
or proceeding; (ii) apply for or acquiesce in the appointment of a receiver,
assignee, liquidator, sequestrator, custodian, trustee or similar officer for it
or for all or any part of its Property; (iii) make an assignment for the benefit
of creditors; or (iv) be unable generally to pay its debts as they become due;
or (E) an involuntary petition shall be filed or an action or proceeding
otherwise commenced seeking reorganization, arrangement or readjustment of
EMPLOYER's debts or for any other relief under the Federal Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency act or law, state or
federal, now or hereafter existing and such petition, action or proceeding shall
not be dismissed within 60 days from such filing or commencement. For purposes
of this Section 10C, a "person" includes an individual, corporation,
partnership, trust, association, joint venture, pool, syndicate, unincorporated
organization, joint-stock company, or similar organization or group acting in
concert. A person for these purposes shall be deemed to be a beneficial owner as
that term is used in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
D. SURVIVAL OF REMEDIES. This Section 9 shall survive any termination of
this Agreement other than for Good Cause.
11. ARBITRATION.
Any controversy or claim arising out of or in any way relating to this
Agreement, the performance of the parties thereunder, the termination thereof,
or the breach thereof, shall be settled by arbitration in either Montgomery or
Prince George's County, Maryland, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator may be entered in any court of the State of Maryland
having jurisdiction thereof. The parties agree that any controversy or claim
subject to arbitration will be submitted to a single arbitrator selected from
the panels of Arbitrators of the American Arbitration Rules unless some other
method is agreed to by the parties to this Agreement. Additionally, the
discovery provisions of the Federal Rules of Civil Procedure then in effect
shall apply in any such arbitration and the arbitrator is hereby directed to
enforce such Rules. The losing party in any such arbitration shall pay the
prevailing party's legal fees and costs as well as the costs of the arbitration.
The foregoing agreement to arbitrate shall be specifically enforceable.
12. STOCK OPTIONS.
Upon the termination of EMPLOYEE's employment for any reason, other than
Good Cause, including death or the expiration of this Agreement pursuant to
Section 2, EMPLOYER shall offer to repurchase all unexpired options (whether
vested or not) to purchase securities of EMPLOYER ("Options") from EMPLOYEE or
her estate or other successor-in-interest, as the case may be. The price to be
paid for each such option shall be the excess, if any, of the then Market Price
(as defined below) of EMPLOYER's common stock (or other securities for which the
option is then exercisable) on the date of termination over the option exercise
price. EMPLOYEE (or her estate or other successor-in-interest) shall have the
right to sell all or a portion of such Options to EMPLOYER. EMPLOYER shall
purchase and pay for all such Options within sixty (60) days of the date of
EMPLOYEE's termination.
For the purpose of this Agreement, "Market Price" shall mean the closing
sale price on the date in question of a share of such stock on the composite
tape for the principal United States securities exchange registered under the
Exchange Act on which such stock is listed, or, if such stock is not listed on
any such exchange, the closing sale price or bid quotation with respect to a
share of such stock on the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, or if shares of such stock are not
traded on any United States registered securities exchange or in the
over-the-counter market, the fair market value on the date in question of a
share of such stock as determined by an investment banker selected by a majority
of the members of the Board of Directors of EMPLOYER in good faith.
4
<PAGE>
13. NON-COMPETITION AND CONFIDENTIALITY
A. NON-COMPETITION. In consideration of the knowledge EMPLOYEE has gained
of EMPLOYER's management and overall business operation during her employment
and to prevent unfair competition with EMPLOYER based on this knowledge,
EMPLOYEE agrees that during the Term and for two years thereafter, she will not,
directly or indirectly, for her own benefit, or for or with any person, firm or
corporation whatsoever other than EMPLOYER, own, control, manage or operate
stores similar in respect of products to those operated by EMPLOYER during such
period of employment in Maryland, Virginia, Illinois or the District of Columbia
or within a 50-mile radius of any other city where EMPLOYER is operating retail
stores; provided, however, that nothing herein shall prohibit or restrict
EMPLOYEE from owning up to 1% of the outstanding capital stock of any publicly
traded corporation.
B. CONFIDENTIALITY. EMPLOYEE shall keep confidential any and all nonpublic
information obtained by her during the term of her employment about EMPLOYER and
its affairs, its goods, techniques, processes, procedures, materials, know-how,
labeling, its leases, its relationship to actual and potential customers, and
needs and requirements of any such actual or potential customers and similar
trade information, and she shall make no disclosure thereof to third persons in
a manner that would be injurious to EMPLOYER.
14. NON-ASSIGNABILITY BY EMPLOYEE
EMPLOYEE shall have no right to assign this Agreement or any of its rights
or obligations hereunder to another party or parties.
15. ASSIGNABILITY BY EMPLOYER
EMPLOYER shall have the right to assign this Agreement or any of its rights
or obligations hereunder to any of its affiliates or to any successor to the
business (by merger, consolidation, sale of stock or assets, or otherwise);
provided that no assignment shall release EMPLOYER from its obligations and
liabilities under this Agreement.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland applicable to contracts made and to be performed
therein, without giving effect to the principles of conflicts of law.
17. NON-WAIVER OF BREACH
No failure of either party to exercise any power, right or remedy given
such party hereunder, or to insist upon the strict compliance by the other party
of any obligation, covenant, term, condition, warranty or agreement hereunder,
and no custom or practice at variance with the terms hereof, shall constitute a
waiver of such party's rights to demand exact compliance with the terms hereof.
18. NUMBER AND GENDER
Where text required, words in the singular shall be deemed to include the
plural and vice-versa, and words of any gender shall be deemed to include all
genders.
19. HEADINGS NOT PART OF AGREEMENT
Any headings preceding the text of the several Sections and subparagraphs
of this Agreement are inserted solely for convenience of reference and shall not
constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
20. NOTICES
No notice, request, consent, approval, waiver or other communication which
may be or is required or permitted to be given under this Agreement shall be
effective unless the same is in writing and is delivered in person, or sent by
registered or certified mail, return receipt requested, first-class postage
prepaid, (1) if EMPLOYER to The Cosmetic Center, Inc., 8839 Greenwood Place,
Savage, Maryland 20763, Attention: President, with a copy to Revlon Consumer
Products Corporation, 625 Madison Avenue, New York, New York 10022, Attention:
Vice President and Corporate Secretary, and (2) if to EMPLOYEE to 8008 Summer
Mill Court, Bethesda, Maryland 20817, or (effective upon receipt) at any other
address that may be given by one party to the other by notice pursuant to this
Section 20. Such notices, if sent by registered or certified mail, return
receipt requested, first-class postage prepaid, shall be deemed to have given at
the time of mailing
5
<PAGE>
21. ENTIRE AGREEMENT
This Agreement contains all of the agreements and understandings between
the parties hereto with respect to the employment of EMPLOYEE by EMPLOYER, and
no oral agreements or written correspondence shall be held to affect the
provisions hereof.
22. TERMINATION OF PRIOR AGREEMENTS AND RELEASE. In consideration for
EMPLOYER's execution of this Agreement and for other good and valuable
consideration the receipt and adequacy of which is hereby acknowledged, EMPLOYEE
for himself, her heirs, executors, administrators and assigns, hereby release
and forever discharge EMPLOYER and its predecessors, successors and assigns, and
each of them (collectively, the "Releasees"), from all manner of actions, causes
of action, suits, debts, sums of money, accounts, covenants, controversies,
agreements, promises, damages, judgments, claims and demands whatsoever, at law,
in equity or otherwise, of any nature, whether known or unknown, EMPLOYEE ever
had or may have against each or any of the Releasees arising out of or in
connection with (a) her employment by EMPLOYER or any of its affiliates prior to
the date hereof and (b) any employment agreement, severance agreement and any
other contracts, agreements or commitments prior to the date hereof regarding
salary, bonus, stock options or other compensation relating to such employment;
PROVIDED, HOWEVER that this release shall not affect and shall not be deemed to
affect EMPLOYEE's rights and the liability of EMPLOYER in respect of claims
EMPLOYEE may have (a) for salary or expense reimbursement in the ordinary course
of business through the date hereof, (b) for indemnification under EMPLOYER's
certificate of incorporation and bylaws and under applicable law, including the
General Corporation Law of Delaware and (c) under EMPLOYER's 1991 Stock Option
Plan and the Split-Dollar Insurance Agreement. This release is valid whether any
claim or right arises under any federal, state or local statute (including,
without limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights
Act of 1991, the Age Discrimination in Employment Act of 1967, the Equal Pay
Act, the Americans with Disabilities Act of 1990, EMPLOYEE Retirement Income
Security Act of 1974, the Family and Medical Leave Act of 1993, the Fair Labor
Standards Act, and all other statues regulating the terms and conditions of
employment), regulation or ordinance, under the common law or in equity
(including any claims for wrongful discharge or otherwise), or under any
agreement referred to above.
23. PARTIAL INVALIDITY
Should any part of this Agreement for any reason be declared or held
invalid or unenforceable, such invalidity or unenforceability shall not affect
the validity and enforceability of any remaining portion, which remaining
portion shall remain in force and effect as of this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated.
24. AMENDMENTS
Neither this Agreement nor any provision hereof may be amended, modified,
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the amendment,
modification, change, waiver, discharge or termination is sought.
25. BURDEN AND BENEFIT
This Agreement is binding upon, and inures to the benefit of, the parties
hereto and their respective spouses, heirs, executors, administrators, personal
and legal representatives, successors and assigns.
26. COUNTERPARTS
This Agreement may be executed in one or more counterparts and, in such
event, all such counterparts shall constitute originals and all such
counterparts shall constitute a single agreement.
27. HOLIDAYS, ETC.
Whenever the last day for the performance of any act required by any party
under this Agreement shall fall upon a Saturday, Sunday or legal holiday in the
State of Maryland, the date for the performance of any such act shall be
extended to the next succeeding business day which is not a Saturday, Sunday or
such legal holiday.
28. NO INFERENCE AGAINST AUTHOR.
No provision of this Agreement shall be interpreted against any party
because such party or its legal representative drafted such provision.
6
<PAGE>
IN WITNESS WHEREOF, EMPLOYER has caused this Agreement to be executed and
sealed on its behalf by its duly authorized officers, and EMPLOYEE has hereunto
set her hand and seal, all done as of the day and year hereinabove first
written.
<TABLE>
<S> <C>
ATTEST: EMPLOYER:
THE COSMETIC CENTER, INC.
- --------------------------- ----------------------------
Name:
Title:
WITNESS: EMPLOYEE:
- --------------------------- ----------------------------
Mark S. Weinstein
</TABLE>
7
EXHIBIT 10(L)
CONSULTING AGREEMENT
CONSULTING AGREEMENT (the "Agreement") dated as of [February ], 1997 by
and between The Cosmetic Center, Inc. (hereinafter referred to as the "Company")
and Susan Magenheim (hereinafter referred to as the "Contractor").
WITNESSETH:
1. The Contractor shall, during the Term (as defined below), provide, as an
independent contractor, advisory services, on a part-time basis, in connection
with the business of the Company as may be reasonably requested by the Company
from time to time (the "Services"). The Services shall consist of providing
advisory services relating to all aspects of the business, operations, marketing
and sales of the Company. Such Services shall be performed primarily in Savage,
Maryland or another location to be mutually agreed upon by the Company and the
Contractor.
2. During the Term, the Company shall pay the Contractor as compensation in
full for all Services a fee of Ninety Thousand Dollars ($90,000) per annum (the
"Fee") and agrees to pay to the Contractor for the non-competition covenant
pursuant to Section 7(b) annual payments of Forty-Five Thousand ($45,000)
("Non-Compete Payments"), in each case, payable bi-weekly.
In addition to the Fee and the Non-Compete Payments, the Company shall
reimburse the Contractor for reasonable and documented travel and similar
expenses necessarily incurred by her at the Company's request in connection with
the performance of Services under this Agreement, upon the terms and subject to
the conditions of the Company's policy for reimbursement of business expenses as
in effect from time to time. The Contractor shall submit requests for
reimbursement on the Company's forms in accordance with the Company's policy as
in effect from time to time.
3. To facilitate Contractor's performance of her duties under this
Agreement, the Company hereby agrees to transfer (without cost other than the
payment by Contractor of any withholding or transfer taxes) to Contractor
promptly following the date hereof title to the vehicle furnished as of the date
hereof to Contractor by the Company.
4. (a) It is expressly understood and agreed that the Contractor is an
independent contractor and has full and complete liberty to use her own free
will, judgment and discretion as to the manner of her performance of the
Services hereunder and the Contractor shall not be deemed or construed to be an
employee of the Company. The Contractor shall not be entitled to any benefits of
an employee of the Company such as, but not limited to, worker's compensation,
medical or life insurance, vacation, holiday pay, unemployment insurance and
welfare or pension benefits. The Contractor accepts full and exclusive liability
for the payment of any and all taxes including federal, state and local income
taxes and taxes for unemployment insurance or other social security legislation
now or hereafter imposed by federal or state governments, which are measured by
amounts paid to the Contractor or otherwise arise out of the Services.
5. The Contractor hereby assumes all risk incident to the performance
Services under of this Agreement and all liability for injury or damage to
property or person, including death, that may result from such performance, and
the Contractor agrees to protect, reimburse and save the Company harmless from
all costs, loss, damage or judgments on account of or resulting from any such
injury or damage unless due to the sole negligence of the Company.
6. All information, reports and recommendations that the Contractor may
communicate, disclose or transmit to the Company or to its officers, agents or
employees pursuant to this Agreement shall become the sole property of the
Company. The Contractor agrees to disclose and assign to the Company all
information relating to the Company's business developed by her arising out of
the Services, whether developed solely, jointly or commonly with others, said
information to become and to remain the property of the Company.
7. (a) The Contractor agrees that she will not, at any time during the Term
or at any time thereafter, divulge to any person, firm or company, except to the
Company and its officers or other person or persons designated in writing by an
officer of the Company, any information acquired or developed by her during the
Term pertaining to the Company or any of its affiliates, including any sales,
marketing, advertising, promotional, expansion, acquisition or divestiture plans
as well as all analyses, compilations, studies, reports, recommendations or
other documents prepared by or for the Contractor containing or based in whole
or in part on any information furnished by the Company or developed by the
Contractor with respect to the Company or its business, and the Contractor
further agrees that upon termination of this Agreement she will not, directly or
indirectly, take or use any analyses, compilations, studies, reports,
recommendations or other documents, or any other
<PAGE>
confidential information relating in any way to the Company or the Services, and
shall return all such materials to the Company and certify that she has done so.
(b) In consideration of the knowledge the Contractor has gained of the
Company's management and overall business operation during her services with the
Company and to prevent unfair competition with the Company based on this
knowledge, the Contractor agrees that during the Term and for two years
thereafter, she will not, directly or indirectly, for her own benefit, or for or
with any person, firm or corporation whatsoever other than the Company, own,
control, manage or operate stores similar in respect of products to those
operated by the Company during such period of employment in Maryland, Virginia,
Illinois or the District of Columbia or within a 50-mile radius of any other
city where the Company is operating retail stores; provided, however, that
nothing herein shall prohibit or restrict the Contractor from owning up to 1% of
the outstanding capital stock of any publicly traded corporation.
8. No agreement not expressed herein shall be binding upon the Contractor
or the Company unless signed by the parties.
9. This Agreement calls for the personal services of the Contractor and may
not be assigned by the Contractor. This Agreement may be assigned by the Company
to any of its affiliates or to any successor to the business (by merger,
consolidation, sale of stock or assets, or otherwise); provided that no
assignment shall release the Company from its obligations and liabilities under
this Agreement.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland applicable to contracts made and to be
performed therein, without giving effect to the principles of conflicts of law.
Any controversy or claim arising out of or in any way relating to this
Agreement, the performance of the parties thereunder, the termination thereof,
or the breach thereof, shall be settled by arbitration in either Montgomery or
Prince George's County, Maryland, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator may be entered in any court of the State of Maryland
having jurisdiction thereof. The parties agree that any controversy or claim
subject to arbitration will be submitted to a single arbitrator selected from
the panels of Arbitrators of the American Arbitration Rules unless some other
method is agreed to by the parties to this Agreement. Additionally, the
discovery provisions of the Federal Rules of Civil Procedure then in effect
shall apply in any such arbitration and the arbitrator is hereby directed to
enforce such Rules. The losing party in any such arbitration shall pay the
prevailing party's legal fees and costs as well as the costs of the arbitration.
The foregoing agreement to arbitrate shall be specifically enforceable.
11. In consideration for the Company's execution of this Agreement and for
other good and valuable consideration the receipt and adequacy of which is
hereby acknowledged, the Contractor for herself, her heirs, executors,
administrators and assigns, hereby release and forever discharge the Company and
its parent, subsidiaries, affiliates, predecessors, successors and assigns, and
each of their respective directors, officers, employees and agents
(collectively, "Releasees"), from all manner of actions, suits, debts, sums of
money, accounts, covenants, controversies, agreements, promises, damages,
judgments, claims, demands or causes of action whatsoever, at law, in equity or
otherwise, of any nature, whether known or unknown, she ever has had, or can,
shall or may have against each or any of Releasees based upon, arising out of or
in connection with (a) her employment by the Company prior to the date hereof
and (b) any employment agreement, prior severance agreement and any other prior
contracts, agreements or commitments prior to the date hereof regarding salary,
bonus, stock options, stock appreciation rights or other compensation relating
to or arising out of such employment; provided, however that this release shall
not affect and shall not be deemed to affect the Contractor's rights and the
liability of the Company in respect of claims the Contractor may have (a) for
salary or expense reimbursement in the ordinary course of business as an
employee of the Company prior to the date hereof or (b) for indemnification
under the Company's certificate of incorporation and bylaws and under applicable
law, including the General Corporation Law of Delaware in connection with her
services as an employee of the Company prior to the date hereof. This release is
valid whether any claim or right arises under any federal, state or local
statute (including, without limitation, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of
1967, the Equal Pay Act, the Americans with Disabilities Act of 1990, the
Employee Retirement Income Security Act of 1974, the Family and Medical Leave
Act of 1993, the Fair Labor Standards Act, and all other statutes regulating the
terms and conditions of employment), regulation or ordinance, under the common
law or in equity (including any claims for wrongful discharge or otherwise), or
under any agreement referred to above.
12. This Agreement is the entire agreement between the Company and the
Contractor with respect to her consultancy relationship with the Company and
supersedes any prior agreements or undertakings, written or oral. This Agreement
shall be binding upon and inure to the benefit of the Company's and the
Contractor's respective successors, heirs and permitted assigns.
2
<PAGE>
13. (a) This Agreement shall take effect on the date first above written
and continue through the fourth anniversary of the date hereof unless terminated
as hereinafter provided (the "Term"). The Company shall have the right to
immediately cancel and terminate this Agreement for Good Cause which falls
within the meanings of Sections 13(b)(i) or (ii). Following reasonable notice
and failure to promptly cure, the Company shall have the right to cancel and
terminate this Agreement for Good Cause which falls within the meaning of any
one or more of Section 13(b)(iii); provided, however, that the Contractor shall
not be entitled to cure such a default under Section 13(b)(iii) pursuant to this
Section 13(a) if the Contractor previously cured a default under the same
subparagraph of Section 13(b) pursuant to this Section 13(a). Any notice
provided to the Contractor under this Section 13(a) shall be in writing and
shall set forth with reasonable specificity and detail the nature of the default
and the specific curative action which needs to be taken to cure such default if
such default is curable.
(b) For purpose of this Agreement, the term "Good Cause" shall be construed
to mean the following: (i) conviction of a felony or other crime involving moral
turpitude or pursuant to which the Contractor is imprisoned, in each case, that
has a material adverse effect on the Company's financial condition, assets or
operations, (ii) dishonesty of the Contractor after the date hereof in a
material matter that that has a material adverse effect on the Company's
financial condition, assets or operations or (iii) the material breach by the
Contractor of any of her obligations or agreements contained in Section 6 or 7.
(c) The inability of the Contractor to render the Services to the Company
as a result of any temporary or permanent Disability (as defined below) of the
Contractor shall not constitute a failure by the Contractor to perform her
obligations under this Agreement and shall not be deemed a breach or default by
the Contractor hereunder. The Fee and Non-Compete Payments to be paid to the
Contractor during the Term shall continue and not be terminated if the
Contractor incurs a temporary or permanent Disability during the Term. For
purposes of this Agreement, "Disability" shall mean a mental or physical illness
or condition rendering the Contractor incapable of performing the Services for
the Company required of her under this Agreement.
(d) If the Company cancels and terminates this Agreement prior to the
expiration of the Term for any reason other than for Good Cause, then, as the
Contractor's sole and exclusive remedy, the Company shall pay the Contractor an
amount equal to the balance of her Fee and Non-Compete Payments for the
remainder of the Term as specified in Section 2 and the Contractor shall not be
obligated to mitigate the Contractor's damages. Said amount shall be paid to the
Contractor over the remainder of the Term in installments to be paid on the same
schedule as the Contractor was paid immediately prior to the termination of this
Agreement, each installment to be in the same amount the Contractor would have
been paid under this Agreement if the Agreement had not been terminated;
provided, however, that if the Company shall fail to pay any such installment
when due, then, after notice and failure to cure within five (5) business days,
all remaining installments shall be accelerated and immediately due and payable
in full. The Company agrees that this provision represents liquidated damages
and not a penalty, and that it represents a reasonable forecast of the
Contractor's anticipated and actual economic damages.
(e) If the Company fails to pay the Fee and Non-Compete Payments when due
as specified in Section 2, or to pay accelerated amount due if such Fee and
Non-Compete Payments are accelerated as specified in Section 13(d) or (f), in
addition to such amount which is due to the Contractor, the Contractor shall be
entitled to receive interest on the unpaid balance thereof at the rate of 15%
per annum.
(f) If there is a change of control (as defined below) of the Company, the
Contractor may elect to treat such change in control as a termination by the
Company without Good Cause except that the payment of an amount equal to the
balance of the Fee and Non-Compete Payments shall be paid in a single lump sum
payment (rather than installment payments as provided in Section 13(d). Failure
to take any action upon a change of control for a period of time up to 180 days
shall not be deemed a waiver of the Contractor's right to treat such change of
control as a termination. A "change in control" of the Company for purposes of
this Agreement shall be deemed to have taken place if (A) Revlon Consumer
Products Corporation together with its affiliates no longer has the power to
vote, directly or indirectly, whether through record or beneficial ownership, a
voting trust arrangement, or other contractual arrangement, a majority of the
voting power of outstanding shares of the Company or (B) all or substantially
all of the Company's assets are sold to any person other than an affiliate, or
(C) the Company is liquidated or dissolved or adopts a plan of liquidation or
(D) the Company shall: (i) file a voluntary petition in bankruptcy or file a
voluntary petition or otherwise commence any action or proceeding seeking
reorganization, arrangement or readjustment of its debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing, or consent
to, approve of, or acquiesce in, any such petition, action or proceeding; (ii)
apply for or acquiesce in the appointment of a receiver, assignee, liquidator,
sequestrator, custodian, trustee or similar officer for it or for all or any
part of its Property; (iii) make an assignment for the benefit of creditors; or
(iv) be unable generally to pay its debts as they become due; or (E) an
involuntary petition shall be filed or an action or proceeding otherwise
commenced seeking reorganization, arrangement or readjustment of the Company's
debts or
3
<PAGE>
for any other relief under the Federal Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency act or law, state or federal, now or hereafter
existing and such petition, action or proceeding shall not be dismissed within
60 days from such filing or commencement. For purposes of this Section 13(f), a
"person" includes an individual, corporation, partnership, trust, association,
joint venture, pool, syndicate, unincorporated organization, joint-stock
company, or similar organization or group acting in concert. A person for these
purposes shall be deemed to be a beneficial owner as that term is used in Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
14. The Contractor acknowledges and agrees that in the event of any breach
of Section 6 or 7 of this Agreement, the Company would be irreparably and
immediately harmed and could not be made whole by monetary damages. It is
accordingly agreed that the Company, in addition to any other remedy to which it
may be entitled in law or equity (including the right to terminate any payments
pursuant to this Agreement), shall be entitled to seek an injunction, without
the posting of any bond or other security, enjoining or restraining the
Consultant from any violation or threatened violation of Section 6 or 7.
15. If any of the provisions of this Agreement shall contravene or be
invalid under the laws of any state or other jurisdiction where its is
applicable but for such contravention or invalidity, such contravention or
invalidity shall not invalidate all of the provisions of this Agreement but
rather it shall be construed, insofar as the laws of that state or jurisdiction
are concerned, as not containing the provision or provisions contravening or
invalid under the laws of the state or jurisdiction, and the rights and
obligations created hereby shall be construed and enforced accordingly.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed and delivered as of the date first above written.
THE COSMETIC CENTER, INC.
By: _________________________________
Name:
Title:
AGREED TO AND ACCEPTED:
- -------------------------
Susan Magenheim
4
EXHIBIT 10(M)
AMENDMENT
THIS AMENDMENT ("Amendment") is entered into as of October 15, 1996 between
The Cosmetic Center, Inc., formerly known as Cosmetic & Fragrance Concepts,
Inc., ("EMPLOYER" or "COMPANY") and Ben S. Kovalsky ("EMPLOYEE" or "KOVALSKY").
RECITALS:
R-1. The parties entered into an Employment Agreement dated February 28,
1991 ("Employment Agreement").
R-2. On October 1, 1996 the COMPANY entered into a letter of intent with
Revlon Consumer Products Corporation ("Revlon") to merge its wholly owned
subsidiary, Prestige Fragrance & Cosmetic, Inc. ("PFC") into the COMPANY. After
the merger the COMPANY will consist of two groups -- The Cosmetic Center Group
and the PFC Group.
R-3. In order to ensure a smooth transition after the merger, Revlon has
requested that the COMPANY ensure KOVALSKY'S continued employment for at least
six (6) months after the merger.
R-4. In consideration of the COMPANY amending the Employment Agreement as
provided for herein KOVALSKY has agreed to continue his employment for at least
six (6) months after the merger.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby reciprocally acknowledged, the parties agree as follows:
1. EFFECTIVE DATE. The "Effective Date" of this Amendment shall be the date
PFC is merged into the COMPANY.
2. CONTINUATION OF EMPLOYMENT. Notwithstanding anything in the Employment
Agreement to the contrary, including without limitation, Sections 1, 2 and 10 C,
as of the Effective Date KOVALSKY agrees to assume the newly created position of
President and Chief Operating Officer of The Cosmetic Center Group, in lieu of
his present position as President, Chief Executive and Chief Operating Officer
of the COMPANY, and to continue in such position for a period of at least six
(6) months from the Effective Date of this Amendment ("Minimum Employment
Period").
3. COMPENSATION OF EMPLOYEE. As of the Effective Date, Paragraphs 3 A and B
of the Employment Agreement shall no longer be applicable and the following
shall apply in lieu thereof:
"EMPLOYER hereby agrees to pay to EMPLOYEE for all services to be rendered
by EMPLOYEE in his capacity as President and Chief Operation Officer of The
Cosmetic Center Group of EMPLOYER an annual base salary ("Base Salary") of Two
Hundred Twenty Five Thousand Dollars ($225,000.00). In addition, Employee shall
be paid an annual amount of One Hundred Thousand Dollars ($100,000.00), which
amount shall be paid, less all amounts required by law to be withheld, in the
same number of installments and at the same time, as the Base Salary in
consideration for the non-competition covenant contained in the Employment
Agreement ("the Non-Competition Payments").
4. TERMINATION PAYMENT. Upon the Effective Date, Section 10 of the
Employment Agreement shall be deemed deleted, and in lieu thereof, the following
shall apply:
A. CANCELLATION OR TERMINATION. In the event EMPLOYER cancels and
terminates this Employment Agreement and discharges EMPLOYEE prior to the
expiration of the term of this Employment Agreement as specified in Section
2 of this Amendment for any reason other than for Good Cause or EMPLOYEE
terminates his employment with EMPLOYER at any time after the end of the
Minimum Employment Period, then EMPLOYER shall pay to EMPLOYEE a lump-sum
payment equal to the remainder of his Base Salary and Non-Competition
Payments that would be due through the end of the Term (without giving
effect to EMPLOYEE'S termination), which payment shall be made to EMPLOYEE
within thirty (30) days of the date of such termination. For illustrative
purposes only, if the Effective Date occurs on January 31, 1997 and
EMPLOYEE either terminates or is terminated from his employment with
EMPLOYER on September 30, 1997, EMPLOYEE shall be entitled to a lump-sum
payment equal to twenty nine (29) months of remaining Base Salary and
Non-Competition Payments (i.e. $785,416.65). EMPLOYEE shall not be
obligated to mitigate EMPLOYEE'S damages in the event of termination by
EMPLOYER. EMPLOYER agrees that this provision with respect to a termination
by EMPLOYER represents liquidated damages and not a penalty, and that it
represents a reasonable forecast of EMPLOYEE's anticipated and actual
economic damages as well as including reasonable compensation of
$100,000.00 per year to EMPLOYEE in consideration for the Non-Compete
provision contained in the Employment Agreement. EMPLOYER agrees that this
provision with respect to a termination by EMPLOYEE after the Minimum
Employment Period represents reasonable severance in light of EMPLOYEE'S
prior service to
<PAGE>
EMPLOYER as well as including reasonable compensation of $100,000.00 per
year to EMPLOYEE in consideration for the Non-Compete provision contained
in the Employment Agreement. In the event EMPLOYER cancels and terminates
this Agreement and discharges EMPLOYEE prior to the expiration of the term
of this Agreement as specified in Section 2 for Good Cause or EMPLOYEE
terminates his employment with EMPLOYER at any time prior to the end of the
Minimum Employment Period, EMPLOYER shall have no obligation to make any
payment or provide any benefits hereunder for any period subsequent to the
date of such termination or resignation, except as required by law.
B. FAILURE TO PAY SALARY WHEN DUE. In the event EMPLOYER fails to pay
any regular Base Salary and Non-Competition Payments when due as specified
in Section 3 hereof, or to pay accelerated amount due if such Base Salary
and Non-Competition Payments are accelerated as specified in Section 10A,
IN ADDITION TO SUCH AMOUNT WHICH IS DUE TO EMPLOYEE, EMPLOYEE SHALL BE
ENTITLED TO RECEIVE INTEREST ON THE UNPAID BALANCE THEREOF AT THE RATE OF
15% PER ANNUM.
C. SURVIVAL OF REMEDIES. This Section 10 shall survive any termination
of this Agreement other than for Good Cause.
5. AUTOMOBILE. Upon expiration of the Employment Agreement, termination by
EMPLOYEE after the end of the Minimum Employment Period, or termination by
EMPLOYER at any time during the Term other than for Good Cause, the COMPANY
shall transfer to KOVALSKY title to the COMPANY'S 1993 Lexus 400 which is
presently being used by KOVALSKY.
6. CONTINUATION OF BENEFITS. For a period of one year following expiration
of the Employment Agreement, termination by EMPLOYEE after the end of the
Minimum Employment Period, or termination by EMPLOYER at any time during the
Term other than for Good Cause, the COMPANY shall continue to provide and/or pay
the Medical Reimbursement and Insurance Reimbursement in accordance with
Paragraphs 5 and 6 of the Employment Agreement to the same extent as if KOVALSKY
remained employed by the COMPANY. Upon expiration of the Employment Agreement,
termination by EMPLOYEE after the end of the Minimum Employment Period, or
termination by EMPLOYER at any time during the Term other than for Good Cause,
the COMPANY shall pay KOVALKSY the sum of $8,100.00 in consideration for the
Group Insurance Benefits being lost by KOVALSKY as a result of such termination.
7. STOCK OPTIONS. Upon the Effective Date, Paragraph 12 of the Employment
Agreement shall be deemed deleted, and in lieu thereof, the following shall
apply:
"Upon expiration of the Employment Agreement, termination by EMPLOYEE after
the end of the Minimum Employment Period, termination by EMPLOYER at any time
during the Term other than for Good Cause or EMPLOYEE'S death, EMPLOYER shall
offer to repurchase all unexpired options (whether vested or not) to purchase
securities of the EMPLOYER ("Options") from EMPLOYEE or his estate or other
successor-in-interest, as the case may be. The price to be paid for each such
option shall be the excess, if any, of (A) the greater of (i) the then Market
Price (as defined below) of EMPLOYER's common stock (or other securities for
which the option is then exercisable) on the date of termination or (ii) $7.63
over (B) the option exercise price. EMPLOYEE (or his estate or other
successor-in-interest) shall have the right to sell all or a portion of such
Options to EMPLOYER. EMPLOYER shall purchase and pay for all such Options within
sixty (60) days of the date of EMPLOYEE's termination.
For the purpose of this Agreement, "Market Price" shall mean the closing
sale price on the date in question of a share of such stock on the composite
tape for the principal United States securities exchange registered under the
Securities Exchange Act of 1934 (the "Exchange Act") on which such stock is
listed, or, if such stock is not listed on any such exchange, the closing sale
price or bid quotation with respect to a share of such stock on the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, or if shares of such stock are not traded on any United States
registered securities exchange or in the over-the-counter market, the fair
market value on the date in question of a share of such stock as determined by
an investment banker selected by a majority of the members of the board of
Directors of EMPLOYER in good faith."
8. DEFERRED COMPENSATION. Upon expiration of the Employment Agreement or
termination, EMPLOYER shall pay to EMPLOYEE, the deferred compensation liability
established by EMPLOYER for EMPLOYEE in accordance with generally accepted
accounting principles less all amounts required by law to be withheld. In
addition, within thirty (30) days of any termination referred to in the
preceding sentence, EMPLOYEE shall have the right to purchase EMPLOYER'S
interest in the Guardian Life Insurance Policy on EMPLOYEE and his wife by
paying to EMPLOYER the amount of premiums paid to date of such policy on the
date of EMPLOYEE'S termination.
2
<PAGE>
9. CONFIRMATION OF TERMS. All of the terms, covenants and conditions of the
Employment Agreement, except as are herein specifically modified and amended,
shall remain in full force and effect and are hereby adopted and reaffirmed by
the parties hereto. In the event of any conflict between the terms of this
Amendment and the Employment Agreement, the terms of this Amendment shall
control.
IN WITNESS WHEREOF, the COMPANY has caused this Amendment to be executed
and sealed on its behalf by its duly authorized officers, and KOVALSKY has
hereunto set his hand and seal, all done as of the day and year hereinabove
first written.
EMPLOYER:
ATTEST: THE COSMETIC CENTER, INC.
(SEAL)
- ------------------------------ -----------------------------------------------
Mark Weinstein
Chairman
WITNESS: EMPLOYEE:
(SEAL)
- ------------------------------ -----------------------------------------------
Ben S. Kovalsky
3
EXHIBIT 10(N)
================================================================================
SUPPLY AGREEMENT
BY AND BETWEEN
REVLON CONSUMER PRODUCTS CORPORATION
AND
THE COSMETIC CENTER, INC.
DATED AS OF [FEBRUARY ], 1997
================================================================================
<PAGE>
SUPPLY AGREEMENT
AGREEMENT (this "Agreement") dated as of [February ], 1997 between Revlon
Consumer Products Corporation, a Delaware corporation ("Revlon"), and The
Cosmetic Center, Inc., a Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, prior to the date hereof, Revlon supplied to its wholly owned
subsidiary, Prestige Fragrance & Cosmetics Inc., a Delaware corporation ("PFC"),
certain cosmetics, fragrances, skin care and personal care products;
WHEREAS, pursuant to that certain Merger Agreement dated as of November ,
1996 (the "Purchase Agreement"), by and among Revlon, PFC and Buyer,
contemporaneously with the execution and delivery of this Agreement, PFC was
merged with and into Buyer, with Buyer being the survivor of such Merger;
WHEREAS, in connection with the foregoing, Buyer desires to purchase from
Revlon, and Revlon is willing to sell, or cause to be sold, to Buyer for resale
at Buyer's Cosmetic Center retail stores ("Cosmetic Center Stores") and PFC
retail stores ("PFC Stores") certain cosmetics, fragrances, skin care and
personal care products as provided for in this Agreement, for the consideration
and upon and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE 1.
SALE OF PRODUCTS
SECTION 1.01 SALE OF PRODUCTS. Subject to the terms and conditions of this
Agreement, for a period of four (4) years from the date hereof (the "Supply
Term"), Revlon will sell, or will cause to be sold, to Buyer its requirements of
(a) cosmetics, fragrances, skin care and personal care products manufactured and
sold by Revlon ("Revlon Products") that are first quality and on Revlon's then
current order form ("First Quality Products"), (b) Revlon Products that have
been returned to Revlon and which are coded in Revlon's inventory system as
"211" merchandise or have been discontinued or are no longer on Revlon's then
current order form and which are coded in Revlon's inventory system as "261"
merchandise (collectively, "Returned/Discontinued Products") and (c) First
Quality Products that are in excess of Revlon's needs ("Excess Products").
Notwithstanding anything herein to the contrary, Revlon's obligation to
supply Revlon Products pursuant to this Agreement shall be subject in its
entirety to the availability of such Revlon Products and, if and to the extent
that there are limited supplies of Revlon Products, Revlon shall be entitled to
allocate such limited supplies of any such Revlon Products among its customers
(including any subsidiaries or affiliates of Revlon) in its sole and absolute
discretion. Revlon shall have no obligation hereunder to manufacture any Revlon
Products in order to fulfill any orders for Revlon Products submitted by Buyer.
SECTION 1.02 SELLING PRICE OF REVLON PRODUCTS. During the Supply Term, the
purchase price (the "Prices") for the Revlon Products shall be as follows: (a)
the purchase price for First Quality Products shall be Revlon's normal trade
prices; (b) the purchase price for Returned/Discontinued Products shall be
Revlon's fully allocated cost of goods plus 8.1%; and (c) the purchase price for
Excess Products shall be at a price mutually acceptable to Revlon and Buyer.
SECTION 1.03 SHIPMENT OF REVLON PRODUCTS; BUYER'S TITLE. Revlon shall ship
or cause to be shipped any Revlon Products purchased by Buyer pursuant to this
Agreement FOB Revlon's manufacturing or warehouse facilities (for purposes of
price, payment and risk of loss). Buyer shall take title to Revlon Products
purchased by Buyer pursuant to this Agreement upon shipment as provided in this
Section 1.03, F.O.B. Revlon's manufacturing or warehouse facilities.
SECTION 1.04 REJECTS AND RETURNS; PRODUCT WARRANTIES.
(a) Revlon represents and warrants that the First Quality Products and
Excess Products (i) were manufactured in accordance with all applicable laws,
statutes, ordinances and regulations in effect from time to time, including,
without limitation, any such laws relating to protection of the environment and
(ii) will conform to the specifications therefor and to all applicable
governmental rules and regulations. Except with respect to latent or hidden
defects, the representations and warranties of Revlon contained in this Section
1.04(a) shall not survive any inspection, delivery, acceptance or payment by
Buyer for such Revlon Products. REVLON MAKES NO WARRANTIES OF MERCHANTABILITY OR
OF FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER EXPRESS OR IMPLIED WARRANTY,
EXCEPT AS SET FORTH ABOVE. WITH RESPECT TO ANY RETURNED/DISCONTINUED PRODUCTS,
BUYER TAKES SUCH PRODUCTS "AS IS" AND REVLON MAKES NO WARRANTIES OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER EXPRESS OR
IMPLIED WARRANTY.
<PAGE>
(b) No Revlon Product may be returned to Revlon (or its designee) unless
Revlon has authorized the return in writing, provided, however, that Revlon will
accept returns of First Quality Products and Excess Products that were defective
at the time of shipment if Buyer gives Revlon notice of such defect within ten
(10) days following the date of delivery to Buyer with respect to any defect
apparent on the surface, and within ninety (90) days after the date of delivery
with respect to any latent or hidden defect. Revlon shall not in any event be
responsible for any defect, damage or deficiency that arises following shipment
FOB Revlon's facilities.
SECTION 1.05 RESALE OF REVLON PRODUCTS. Buyer agrees that any Revlon
Products purchased by Buyer pursuant to this Agreement will be sold by Buyer
only in retail stores and that any Returned/Discontinued Products will be sold
only in PFC Stores. Without limiting the generality of the foregoing, Buyer
agrees that it shall not sell any Returned/Discontinued Products in Cosmetic
Center Stores and will not sell any Revlon Products through wholesale channels
of distribution or to any third parties (other than retail customers of its
retail stores). If requested by Revlon, Buyer agrees to provide to Revlon and
its representatives access to its facilities, management and books and records
at reasonable times upon advance notice and in a manner which is not disruptive
to Buyer's operations in order to permit Revlon to monitor compliance with this
Section 1.05.
ARTICLE 2
PROVISIONS OF GENERAL APPLICATION
SECTION 2.01 PAYMENT OF PRICE. Buyer shall pay the Price against Revlon's
detailed invoice and supporting documentation including item, quantity and
shipment dates net 30 days after shipment.
SECTION 2.02 EARLY TERMINATION. (a) Notwithstanding anything herein to the
contrary, if there is a change of control (as defined below) of Buyer at any
time after of the date hereof but prior to the end of the Supply Term, Revlon
may terminate this Agreement upon not less than one year' prior written notice
to Buyer; provided, however, that in no event may Revlon terminate this
Agreement prior to the second anniversary of the date hereof. A "change in
control" of Buyer for purposes of this Agreement shall be deemed to have taken
place if (A) Revlon together with its affiliates no longer has the power to
vote, directly or indirectly, whether through record or beneficial ownership, a
voting trust arrangement, or other contractual arrangement, a majority of the
voting power of outstanding shares of Buyer or (B) all or substantially all of
Buyer's assets are sold to any person other than an affiliate. For purposes of
this Section 2.02, a "person" includes an individual, corporation, partnership,
trust, association, joint venture, pool, syndicate, unincorporated organization,
joint-stock company, or similar organization or group acting in concert. A
person for these purposes shall be deemed to be a beneficial owner as that term
is used in Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
(c) Notwithstanding anything to the contrary, Revlon may terminate this
Agreement (A) upon 30 days' prior written notice if Buyer is in default of the
provisions of Section 1.05, (B) immediately if Buyer is liquidated or dissolved
or adopts a plan of liquidation or (C) immediately if Buyer shall: (i) file a
voluntary petition in bankruptcy or file a voluntary petition or otherwise
commence any action or proceeding seeking reorganization, arrangement or
readjustment of its debts or for any other relief under the Federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency act or law, state
or federal, now or hereafter existing, or consent to, approve of, or acquiesce
in, any such petition, action or proceeding; (ii) apply for or acquiesce in the
appointment of a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for it or for all or any part of its Property; (iii)
make an assignment for the benefit of creditors; or (iv) be unable generally to
pay its debts as they become due; or (D) immediately if an involuntary petition
shall be filed or an action or proceeding otherwise commenced seeking
reorganization, arrangement or readjustment of Buyer's debts or for any other
relief under the Federal Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency act or law, state or federal, now or hereafter existing
and such petition, action or proceeding shall not be dismissed within 60 days
from such filing or commencement.
SECTION 2.03 ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Neither party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the written consent of the other party hereto, except
that Revlon may assign, delegate or otherwise transfer any or all of its rights
or obligations under this Agreement to any of its affiliates or to any successor
to its business (by merger, consolidation, sale of stock or assets, or
otherwise); provided that no assignment shall release Revlon from its
obligations and liabilities under this Agreement.
SECTION 2.04 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, understandings and negotiations, both
written and
2
<PAGE>
oral, between the parties with respect to the subject matter of this Agreement.
No representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. No
agreement or understanding modifying or amending this Agreement shall be binding
upon either party hereto unless in writing and signed by a duly authorized
officer thereof.
SECTION 2.05 THIRD PARTIES. Except as otherwise provided herein, this
Agreement is not intended to and shall not confer upon any other Person other
than the parties hereto and their affiliates, any rights or remedies with
respect to the subject matter hereof.
SECTION 2.06 NOTICES. Any notice or other communication required or
permitted hereunder shall be made in writing and shall be delivered personally,
sent by certified or registered mail (postage prepaid), or sent by facsimile
transmission, and shall be deemed given when so delivered personally, sent by
facsimile transmission, or, if mailed, four days after the date of deposit in
the United States mails. All communications hereunder shall be delivered to the
respective parties at the following addresses (or to such other person or at
such other address for a party as shall be specified by like notice, provided
that notices of a change of address shall be effective only upon receipt
thereof):
(c) If to Revlon, to:
Revlon Consumer Products Corporation
625 Madison Avenue
New York, New York 10022
Attention: Vice President and Corporate Secretary
and by telecopy to: (212) 527-5693
(d) If to Buyer, to:
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Attention: President
and by telecopy to:
SECTION 2.07 GOVERNING LAW. The parties hereto agree that all of the
provisions of this Agreement and any questions concerning its interpretation and
enforcement shall be governed by the laws of the State of New York applicable to
agreements executed in New York to be wholly performed in New York by residents
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first above written.
REVLON CONSUMER PRODUCTS CORPORATION
By: ___________________________________
Name:
Title:
THE COSMETIC CENTER, INC.
By: ___________________________________
Name:
Title:
3
EXHIBIT 10(O)
================================================================================
SERVICES AGREEMENT
BY AND BETWEEN
THE COSMETIC CENTER, INC.
AND
REVLON CONSUMER PRODUCTS CORPORATION
DATED AS OF FEBRUARY , 1997
================================================================================
<PAGE>
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement"), dated as of [FEBRUARY ,]
1997, is by and between The Cosmetic Center, Inc. ("Cosmetic Center") and Revlon
Consumer Products Corporation ("Revlon"), each a Delaware corporation.
WHEREAS, Cosmetic Center is a majority owned subsidiary of Revlon; and
WHEREAS, Cosmetic Center desires to utilize certain services of Revlon and,
in addition, Revlon is willing to purchase certain goods and services on behalf
of Cosmetic Center;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. SERVICES
1.1 CONTINUING SERVICES. Revlon agrees to provide to Cosmetic Center, and
Cosmetic Center agrees to purchase from Revlon, the following services
(individually a "Continuing Service" and collectively the "Continuing Services")
as and to the extent requested by Cosmetic Center (each of the subsections below
being referred to herein as a "Service Group"):
(a) Revlon's senior executive management personnel for overall
executive advice and services;
(b) Revlon's treasury staff for financial advice and services,
including assistance with respect to matters such as financing, raising
capital, and daily cash management and investment services;
(c) Revlon's legal staff for general legal advice and services,
including assistance with respect to claims which may be asserted or become
the subject of litigation, the preparation and review of contracts and
disclosure documents required by federal laws and general consultation with
respect to legal and administrative proceedings and matters;
(d) Revlon's human resources staff for advice and assistance with
personnel matters, including, without limitation, wage and salary
administration, employee relations and administration of pension plans and
other employee benefit plans;
(e) Revlon's controller's staff for accounting, bookkeeping and
auditing advice and services, including, without limitation, assistance in
the preparation and review of financial statements, and assistance in the
preparation and review of disclosure documents required by federal
securities laws;
(f) Revlon's tax staff for general tax advice and services, including,
without limitation, assistance in the preparation of federal, state, local
and foreign tax returns;
(g) Revlon's real estate staff for administration and assistance in
matters relating to real estate, including the administration of real
estate leases;
(h) Revlon's management information staff for administration and
assistance in matters relating to management information and computer
systems;
(i) Revlon's corporate information staff for advice and assistance in
matters relating to public relations and investor relations and in
organizational matters associated with stockholders' meetings and meetings
of the board of directors;
(j) Revlon's risk management staff for advice and assistance with
respect to risk management and insurance matters (including, if
appropriate, arranging for Cosmetic Center's participation in Revlon's
insurance plans and policies); and
(k) the services of certain hourly employees of Revlon or its
subsidiaries for the performance of warehousing and distribution functions
at Cosmetic Center's leased distribution facility in Holmdel, New Jersey.
1.2 THIRD PARTY SERVICES. Commencing on the date hereof, and for the term
of this Agreement and as agreed upon by Cosmetic Center and Revlon, Revlon shall
provide to Cosmetic Center services purchased by Revlon from third party
providers (the "Third Party Services") as and to the extent requested by
Cosmetic Center, including, but not limited to, insurance coverage and the
services of attorneys, accountants and other consultants.
1.3 LIMITATION OF SERVICES. Notwithstanding any other provision of this
Agreement: Revlon need not make available any service agreed to be provided
herein to the extent doing so would (i) unreasonably interfere with the
performance of services for Revlon by an employee of Revlon or otherwise cause
an unreasonable burden to Revlon or (ii) unreasonably interfere with the use of
or access to any equipment, office space or facility by Revlon or otherwise
cause an unreasonable burden to Revlon. In addition, Revlon need not make
available any service agreed to be provided herein to the extent that Revlon
discontinues such service within its organization.
<PAGE>
1.4 NO EMPLOYMENT RELATIONSHIP: It is understood and agreed that each of
the Revlon staff members and hourly employees providing a Continuing Service to
Cosmetic Center pursuant to this Agreement shall be employed solely and
exclusively by Revlon. Revlon shall have sole authority over the wages, hours
and working conditions of said Revlon staff members and hourly employees, and
shall exclusively supervise the means and manner of their work. It is further
understood and agreed that in providing Continuing Services hereunder, Revlon
shall be considered an independent contractor of Cosmetic Center, and Cosmetic
Center shall not be a single, joint or any other type of employer of any of the
Revlon staff members or hourly employees. Accordingly, Cosmetic Center shall not
be a party to, and shall not be responsible for any obligations or liabilities
under, any express or implied contract, understanding, policy, practice,
representation, pension or welfare benefit plan or trust or collective
bargaining agreement between or involving Revlon and any of its staff members or
hourly employees or labor organizations who represent Revlon staff members or
hourly employees, except to the extent expressly provided otherwise hereunder
including Sections 2.1 and 2.3 relating to payment for all continuing services
and related amounts. Revlon agrees to be solely responsible for compliance with
all applicable laws and other binding legal commitments with respect to its
staff members and hourly employees and any labor organizations who represent
them, and it indemnifies and holds Cosmetic Center, its officers, directors and
employees from and against any and all losses, liabilities, claims, damages,
costs and expenses (including attorneys' fees and other expenses of litigation)
to which such party may become subject arising out of Revlon's failure to so
comply or out of Revlon's employment of said staff members and hourly employees,
except to the extent expressly provided otherwise herein including Sections 2.1
and 2.3 relating to payment for all continuing services and related amounts.
SECTION 2. COST OF SERVICES
2.1 COST OF CONTINUING SERVICES. For the Continuing Services provided by
Revlon to Cosmetic Center hereunder, Cosmetic Center shall pay to Revlon the
actual fully burdened cost incurred by Revlon in providing such services. The
actual cost for providing such services shall be determined by considering the
relevant factors, including, without limitation, the time spent by persons
providing the services, the hourly cost of each such person, including any
fringe benefits, and the cost of materials, equipment and overhead, if any,
related to providing such services. The cost of providing warehousing and
distribution services shall include payroll costs plus any contributions to the
pension and welfare benefit plans in which the employees providing such services
participate.
2.2 COST OF THIRD PARTY SERVICES. For the Third Party Services provided by
Revlon to Cosmetic Center hereunder, Cosmetic Center shall pay to Revlon that
portion of amounts due to third party providers of the Third Party Services as
is allocable to the services purchased for and provided to, or for the benefit
of, Cosmetic Center.
2.3 EXPENSES. In addition to the amounts to be paid by Cosmetic Center
pursuant to Sections 2.1 and 2.2, Cosmetic Center shall reimburse Revlon for the
amount of all reasonable out-of-pocket expenses incurred by Revlon in providing
any services hereunder and not otherwise charged to Cosmetic Center pursuant to
Paragraph 2.1 or 2.2 and for any serverance costs or expenses associated with
the termination of the hourly employees of Revlon and/or its subsidiaries
referred to in Section 1.1(k) in the event that Cosmetic Center elects to
terminate the warehousing and distribution services provided by such employees
pursuant to Section 7.1.
[SECTION 3. EMPLOYEE BENEFIT PLANS]
[COSMETIC CENTER AGREES TO PAY REVLON ANY AND ALL COSTS ASSOCIATED WITH OR
ATTRIBUTABLE TO THE PARTICIPATION OF EMPLOYEES OF COSMETIC CENTER IN ANY
PENSION, HEALTH, SAVINGS OR EMPLOYEE BENEFIT PLAN OF REVLON.]
SECTION 4. LIMITATION OF LIABILITY
In providing services hereunder, Revlon shall have a duty to act, and cause
its agents to act, in a reasonably prudent manner. Neither Revlon, nor any
officer, director, employee or agent of Revlon shall be liable to Cosmetic
Center for any error of judgment or for any loss incurred by Cosmetic Center in
connection with the matters to which this Agreement relates, except a loss
resulting from the willful misconduct, bad faith or gross negligence on the part
of Revlon.
SECTION 5. INDEMNITY
Cosmetic Center shall indemnify and hold harmless Revlon, its officers,
directors and employees from and against any and all losses, liabilities,
claims, damages, costs and expenses (including attorney's fees and other
expenses of litigation) to which such party may become subject arising out of
the provision hereunder by Revlon or any third party of services to Cosmetic
Center, provided that such indemnity shall not protect any such party against
any liability to which such person would be subject by reason of willful
misconduct, bad faith or gross negligence.
<PAGE>
SECTION 6. PAYMENT
Cosmetic Center shall pay Revlon any amount due hereunder, including,
without limitation, any amount billed for services, other assistance, expenses
of outside professional services, [COSTS OF CONTRIBUTION AND ADMINISTRATION WITH
RESPECT TO EMPLOYEE BENEFIT PLANS,] any insurance premiums (including charges
for deductibles, self-insurance retensions, retrospective premium adjustments
and similar self-insurance costs) and other reimbursements, within 10 working
days of the presentation to Cosmetic Center of an invoice therefor.
SECTION 7. TERM
7.1 TERM. (a) This Agreement shall be continuously in effect until
terminated in whole or in part as to any specific Service Group or Groups on 90
days prior written notice by Cosmetic Center and on 180 days' prior written
notice by Revlon of its intention to terminate this Agreement or such specific
Service Group or Groups. Notwithstanding anything herein to the contrary, if
there is a change of control (as defined below) of Cosmetic Center at any time
prior to the end of the Term, Revlon may terminate this Agreement upon not less
than 30 days' prior written notice to Cosmetic Center. A "change in control" of
Cosmetic Center for purposes of this Agreement shall be deemed to have taken
place if (A) Revlon together with its affiliates no longer has the power to
vote, directly or indirectly, whether through record or beneficial ownership, a
voting trust arrangement, or other contractual arrangement, a majority of the
voting power of outstanding shares of Cosmetic Center or (B) all or
substantially all of Cosmetic Center's assets are sold to any person other than
an affiliate. For purposes of this Section 7, a "person" includes an individual,
corporation, partnership, trust, association, joint venture, pool, syndicate,
unincorporated organization, joint-stock company, or similar organization or
group acting in concert. A person for these purposes shall be deemed to be a
beneficial owner as that term is used in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended.
(b) Notwithstanding anything to the contrary, Revlon may terminate this
Agreement (A) immediately if Buyer is liquidated or dissolved or adopts a plan
of liquidation or (B) immediately if Buyer shall: (i) file a voluntary petition
in bankruptcy or file a voluntary petition or otherwise commence any action or
proceeding seeking reorganization, arrangement or readjustment of its debts or
for any other relief under the Federal Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency act or law, state or federal, now or hereafter
existing, or consent to, approve of, or acquiesce in, any such petition, action
or proceeding; (ii) apply for or acquiesce in the appointment of a receiver,
assignee, liquidator, sequestrator, custodian, trustee or similar officer for it
or for all or any part of its Property; (iii) make an assignment for the benefit
of creditors; or (iv) be unable generally to pay its debts as they become due;
or (C) immediately if an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of Buyer's debts or for any other relief under the Federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or
law, state or federal, now or hereafter existing and such petition, action or
proceeding shall not be dismissed within 60 days from such filing or
commencement.
SECTION 8. MISCELLANEOUS
8.1 NOTICE. Any notice or other communication required or permitted
hereunder shall be made in writing and shall be delivered personally, sent by
certified or registered mail (postage prepaid), or sent by facsimile
transmission, and shall be deemed given when so delivered personally, sent by
facsimile transmission, or, if mailed, four days after the date of deposit in
the United States mails, as follows:
To Cosmetic Center: The Cosmetics Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Attention: President
To Revlon: Revlon Consumer Products Corporation
625 Madison Avenue
New York, New York 10022
Attention: Vice President and Secretary
8.2 GOVERNING LAW. The validity, interpretation, enforceability and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the law of the State of New York applicable to agreements
executed in New York to be wholly performed in New York by residents of New
York.
8.3 ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement among
the parties and supersedes all prior negotiations, undertakings, representations
and agreements, if any, of the parties hereto with respect to the matters
contained herein.
<PAGE>
8.4 AMENDMENTS AND WAIVERS. This Agreement may not be amended except upon
the written consent of the parties hereto. Either party may waive, by written
instrument, compliance by the other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy or power hereunder preclude any other or further exercise thereof
or the exercise of any other right, remedy or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
8.5 ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Neither party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the written consent of the other party hereto, except that
Revlon may assign, delegate or otherwise transfer any or all of its rights or
obligations under this Agreement to any of its affiliates or to any successor to
its business (by merger, consolidation, sale of stock or assets, or otherwise);
provided that no assignment shall release Revlon from its obligations and
liabilities under this Agreement.
8.6 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other persons, places and
circumstances, shall remain in full force and effect.
8.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COSMETIC CENTER, INC.
By: ___________________________________
Title: ________________________________
REVLON CONSUMER PRODUCTS CORPORATION
By: ___________________________________
Title: ________________________________
*NOTE THAT THE NAME OF THE "OWNER" WILL CHANGE TO ACCORD WITH THE FACTS.
STANDARD FORM OF STORE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE, made as of this day of
19 , between
*REVLON CONSUMER PRODUCTS CORPORATION, A DELAWARE CORPORATION
party of the first part, hereinafter referred to as OWNER, and/or Landlord, and
THE COSMETIC CENTER, INC., A DELAWARE CORPORATION
party of the second part, hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the premises depicted on the attached Schedule A (the "premises" or the
"demised premises") in the building known as
(the "Building" or "building")
in the , for the term of one (1) year
(or until such term shall sooner cease and expire as hereinafter provided) to
commence on the day of date
hereof nineteen hundred and , and to end on the day
of and both dates inclusive,
at an annual rental rate of
which tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance of the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof unless expressly
provided for in this Lease.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT: 1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY: 2. Tenant shall use and occupy demised premises for the retail
sale of cosmetics, fragrances, toiletries, health and beauty aids and jewelry
and for the sale of such other items and services as are sold in a majority of
Tenant's other cosmetic stores.
and for no other purpose. Tenant shall at all times conduct its business in a
high grade and reputable manner, shall not violate Article 37 hereof, and shall
keep show windows and signs in a neat and clean condition.
ALTERATIONS: 3. Tenant shall make no changes exterior or structural in or
to the demised premises of any nature without Owner's prior written consent.
Subject to the prior written consent of Owner, and to the provisions of this
article, Tenant, at Tenant's expense, may make alterations, installations,
additions or improvements which are non-structural and which do not affect
utility services or plumbing and electrical lines, in or to the interior of the
demised premises by using contractors or mechanics first approved in each
instance by Owner. Tenant shall, before making any alterations, additions,
installations or improvements, at its expense, obtain all permits, approvals and
certificates required by any governmental or quasi-governmental bodies and (upon
completion) certificates of final approval thereof and shall deliver promptly
duplicates of all such permits, approvals and certificates to Owner and Tenant
agrees to carry and will cause Tenant's contractors and sub-contractors to carry
such workman's compensation, general liability, personal and property damage
insurance as Owner may reasonably require. If any mechanic's lien is filed
against the demised premises, or the building of which the same forms a part,
for work claimed to have done for, or materials furnished to, Tenant, whether or
not done pursuant to this article, the same shall be discharged by Tenant within
30 days thereafter, at Tenant's expense, by payment or filing the bond required
by law. All fixtures and all panelings, partitions, railings and installations
other than trade fixtures installed in the premises at any time, either by
Tenant or by Owner on Tenant's behalf, shall, upon installation, become the
property of Owner and shall remain upon and be surrendered with the demised
premises. Nothing in this article shall be construed to give Owner title to or
to prevent Tenant's removal of trade fixtures, movable office furniture and
equipment, but upon removal of any such from the premises or upon removal of
other installation as may be required by Owner. Tenant shall immediately and at
its expense, repair any damage to the demised premises or the building due to
such removal. All property permitted or required to be
1
<PAGE>
removed by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner at Tenant's expense.
REPAIRS: 4. Owner shall maintain and repair the public portions of the
building, both exterior and interior, except that if Owner allows Tenant to
erect on the outside of the building a sign or signs, or a hoist, lift or
sidewalk elevator for the exclusive use of Tenant, Tenant shall maintain such
exterior installations in good appearance and shall cause the same to be
operated in a good and workmanlike manner and shall make all repairs thereto
necessary to keep same in good order and condition, at Tenant's own cost and
expense, and shall cause the same to be covered by the insurance provided for
hereafter in Article 8. Tenant shall, throughout the term of this lease, take
good care of the demised premises and the fixtures and appurtenances therein,
and the sidewalks adjacent thereto, and at its sole cost and expense, make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition, reasonable wear and tear, obsolescence and damage
from the elements, fire or other casualty, excepted. If the demised premises be
or become infested with vermin, Tenant shall at Tenant's expense, cause the same
to be exterminated from time to time to the reasonable satisfaction of Owner.
Except as specifically provided in Article 9 or elsewhere in this lease, there
shall be no allowance to the Tenant for the diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner. Tenant or others making or failing to make any
repairs, alterations, additions or improvements in or to any portion of the
building including the erection or operation of any crane, derrick or sidewalk
shed, or in or to the demised premises or the fixtures, appurtenances or
equipment thereof. It is specifically agreed that Tenant shall be not entitled
to any set off or reduction of rent by reason of any failure of Owner to comply
with the covenants of this or any other article of this lease. Tenant agrees
that Tenant's sole remedy at law in such instance will be by way of an action
for damages for breach of contract. The provisions of this Article 4 with
respect to the making of repairs shall not apply in the case of fire or other
Casualty which are dealt with in Article 9 hereof.
WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the New York State Labor Law or any other applicable
law or of the Rules of the Board of Standards and Appeals, or of any other Board
or body having or asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE: 6. Prior to the commencement of the
lease term, if Tenant is then in possession, and at all times thereafter,
Tenant, at Tenants' sole cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations of the
New York Board of Fire Underwriters or the Insurance Services Office, or any
similar body which shall impose any violation, order or duty upon Owner or
Tenant, Tenant's operations in the demised premises or to those portions of the
demised premises which Tenant is required to repair and maintain, or with
respect to the building if arising out of Tenant's use or manner of use of the
premises or the building (including the use permitted under the lease). Except
as provided in Article 29 hereof, nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other policies of insurance at any time carried
by or for the benefit of Owner. Tenant shall pay all costs, expenses, fines,
penalties or damages, which may be imposed upon Owner by reason of Tenant's
failure to comply with the provisions of this article. If the fire insurance
rate shall, at the beginning of the lease or at any time thereafter, be higher
than it otherwise would be by reason of a change in the nature or manner of
Tenant's operations in the demised premises from that heretofore conducted by
PFC (as defined in Article 40 of the Rider), then Tenant shall reimburse Owner,
as additional rent hereunder, for that portion of all fire insurance premiums
thereafter paid by Owner which shall have been charged because of such failure
by Tenant to comply with the terms of this article or change in operations. In
any action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by a body making
fire insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rate then applicable to said premises.
SUBORDINATION: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
2
<PAGE>
TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY: 8. Owner or
its agents shall not be liable for any damage to property of Tenant or of others
entrusted to employees of the building, nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees. Owner
or its agents will not be liable for any such damage caused by other tenants or
persons in, upon or about said building or caused be operations in construction
of any private, public or quasi public work. Tenant agrees, at Tenant's sole
cost and expense, to maintain general public liability insurance in standard
form in favor of Owner and Tenant against claims for bodily injury or death or
property damage occurring in or upon the demised premises, effective from the
date Tenant enters into possession and during the term of this lease. Such
insurance shall be in an amount and with carriers reasonably acceptable to the
Owner. Such policy or policies shall be delivered to the Owner. On Tenant's
default in obtaining or delivering any such policy or policies or failure to pay
the charges therefor and the continuation of such default for more than five (5)
business days after notice from Owner to Tenant, Owner may secure or pay the
charges for any such policy or policies and charge the Tenant as additional rent
therefor. Tenant's liability under this lease extends to the acts and omissions
of any subtenant, and any agent, contractor, employee, invitee or licensee of
any subtenant. In case any action or proceeding is brought against Owner by
reason of any such claim, Tenant, upon written notice from Owner, will, at
Tenant's expense, resist or defend such action or proceeding by counsel approved
by Owner in writing, such approval not to be unreasonably withheld.
DESTRUCTION, FIRE, AND OTHER CASUALTY: 9. (a) If the demised premises or
any part thereof shall be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall continue in full force
and effect except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other casualty, the
damages thereto shall be repaired by and at the expense of Owner and the rent
and other items of additional rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premised are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent and other items of additional rent as hereinafter expressly provided shall
be proportionately paid up to the time of the casualty and thenceforth shall
cease until the date when the premises shall have been repaired and restored by
Owner (or sooner reoccupied in part by Tenant then rent shall be apportioned as
provided in subsection (b) above), subject to Owner's right to elect not to
restore the same as hereinafter provided. (d) If the demised premises are
rendered wholly unusable and (whether or not the demised premises are damaged in
whole or in part) if the building shall be so damaged that Owner shall decide to
demolish it or to rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant given within 90 days after such
fire or casualty or 30 days after adjustment of the insurance claim for such
fire or casualty, whichever is sooner, specifying a date for the expiration of
the lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date were the date set forth above for
the termination of this lease and Tenant shall forthwith quit, surrender and
vacate the premises without prejudice however, to Owner's rights and remedies
against Tenant under the lease provisions in effect prior to such termination,
and any rent owing shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property to the extent reasonably deemed necessary by Owner to enable
Owner to perform Owner's repair work. Tenant's liability for rent shall resume
thirty (30) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy or the date on which Tenant reopens
for business from the damaged area, whichever shall first occur. (e) Nothing
contained hereinabove shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. Notwithstanding the foregoing,
including Owner's obligation to restore under subparagraph (b) above, each party
shall look first to any insurance in its favor before making any claim against
the other party for recovery for loss or damage resulting from fire or other
casualty, and to the extent that such insurance is in force and collectible and
to the extent permitted by law, Owner and Tenant each hereby releases and waives
all right of recovery with respect to subparagraphs (b), (d) and (e) above,
against the other or any one claiming through or under each of them by way of
subrogation or otherwise. The release and waiver herein referred to shall be
deemed to include any loss or damage to the demised premises and/or to any
personal property, equipment, trade fixtures, goods and merchandise located
therein. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing such a release or
waiver shall not invalidate the insurance. Tenant acknowledges that Owner will
not carry insurance on Tenant's furniture and/or furnishings or any fixtures or
equipment, improvements, or appurtenances installed by or for Tenant and agrees
that Owner will not be obligated to repair any damage thereto or replace the
same. (f) Tenant hereby waives the
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provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in
lieu thereof.
EMINENT DOMAIN: 10. If the whole or any material part of the demised
premises shall be acquired or condemned by Eminent Domain for any public or
quasi public use or purpose, then and in that event, the term of this lease
shall cease and terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the value of any unexpired term of said lease.
Tenant shall have the right to make an independent claim to the condemning
authority for the value of Tenant's moving expenses and personal property, trade
fixtures and equipment, provided Tenant is entitled pursuant to the terms of the
lease to remove such property, trade fixtures and equipment at the end of the
term and provided further such claim does not reduce Owner's award.
ASSIGNMENT MORTGAGE, ETC.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate tenant or the
majority partnership interest of a partnership tenant shall be deemed an
assignment, except that the transfer by Owner or any of its affiliates of a
majority of the stock of Tenant shall not require the consent of Owner under
this Lease. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver of
the covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
ELECTRIC CURRENT: 12. Tenant covenants and agrees that at all times its use
of electric current shall not exceed the capacity of existing feeders to the
building or the risers or wiring installation and Tenant may not use any
electrical equipment which, in Owner's opinion, reasonably exercised, will
overload such installations or interfere with the use thereof by other tenants
of the building. The change at any time of the character of electric service
shall in no wise make Owner liable or responsible to Tenant, for any loss,
damages or expenses which Tenant may sustain.
ACCESS TO PREMISES: 13. Owner or Owner's agents shall have the right (but
shall not be obligated) to enter the demised premises in any emergency at any
time, and, at other reasonable times after reasonable notice to Tenant in the
circumstances to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to any portion
of the building or which Owner may elect to perform, in the premises, following
Tenant's failure to make repairs or perform any work which Tenant is obligated
to perform under this lease after the giving of any notice and the passage of
any cure period to which Tenant is entitled under this Lease, or for the purpose
of complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein, provided they are concealed within the walls, floors or ceiling,
wherever practicable. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the term or during the period
following the giving of an Early Termination Notice for the purpose of showing
the same to prospective tenants. If Tenant is not present to open and permit an
entry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected. If during the last month
of term Tenant shall have removed all or substantially all of Tenant's property
therefrom, Owner may immediately enter, alter, renovate or redecorate the
demised premises without limitation or abatement of rent, or incurring liability
to Tenant for any compensation and such act shall have no effect on this lease
or Tenant's obligations hereunder. Owner shall have the right at any time,
without the same constituting an eviction and without incurring liability to
Tenant therefor to change the arrangement and/or location of public entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets, or other
public parts of the building and to change the name, number or designation by
which the building may be known if such changes will not materially adversely
affect the operation of Tenant's business in the Premises.
VAULT, VAULT SPACE, AREA: 14. [INTENTIALLY OMITTED]
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OCCUPANCY: 15. Tenant will not at any time use or occupy the demised
premises in violation of Articles 2 or 37 hereof, or of the certificate of
occupancy issued for the building of which the demised premises are a part.
Tenant has inspected the premises and accepts them as is, subject to the riders
annexed hereto with respect to Owner's work, if any. In any event, Owner makes
no representation as to the condition of the premises and Tenant agrees to
accept the same subject to violations whether or not of record.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Landlord by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as the debtor; or (2) the making by
Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming through or under
Tenant, or by reason of any statute or order of court, shall thereafter be
entitled to possession of the premises demised but shall forthwith quit and
surrender the premises. If this lease shall be assigned in accordance with its
terms, the provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the covenants of
this lease other than the covenants for the payment of rent or additional rent;
or if the demised premises become vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant; or
if this lease be rejected under Section 365 of Title II of the U.S. Code
(Bankruptcy Code); or if Tenant shall fail to move into or take possession of
the premises within thirty (30) days after the commencement of the term of this
lease, of which fact Owner shall be the sole judge; then, in anyone or more of
such events, upon Owner serving a written thirty (30) days notice upon Tenant
specifying the nature of said default and upon the expiration of said thirty
(30) days, if Tenant shall have failed to comply with or remedy such default, or
if the said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said thirty (30) day period, and
if Tenant shall not have diligently commenced curing such default within such
thirty (30) day period, and shall not thereafter with reasonable diligence and
in good faith proceed to remedy or cure such default, then Owner may serve a
written five (5) days notice of cancellation of this lease upon Tenant, and upon
the expiration of said five (5) days, this lease and the term thereunder shall
end and expire as fully and completely as if the expiration of such five (5) day
period were the day herein definitely fixed for the end and expiration of this
lease and the term thereof and Tenant shall then quit and surrender the demised
premises to Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and the
term shall expire as aforesaid; or if ten (10) days after notice by Owner that
Tenant is in default in the payment of the rent reserved herein or any item of
additional rent herein mentioned or any part of either or in making any other
payment herein required; then and in any of such events Owner may without
notice, re-enter the demised premises either by force or otherwise, and
dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove their
effects and hold the premises as if this lease had not been made, and Tenant
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION: 18. In case of any such
default, re-entry, expiration and/or dispossess by summary proceedings or
otherwise, (a) the rent, and additional rent, shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration. (b) Owner
may re-let the premises or any part or parts thereof or may re-
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let all or parts of the premises together with other space either in the name of
Owner or otherwise, for a term of terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant or the legal representatives
of Tenant shall also pay Owner as liquidated damages for the failure of Tenant
to observe and perform said Tenant's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the subsequent lease or
leases of the demised premises for each month of the period which would
otherwise have constituted the balance of the term of this lease. The failure of
Owner to re-let the premises or any part or parts thereof shall not release or
affect Tenant's liability for damages. In computing such liquidated damages
there shall be added to the said deficiency such expenses as Owner may incur in
connection with re-letting, such as legal expenses, reasonable attorneys' fees,
brokerage, advertising and for keeping the demised premises in good order or for
preparing the same for re-letting. Any such liquidated damages shall be paid in
monthly installments by Tenant on the rent day specified in this lease. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability.
Owner shall in no event be liable in any way whatsoever for failure to re-let
the demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event shall
Tenant be entitled to receive any excess, if any, of such net rent collected
over the sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant or any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws.
FEES AND EXPENSES: 19. If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any article of this
lease, after notice if required and upon expiration of any applicable grace
period if any, (except in an emergency), then, unless otherwise provided
elsewhere in this lease, Owner may immediately or at any time thereafter and
without notice perform the obligation of Tenant thereunder, and if Owner, in
connection therewith or in connection with any default by Tenant in the covenant
to pay rent hereunder, makes any expenditures or incurs any obligations for the
payment of money, including but not limited to reasonable attorney's fees, in
instituting, prosecuting or defending any actions or proceeding and prevails in
any such action or proceeding, such sums so paid or obligations incurred with
interest and costs shall be deemed to be additional rent hereunder and shall be
paid by Tenant to Owner within ten (10) days of rendition of any bill or
statement to Tenant therefor, and if Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
NO REPRESENTATIONS BY OWNER: 20. Neither Owner nor Owner's agent have made
any representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rents,
leases, expenses of operation, or any other matter or thing affecting or related
to the premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition, and
agrees to take the same "as is" and acknowledges that the taking of possession
of the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
END OF TERM: 21. Upon the expiration or other termination of the term of
this lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and tear and casualty damage
excepted, and Tenant shall remove all its property. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of this lease. If the last day of the term of this lease or any
renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday unless it be a legal holiday in which case it shall expire at
noon on the preceding business day.
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QUIET ENJOYMENT: 22. Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease.
FAILURE TO GIVE POSSESSION: 23. [INTENTIONALLY OMITTED]
NO WAIVER: 24. The failure of either party to seek redress for violation
of, or to insist upon the strict performance of any covenant or condition of
this lease, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent and/or additional rent with knowledge of
the breach of any covenant of this lease shall not be deemed a waiver of such
breach and no provision of this lease shall be deemed to have been waived by
Owner unless such waiver be in writing signed by Owner. No payment by Tenant or
receipt by Owner of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent, nor
shall any endorsement or statement of any check or any letter accompanying any
check or payment as rent be deemed an accord and satisfaction, and Owner may
accept such check or payment without prejudice to Owner's right to recover the
balance of such rent or pursue any other remedy in this lease provided. No act
or thing done by Owner or Owner's agents during the term hereby demised shall be
deemed in acceptance of a surrender of said premises and no agreement to accept
such surrender shall be valid unless in writing signed by Owner. No employee of
Owner or Owner's agent shall have any power to accept the keys of said premises
prior to the termination of the lease and the delivery of keys to any such agent
or employee shall not operate as a termination of the lease or a surrender of
the premises.
WAIVER OF TRIAL BY JURY: 25. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any proceeding or
action for possession including a summary proceeding for possession of the
premises, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding, including a counterclaim under Article 4
except for statutory mandatory counterclaims so long as such counterclaim is not
deemed "compulsory" under applicable court rules of civil procedure; and Tenant
is permitted to bring a separate action against Owner based on any such claim.
INABILITY TO PERFORM: 26. This lease and the obligation of Tenant to pay
rent hereunder and perform all of the other covenants and agreements hereunder
on part of Tenant to be performed shall in no wise be affected, impaired or
excused when, in the judgment of Owner, temporary interruption of such services
is necessary by reason of accident, mechanical breakdown, or to make repairs,
alterations or improvements.*
*For purposes of this Paragraph 26, "temporary" shall mean 2 consecutive
Business Days.
BILLS AND NOTICES: 27. [INTENTIONALLY OMITTED]
WATER CHARGES: 28. [INTENTIONALLY OMITTED]
SPRINKLERS: 29. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the Insurance
Services Office or any bureau, department or official of the federal, state or
city government require or recommend the installation of a sprinkler system or
that any changes, modifications, alterations, or additional sprinkler heads or
other equipment be made or supplied in an existing sprinkler system by reason
of a change in the nature or manner of Tenant's operations in the demised
premises from that heretofore conducted by PFC (as defined in Article 40 of the
Rider), or if any such sprinkler system become necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate set by any said Exchange or by any fire
insurance company by reason of a change in the nature or manner of Tenant's
operations in the demised premises from that heretofore conducted by PFC (as
defined in Article 40 of the Rider). Tenant shall, at Tenant's expense,
promptly make such sprinkler system installations, changes, modifications,
alterations, and supply additional sprinkler heads or other equipment as
required whether the work involved shall be structural or non-structural in
nature.
ELEVATORS, HEAT, CLEANING: 30. As long as Tenant is not in default under
any of the covenants of this lease beyond the applicable grace period provided
in this lease for the curing of such defaults, Owner shall, if and insofar as
existing facilities permit furnish heat to the demised premises, when and as
required by law in the same manner and during the same hours of operation as
heretofore furnished to PFC. Tenant shall at Tenant's expense, keep demised
premises clean and in order, to the reasonable satisfaction to Owner. Tenant
shall, however, have the option of independently contracting for the removal of
such rubbish and refuse in the event that Tenant does not wish to have same
done by employees of Owner. Under such
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circumstances, however, the removal of such refuse and rubbish by others shall
be subject to such rules and regulations as, in the judgment of Owner, are
necessary for the proper operation of the building.
SECURITY: 31. [INTENTIONALLY OMITTED]
CAPTIONS: 32. The Captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
lease nor the intent of any provision thereof.
DEFINITIONS: 33. The term "Owner" as used in this lease means only the
Owner, or the mortgagee in possession, for the time being of the land and
building (or the Owner of a lease of the building or of the land and building)
of which the demised premises form a part, so that in the event of any sale or
sales of said land and building or of said lease, or in the event of a lease of
said building, or of the land and building, the said Owner shall be and hereby
is entirely freed and relieved of all covenants and obligations of Owner
hereunder, and it is shall be deemed and construed without further agreement
between the parties of their successors in interest, or between the parties and
the purchaser, at any such sale, or the said lessee of the building, or of the
land and building, that the purchaser or the lessee of the building has assumed
and agreed to carry out any and all covenants and obligations of Owner
hereunder. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. The term "business days" as used
in this lease shall exclude Saturdays, Sundays and all days designated as
holidays by the applicable building service union employees service contract or
by the applicable Operating Engineers contract with respect to HVAC service.
Wherever it is expressly provided in this lease that consent shall not be
unreasonably withheld, such consent shall not be unreasonably delayed.
ADJACENT EXCAVATION-SHORING: 34. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work
as said person shall deem necessary to preserve the wall or the building of
which demised premises form a part from injury or damage and to support the
same by proper foundations without any claim for damages or indemnity against
Owner, or diminution or abatement of rent.
RULES AND REGULATIONS: 35. Tenant and Tenant's servants, employees,
agents, visitors, and licensees shall observe faithfully, and comply strictly
with the Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules and regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. Nothing in this lease contained shall be construed to impose upon Owner
any duty or obligation to enforce the Rules and Regulations or terms, covenants
or conditions in any other lease, as against any other tenant and Owner shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
GLASS: 36. Tenant shall replace, at the expense of Tenant any and all
plate and other glass damaged or broken from any cause whatsoever in and about
the demised premises.
PORNOGRAPHIC USES PROHIBITED: 37. Tenant agrees that the value of the
demised premises and the reputation of the Owner will be seriously injured if
the premises are used for any obscene or pornographic purposes or any sort of
commercial sex establishment. Tenant agrees that Tenant will not bring or
permit any obscene or pornographic material on the premises, and shall not
permit or conduct any obscene, nude, or semi-nude live performances on the
premises, nor permit use of the premises for nude modeling, rap sessions, or as
a so called rubber goods shops, or as a sex club of any sort, or as a "massage
parlor." Tenant agrees further that Tenant will not permit any of these uses by
any sublessee or assignee of the premises. This Article shall directly bind any
successors in interest to the Tenant. Tenant agrees that if at any time Tenant
violates any of the provisions of the Article, such violation shall be deemed a
breach of a substantial obligation of the terms of this lease and objectionable
conduct. Pornographic material is defined for purposes of this Article as any
written or pictorial manner with prurient appeal or any objects of instrument
that are primarily concerned with lewd or prurient sexual activity. Obscene
material is defined here as it is in Penal law (section mark)235.00.
ESTOPPEL CERTIFICATE: 38.
SUCCESSORS AND ASSIGNS: 39. The covenants, conditions and agreements
contained in this lease shall bind and inure to the benefit of Owner and Tenant
and their respective heirs, distributees, executors, administrators,
successors, and except as otherwise provided in this lease, their assigns.
Tenant shall look only to Owner's estate and interest in the land and building
for the satisfaction of Tenant's remedies for the collection of a judgment (or
other judicial process) against Owner in the
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event of any default by Owner hereunder, and no other property or assets of
such Owner (or any partner, member, officer or director thereof, disclosed or
undisclosed), shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies under or with respect to
this lease, the relationship of Owner and Tenant hereunder, or Tenant's use and
occupancy of the demised premises.
40. "AS IS". Tenant acknowledges that its predecessor in interest, Prestige
Fragrance and Cosmetics, Inc., a Delaware corporation ("PFC") has been in
possession of the demised premises since . Tenant will continue in
possession as PFC's successor by merger, and accepts possession AS-IS and with
all defects. Tenant warrants and represents that there are no express or implied
warranties, representations or agreements on the part of Landlord with reference
to the condition or usability of the demised premises or for the purposes for
which Tenant intends to use the same. Landlord shall not be required to repair,
renovate, restore or redecorate the demised premises at any time during the term
of this Lease, except as expressly provided in this Lease.
41. OPTIONS. Provided Tenant shall not be in default of any provision of
this Lease, Tenant shall have the right to extend the term of this Lease for
nine (9) additional periods of one (1) year each (each such right being
hereinafter called a "Renewal Right"). Each additional one-year period is herein
called a "Renewal Term". The first Renewal Term shall commence on the calendar
day following the initial expiration date of this Lease and shall expire on the
first anniversary of the initial expiration date of this Lease. Each subsequent
Renewal Term shall commence on the calendar day following the expiration of the
prior Renewal Term and shall expire on the first anniversary of the expiration
date of the prior Renewal Term. Tenant shall be deemed to have exercised each
Renewal Right unless Tenant shall have given written notice to Landlord of
Tenant's election not to exercise such right at least ninety (90) days prior to
the expiration date of the then current term, time being of the essence with
regard to such date; provided, however, that the continued existence and
effectiveness of the Renewal Rights are subject to the condition that during the
ninety (90) day period immediately preceding the commencement of a Renewal Term
Tenant is not in default under this Lease. Unless the Tenant shall timely give
notice of non-renewal to Landlord, this Lease shall be extended for one Renewal
Term upon all the same provisions contained in this Lease, except that the
annual rent payable monthly in advance under this Lease during each Renewal Term
shall be 105% of the annual rent in effect for the immediately preceding term.
If Tenant gives notice of non-renewal in compliance herewith, or if the Renewal
Rights expire due to Tenant's default, no subsequent Renewal Right shall be
valid or effective, but this Lease shall terminate at the end of the
then-current term or Renewal Term. Expiration of the Renewal Rights shall be in
addition to all other rights and remedies of Landlord for Tenant's default under
this Lease.
42. EARLY TERMINATION. (A) Upon the terms and conditions set forth below, a
party shall be entitled to terminate this Lease by giving the other party prior
written notice of such termination ("Early Termination Notice"). Any Early
Termination Notice given under this Lease shall specify the effective date
thereof ("Effective Date"). Upon the Effective Date, the term of this Lease
shall end and expire as if such Effective Date were the date originally set for
the expiration of the term of this Lease, and upon such date, Tenant shall quit
and surrender the demised premises to Landlord in the condition required by this
Lease. No Renewal Rights shall survive the giving of an Early Termination Notice
by either party. Time shall be of the essence with regard to Tenant's surrender
of the premises on the Effective Date.
(B) The Landlord shall be entitled (but not obligated) to give an Early
Termination Notice as follows:
(i) If at any time during the Term or any Renewal Term of this Lease,
Landlord enters into an agreement for the sale or lease of the Building
with a third party unaffiliated with Landlord, then Landlord may give an
Early Termination Notice. The Effective Date of such Early Termination
Notice shall be the earlier of (a) five (5) Business Days before the
delivery of possession by Landlord under such lease or agreement for sale,
or (b) one hundred eighty (180) days after the giving of such notice. For
purposes hereof, a sale of assets, sale of stock, merger or other
transaction in which control of Landlord or the Building is to be conveyed
to such a third party shall constitute a "sale" of the Building.
(ii) If at any time during the Term or any Renewal Term of this Lease,
Landlord ceases or substantially diminishes its operations in the portion
of the Building in which the Premises are located (a "Cessation of
Operations"), then Landlord may give an Early Termination Notice. The
Effective Date of such Early Termination Notice shall be at least one
hundred twenty (120) days after the giving of such notice; provided,
however, that if such Effective Date would fall during the period between
Thanksgiving Day and December 31 (the "Holiday Deferral Period") then the
Effective Date shall automatically become the first Business Day following
the Holiday Deferral Period.
(iii) If at any time, following the expiration of the first Renewal
Term but before the expiration of the third Renewal Term of this Lease, an
agreement for a "change in control" of Tenant shall be entered into, or a
"change in control" of Tenant shall occur, then Landlord may give an Early
Termination Notice. The Effective Date of such Early Termination Notice
shall be at least one (1) calendar year following the giving of such
notice. A "change in control" of Tenant for
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purposes of this Lease shall be deemed to have taken place if (A) Landlord
or any of its affiliates (as such term is defined in Article 46 of this
Rider) no longer have the power to vote, directly or indirectly, whether
through record or beneficial ownership, a voting trust arrangement, or
other contractual arrangement, a majority of the voting power of the
outstanding shares of Tenant, or (B) all or substantially all of Tenant's
assets are sold to any person other than an affiliate of Landlord. For
purposes of this Article 42, a "person" includes an individual,
corporation, partnership, trust, association, joint venture, pool,
syndicate, unincorporated organization, joint stock company, or similar
organization or group acting in concert. A "person" for these purposes
shall be deemed to be a "beneficial owner" as that term is used in Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
(iv) If at any time following the expiration of the third Renewal Term
of this Lease an agreement for a change in control of Tenant shall be
entered into or a change in control of Tenant shall occur, then Landlord
may give an Early Termination Notice. The Effective Date of such Early
Termination Notice shall be at least one hundred eighty (180) days
following the giving of such notice.
(C) The Tenant shall be entitled (but not obligated) to give an Early
Termination Notice as follows:
(i) If at any time during the Term of this Lease a Cessation of
Operations by Landlord occurs, then Tenant may give an Early Terminaton
Notice. The Effective Date of such Early Termination Notice shall be at
least ninety (90) days following the giving of such notice.
(ii) Tenant may give an Early Termination Notice during any Renewal
Term of this Lease, and the Effective Date of such notice shall be at least
ninety (90) days following the giving of such notice.
43. MISCELLANEOUS. With respect to any provision of this Lease which
provides, in effect, that Landlord shall not unreasonably withhold or
unreasonably delay or condition any consent or approval, Tenant in no event
shall be entitled to make, nor shall Tenant make, any claim, and Tenant hereby
waives any claim, for money damages, nor shall Tenant claim any money damages by
way of set-off, counterclaim or defense based upon any claim or assertion by
Tenant's that Landlord has unreasonably withheld, delayed or conditioned any
consent or approval. Tenant's sole remedy shall be an action or proceeding to
enforce any such provision, or for specific performance, injunction or
declaratory judgment.
44. LANDLORD'S LIABILITY. Tenant agrees that the liability of Landlord
under this Lease and all matters pertaining to or arising out of the tenancy and
the use and occupancy of the demised premises shall be limited to Landlord's
interest in the Building of which the demised premises form a part, and in no
event shall Tenant make any claim against or seek to impose any personal
liability upon any general or limited partner of any partnership, or any
shareholder, director, officer, employee or agent of any firm or corporation
that may now be or hereafter become the Landlord.
45. ADDITIONAL RENT. In addition to the annual rent payable under this
Lease, all other charges, sums and amounts payable by Tenant under this Lease
shall be deemed to be additional rent hereunder, whether or not the same may be
designated as such, and shall be due and payable within thirty (30) days after
demand therefor (or such earlier or later time as may be elsewhere specifically
provided in this Lease), and Landlord shall have the same rights and remedies
upon Tenant's failure to pay any additional rent as for the non payment of the
annual rent reserved under this Lease. Tenant's obligation to pay any and all
additional rent and Landlord's and Tenant's obligations to make adjustment of
additional rent referred to in this Lease shall survive any expiration or
termination of this Lease.
46. SPECIAL USE PROVISIONS. Tenant acknowledges and agrees that the demised
premises has heretofore been and shall continue to be used as a retail store for
the sale of cosmetics to the public and to employees of Landlord and its
affiliates. Tenant agrees to provide the employees of Landlord and its
affiliates (hereinafter defined) with the same discounts on sale and other
preferential treatment with which Tenant provides its own employees from time to
time. Tenant shall be entitled to demand presentation of a valid and current
employer identification card or equivalent evidence of employment before
granting such discount or other preferential treatment. Such preferential
treatment may include, but not be limited to, special pricing or discounts on
items sold. For purposes of this Lease, an "affiliate" shall mean any entity
controlling, controlled by, or under common control with Landlord.
47. FORCE MAJEURE. In the event that either party hereto shall be delayed
or hindered in or prevented from the performance of any act required hereunder
by reason of strikes, labor troubles, inability to procure labor or materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war, acts of God, fire or other casualty or other reason of a
similar or dissimilar nature beyond the reasonable control of the delayed party,
then performance of such act shall be excused for the period of the delay and
the period for the performance of any such act shall be extended for a period
equivalent to the period of such delay. The provisions of this Article shall not
operate to excuse Tenant from the prompt
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payment of rent or any other payments required by the terms of this Lease and
shall not operate to extend the Term or any Renewal Term. Delays or failures to
perform resulting from lack of funds shall not be deemed delays beyond the
reasonable control of a party.
48. NOTICES. All notices or demands which either party hereto either is
required to or may desire to serve upon the other shall be in writing and shall
be sufficiently served upon such other party, by (a) mailing a copy thereof by
certified or registered mail, postage prepaid, return receipt requested,
addressed to the party to whom the notice is directed at the "Notice Address" of
such party or (b) by a reliable overnight courier (such as Federal Express), all
charges prepaid, furnishing a receipt upon delivery, and addressed to the party
to whom the notice is addressed at the Notice Address of the part. The Notice
Address of each party is:
Landlord: 625 Madison Avenue
New York, N.Y. 10022
Attn: Vice President for Real Estate
Tenant: __________________________________________________________
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The addresses to which notices and demands shall be delivered or sent may be
changed from time to time by notice served, as hereinbefore provided, by either
party upon the other party. Unless otherwise provided for herein, notice shall
be deemed to have been served at the earlier of the date received or refused or
three (3) days following deposit in the U.S. mail or one (1) day following
delivery to overnight courier, both as aforesaid. Notice from an attorney acting
on behalf of a party shall be deemed to be notice from such party.
49. ESTOPPEL. Either party shall, without charge, at any time hereafter,
within twenty (20) Business Days after receipt of written request from the
other, certify by written instrument, duly executed and acknowledged, to any
ground lessee, mortgagee or purchaser the following: (a) whether this Lease has
been supplemented or amended, and if so, the substance and manner of such
supplement or amendment; (b) the existence of any default under this Lease as to
which such party is aware on the part of the nonexecuting party, and, if so, a
description of such default; (c) the commencement date and the expiration date
of the Term and any Renewal Term this Lease and the existence of any Renewal
Rights hereunder; (d) Any other factual matters specifically concerning this
Lease as may reasonably be so requested. Any such certificate may be relied upon
by the addressee thereof and shall be binding upon the certifying party as
against such addressee.
50. DISPUTE-NON-WAIVER. If a dispute shall arise with respect to the
performance of any obligation under this Lease including an obligation to pay
money, the performance of such obligation under protest shall not be regarded as
voluntary performance or waive the right of the protesting party to recover any
amount so paid.
51. ABATEMENT. Except as otherwise expressly provided for to the contrary
elsewhere in this Lease, whenever the premises are rendered unusable or access
to the same is materially impaired by reason of the acts or omissions of the
Owner, its agents, contractors or employees, or by reason of Owner's making any
repairs or alterations to the premises, and the fixtures therein, or the
Building, then and in each and all such cases, if Tenant is unable to conduct
its business in the premises due to the premises being rendered unusable, then
for each day the Tenant is unable to conduct its business due to the unusability
of the Premises, Tenant's rent and additional rent shall be abated.
52. LEASEHOLD IMPROVEMENTS. Notwithstanding anything in this Lease to the
contrary, Tenant shall retain an interest in the leasehold improvements for the
purpose of capital depreciation during the Term of the Lease or until earlier
termination, provided, however, that all such leasehold improvements shall
revert to the Owner upon expiration or earlier termination of this Lease.
53. ATTORNEYS' FEES. In the event either party hereto brings or commences
legal proceedings to enforce any of the terms of this Lease, the successful
party in such action shall then be entitled to receive and shall receive from
the other of said parties, in every such action commenced, a reasonable sum as
attorneys' fees and costs, to be fixed by the court in the same action, provided
that such sum shall be based solely on reimbursement for payment by the other
party calculated at standard hourly rates and not upon any recovery or award
constituting a percentage or "contingency" fee.
54. BROKER. Owner and Tenant represent and warrant to each other that they
have dealt with no broker or finder, licensed or otherwise, in connection with
this Lease. Each party agrees to indemnify and hold the other harmless from and
against any costs arising from a breach of their respective warranties contained
in this Article 54.
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55. CASUALTY. A. In the event that a portion of the Building other than the
premises is damaged by fire or other casualty such that access to the premises
is materially impaired then Tenant shall be entitled to an abatement of rent for
each day that such access is so materially impaired. Such period of time is
herein known as the "Abatement Peiod". During the Abatement Period, Tenant shall
pay all rent as set forth herein and only upon the expiration of the Abatement
Period shall Tenant be entitled to a refund of rent in accordance with the
following formula. Such refund to be received by Tenant shall equal the rent
paid for said Abatement Period less the product of the rent paid for the
Abatement Period and a fraction, (a) the numerator of which is the amount of the
gross sales revenues received by Tenant from sales made at the premises during
the Abatement Period plus the amount of proceeds, if any, of business
interruption or similar insurance payable to Tenant or, if Tenant self-insures
as to such matters, the amount, if any, which would have been payable by such
insurance, and (b) the denominator of which is the amount of the gross sales
revenues received by Tenant from sales made at the premises during the identical
period in the year immediately preceding the casualty. Said refund, if any,
shall be paid within 60 days following the date on which Tenant has furnished
Owner evidence reasonably satisfactory to Owner regarding availability of
insurance proceeds and gross sales information. Notwithstanding anything to the
contrary hereinabove, in no event shall the refund as calculated herein reduce
the total rent to be paid by Tenant to Owner for the Abatement Period to a sum
which is less than three percent (3%) of Tenant's gross sales revenue during
such Abatement Period.
B. Anything in this Article to the contrary notwithstanding, if the repair
and restoration provided for herein is not commenced within one hundred eighty
(180) days from the date of the casualty, or once commenced, if said repair or
restoration is not completed within nine (9) months of the date of commencement
of such restoration, Tenant may terminate this Lease at anytime thereafter until
such restoration is complete upon thirty (30) days' prior written notice to
Owner.
C. If the premises are partially damaged by casualty, or if as a result of
such casualty access to the premises is substantially impaired, and Tenant in
the exercise of its reasonable judgment determines that the business cannot be
properly operated from the portion of the premises which is undamaged or with
limited access, Tenant shall have the right to fully cease doing business and be
entitled to a full abatement of rent for the period during which Tenant was
rendered unable to operate by reason of the unusability of the Premises.
56. COMMON AREA. During the Term of this Lease, Tenant and its customers,
agents, employees, licensees and other invitees shall be entitled to the
non-exclusive use (in common with all others having rights therein, including,
without limitation, Owner and its tenants and licensees and all those granted
rights therein and their respective successors, assigns and customers, agents,
employees, licensees and other invitees of any and all of them) of the Common
Areas of the Building for their intended purposes.
57. CONDEMNATION. A. In the event fifty percent (50%) or more of the gross
leasable floor area of the Building shall be taken under the power of eminent
domain, notwithstanding that the premises shall be unaffected by such taking,
Owner shall have the right, to be exercised by written notice to Tenant within
Thirty (30) days after said taking, to terminate this Lease. Owner's right of
termination shall be conditioned upon Owner terminating the leases of all other
tenants in the Building.
B. Nothing contained herein shall be construed to preclude Tenant from
prosecuting any claim directly against the condemning authority for loss of
business and depreciation to, damage to, cost of removal of, and value of,
Tenant's stock and trade, fixtures, furniture and other personal property so
long as no such claim by Tenant shall diminish or otherwise adversely affect
Owner's award.
58. OWNER'S DEFAULT. If Owner fails to make any repairs or do any work
required of the Owner by the provisions of this Lease, or in any other respect
fails to perform any material obligation under the Lease to be performed by
Owner, then and in any such event, Tenant, after the continuance of any such
failure or default for thirty (30) days (or 24 hours in the case of an
emergency) after notice in writing specifying the nature of such failure or
default is given by Tenant to Owner, may (but this shall not be deemed to impose
an obligation upon Tenant so to do) cure such defaults on behalf of and at the
reasonable expense of Owner, and do all necessary work and make all necessary
payments in connection therewith, including but not limited to the payment of
any reasonable fees, costs and charges of or in connection with any legal action
which may have been brought by Tenant to enforce its rights under this Article
58. Owner shall promptly pay to Tenant the amount so paid by the Tenant. Tenant
shall have no right to deduct or offset against rent or amounts otherwise
payable by Tenant under this Lease any amount owed by Owner under this Article
58 unless and until such time as Tenant obtains a final and non-appealable court
judgment ordaining such deduction against Owner.
59. ENVIRONMENTAL [A&B ARE FOR N.J. STORES ONLY]
A. HAZARDOUS WASTES. Tenant shall not engage in operations at the Premises
or in the Building which involve the generation, manufacture, refining,
transportation, treatment, storage, handling or disposal of "hazardous
substances" or "hazardous
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wastes", as such terms are defined under the Industrial Site Recovery Act,
N.J.S.A. 13:1K-6 et seq. ("ISRA"); provided, that Tenant may maintain on the
Premises, incidentally to its permitted use under this Lease, reasonable
quantities of toners, solvents and other supplies for use for photocopying and
other customary office equipment (which substances may constitute "hazardous
substances" under ISRA); and provided further, that the extent of such storage
and use shall not exceed the "de minimis" threshold under N.J.A.C. 7:26B-10.1 et
seq. or adversely affect Landlord's ability to obtain an ISRA non-applicability
letter with respect to Tenant's tenancy. Tenant further covenants that it will
not cause or permit to exist as a result of an intentional or unintentional
action or omission on its part, the releasing, spilling, leaking, pumping,
pouring, emitting, emptying or dumping from, on or about the Building or the
land on which it is located of any hazardous substances (as such term is defined
under N.J.S.A. 58:10-12.11(b) (d) and N.J.A.C. 7:1-3.3).
B. ISRA COMPLIANCE. Tenant shall, at Tenant's own expense, comply with ISRA
and the regulations promulgated thereunder to the extent ISRA is applicable to
Tenant. Tenant shall, at Tenant's own expense, make all submissions to provide
all information to, and comply with all requirements of the Bureau of Industrial
Site Evaluation ("the Bureau") of the New Jersey Department of Environmental
Protection ("NJDEP"). Should the Bureau or any other division of NJDEP determine
that a cleanup plan be prepared and that a cleanup be undertaken because of any
spills or discharges of hazardous substances or wastes at the Premises which
occur during the term of this Lease as a result of the act or omission of
Tenant, its agents, contractors or employees, or its invitees after the date
hereof, then Tenant shall, at Tenant's own expense, prepare and submit the
required plans and financial assurances, and carry out the approved plans.
Tenant's obligations under this paragraph shall arise if there is any closing,
terminating or transferring of operations of an industrial establishment at the
Premises pursuant to ISRA. Upon Tenant's request, Landlord shall provide
reasonable cooperation in connection with Tenant's obligation to comply with
ISRA. At no expense to Landlord, Tenant shall promptly provide all information
reasonably required by Landlord for preparation of non-applicability affidavits
and shall promptly review, revise as necessary and sign such affidavits when
requested by Landlord. Tenant shall indemnify, defend and save harmless Landlord
from all fines, suits, procedures, claims and actions of any kind arising out of
or in any way connected with any spills or discharges of hazardous substances or
wastes at the Premises as a result of the act or omission of Tenant, its agents,
contractors or employees, or its invitees after the date hereof, which occur
during the term of this Lease; and from all fines, suits, procedures, claims and
actions of any kind arising out of Tenant's failure to provide all information,
make all submissions and take all actions required by ISRA, the Bureau or any
other division of NJDEP. Tenant's obligations and liabilities under this
paragraph shall continue so long as Landlord remains responsible for any spills
or discharges of hazardous substances or wastes at the Building which occur
during the term of this Lease. Tenant's failure to abide by the terms of this
paragraph shall be subject to equitable relief.
C. Owner hereby agrees to protect, defend, indemnify and hold Tenant
harmless from and against all claims, liabilities, penalties, costs, fines,
damages and expenses, including, but not limited to, costs and expenses which
Tenant is obligated to incur to correct or remedy the situation, the costs of
defending civil enforcement actions, the cost of participating in regulatory
proceedings, or any other civil or administrative action, including without
limitation, attorneys' and expert fees and disbursements, directly or indirectly
incurred by Tenant arising out of: the presence of any Hazardous Materials in or
about the premises or the Building (except those which are stored, used,
generated, installed or disposed of by Tenant or its employees or invitees).
Owner and Tenant agree that it is their intention that Tenant shall have no
liability or responsibility for damage or injury to human health, economic
losses or damage to the environment or natural resources caused by, or otherwise
relating to Hazardous Materials located on or at the Premises or the Building
which were not stored, used, generated, installed or disposed of by Tenant or
its employees or invitees. This indemnification shall survive the termination of
the Lease.
D. The term "Hazardous Matrials" shall also mean: (a) polychlorinated
byphenyls ("PCBs") or "PCB items" (as defined in 40 C.F.R. Sec. 761.3) or any
equipment which contains PCB's; (b) stored, leaked or spilled petroleum
products; or (c) any other chemical, material or substance (i) which is
regulated as a "toxic substance" (as defined by the Toxic Substance Control Act,
15 U.S.C. Sec. 2601 et seq., as amended), (ii) which is a "hazardous waste" (as
defined by the Resource Conservation and Recovery act, 42 U.S.C. Sec. 6901 et
seq., as amended), (iii) which is a "hazardous substance" (as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Sec. 9601 et sec., as amended), or (iv) exposure to which
is prohibited, limited or regulated by any federal, state, county, regional,
local or other governmental statute, regulation, ordinance or authority or
which, even if not so regulated, may or could pose a hazard to the health and
safety of the occupants of or invitees to the premises, or the owners, tenants
or occupants of the Building or the property adjacent to the Building.
60. EXCLUSIVE. Notwithstanding anything to the contrary contained in this
Lease, during the term of this Lease, including any extension thereof, Owner
covenants not to permit any other portion of the Building to be used for the
retail sale of cosmetics and fragrances. In the event of a breach of Owner's
agreement set forth in this Article, the total actual damages
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resulting to Tenant therefrom will be extremely difficult or impractical to
ascertain. Therefore, Tenant, at Tenant's election and as its sole an exclusive
remedy for such breach may (a) termimate this Lease upon prior written notice to
Owner, which notice shall be given by Tenant not less than ninety (90) days
prior to the effective date thereof; or (b) from and after the date of such
breach and until such breach is cured, in lieu of the rent due hereunder, Tenant
shall be obligated to pay to Owner, an amount equal to the lesser of (i) three
percent (3%) of Tenant's gross sales and (ii) fifty percent (50%) of the monthly
installment of rent. Such amount shall be payable monthly and shall be due on
the thirtieth (30th) day of each month for the immediately preceding month.
Tenant shall continue to pay all other charges due under this Lease as provided
herein.
61. HOLDING OVER. If Tenant holds possession of the premises after the
expiration or other termination of this Lease, Owner shall have the option,
exercisable in writing within thirty (30) days after the date of termination as
aforesaid, to treat Tenant as a trespasser, or as a Tenant by the month. If the
Owner fails to make such election then the Tenant shall be deemed a trespasser,
and commencing with the first day after the termination of the Lease, shall pay
as damages to Owner 200% of the monthly installment of annual rent paid during
the last month of the immediately preceding Term or Renewal Term, and in
addition Owner shall be entitled to the benefit of all laws relating to the
speedy recovery of the possession of land and tenements held over by Tenant,
whether now or hereafter in force and effect.
62. INDEMNIFICATION. A. Tenant covenants to indemnify and hold harmless
Owner, Owner's managing agent, Owner's lenders and their respective employees,
officers, directors and shareholders from and against all claims, and all costs,
losses, expenses, and liabilities incurred in connection with such claims,
including any action or proceeding brought thereon, arising from or as a result
of any accident, injury, loss, or damage whatsoever caused to any natural
person, or to the property of any person, alleged to have occurred on or about
the Premises during the Term of this Lease.
B. Owner covenants to indemnify and hold harmless Tenant, its employees,
officers, directors and shareholders from and against all claims, and all
losses, costs, expenses, and liabilities incurred in connection with such
claims, including any action or proceeding brought thereon, to the extent the
same arise from or as a result of any accident, injury, loss, or damage
whatsoever caused to any natural person, or to the property of any person,
alleged or proven to have occurred in or about the Building exclusive of the
premises during the term of this Lease.
63. OWNER'S INSURANCE. A. Owner shall maintain in force throughout the Term
property insurance with respect to the Building in accordance with Owner's
normal business practices with respect to all properties of Owner.
B. Owner shall at all times during the Term keep in force a policy or
policies of public liability insurance or an endorsement on a blanket liability
insurance policy or policies, which policy, policies or endorsement shall
provide that Tenant is named as additional insured, in accordance with Owner's
normal business practices.
C. Upon request, Owner shall deliver to Tenant a certificate of the
insurer, certifying that such policy has been issued, providing the coverage
required by this Article and containing provisions specified herein, together
with evidence of payment of all applicable premiums. Any insurance required to
be carried hereunder may be carried under a blanket policy covering the Building
and other locations of Owner. The term "insurance policy" as used herein shall
be deemed to include any extensions or renewals of any such insurance policy.
D. Both parties shall obtain waivers of subrogation from their respective
insurance carriers to the extent that such waivers are available at no
additional cost.
64. TENANT'S INSURANCE. Tenant may insure for the amount of any insurance
required to be carried under this Lease by Tenant, (a) under any plan of
self-insurance which it may from time to time have in force and effect provided
it furnishes upon request evidence satisfactory to Owner and to Owners's lender
or ground lessor of the existence of an insurance reserve adequate for the risks
covered by such plan of self-insurance, or (b) under a blanket policy, or
policies, covering other liabilities of Tenant and its subsidiaries, controlling
or affiliated corporation, or (c) partly under such a plan of self-insurance and
partly under such blanket policies.
65. TERM. If the last day of the Term or a Renewal Term falls within the
Holiday Deferral Period, the Term shall end on the first Business Day following
such Period. This provision shall not apply to any Term or Renewal Term as to
which an Early Termination Notice has been given, or otherwise extend this Lease
in the event of a default or holding over by Tenant, but shall apply solely and
exclusively to a circumstance in which the Lease will expire on its own terms
during a Holiday Deferral Period.
66. LAWS. Owner shall shall comply, at Owner's sole cost and expense, with
all governmental laws, rules, regulations, and orders, with regard to : (a)
requirements prior to the commencement date of this Lease; (b) the nature of the
structure of the premises; and/or (c) Owner's failure to make any repairs
required of Owner hereunder. If a fire sprinkler or any additional
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exits are ever required, the same shall be installed or constructed by Owner at
Owner's sole cost and expense unless the same are required by reason of the
change in manner or nature of Tenant's operations, as referred to in Paragraph
29.
67. MEMORANDUM OF LEASE. Neither party shall record this Lease.
68. NON-DISTURBANCE. Tenant's obligation to subordinate is subject and
conditioned upon the following: that the mortgagee or holder involved will at
all times and under all conditions including but not limited to any foreclosure
or other repossession proceedings agree not to disturb Tenant's occupancy of the
Premises under this Lease.
69. PROHIBITION OF USE. If at any time after execution hereof until
expiration or sooner termination of this Lease, Tenant is prohibited by any
government law, rule or regulation from operating the premises as a cosmetic and
fragrance store, Tenant shall have the right to terminate this Lease upon thirty
(30) days' prior written notice to Owner, whereupon this Lease shall terminate
thirty (30) days after the giving of such notice.
70. REPAIR AND MAINTENANCE. A. Subject to Paragraph 9 of this Lease, and to
the extent that they directly affect the premises, Owner shall, at its sole cost
and expense, maintain in good condition and repair (including any replacements
thereof) the roof (including damages to the interior of the premises, and
ceiling tiles damaged as a result of water leakage) skylights, gutters,
down-spouts, storefront (excluding plate glass), floor slab, exterior walls,
foundation, footings and all structural portions (both interior and exterior) of
the premises. Owner shall also maintain the painting of the exterior walls of
the premises and the Building.
B. If the premises are part of an entire building containing general
systems of electricity and plumbing, Tenant shall have no right to repair or,
unless damaged by the actions or omissions of Tenant or its employees or
invitees, responsibility for the same beyond the premises, nor for any portions
thereof running through, in, or across the premises but not serving the same.
Owner agrees to keep said general systems in repair so that the portions thereof
which are a part of and serve the premises will function properly if such
portions be kept in good condition and repair by Tenant.
C. Owner covenants that it will promptly make and complete any repairs
which are its obligation to make.
D. Any work which Owner shall be permitted to do under this Lease to the
premises or the Building shall be done in a good and workman-like manner in
accordance with the law.
E. Subject to the waivers of subrogation contained in this Lease, if any
repair obligated to be performed by a party ("Obligated Party") under this Lease
was caused by the negligence of the other ("Negligent Party"), the Obligated
Party shall make such repair but the Negligent Party shall reimburse the
Obligated Party for the cost of such repair to the extent that the same exceeds
any insurance proceeds (plus the amount of any deductible or self-insurance)
recoverable by the Obligated Party.
F. In exercising any of Owner's rights of access or repair within the
premises, Owner shall use reasonable efforts not: (i) materially to interfere
with the conduct of Tenant's business, or (ii) make any installations within the
sale area of the premises.
71. RULES AND REGULATIONS. Notwithstanding anything contained in this Lease
to the contrary any rules and regulations promulgated by the Owner shall not
conflict with the express terms of this Lease and shall not adversely affect or
increase the cost of the operation of Tenant's business. Owner shall not
discriminate in the enforcement of the rules and regulations. Owner further
acknowledges that the use and operations of PFC to date did not violate any of
the Rules and Regulations incorporated in the Lease and that the continuance of
such use and operations shall not be deemed to be a violation of such Rules and
Regulations.
72. BUILDING. Notwithstanding anything in this Lease to the contrary, any
use of, changes or modifications to be made to the Building shall not, without
Tenant's prior consent not to be unreasonably withheld or delayed (i) change the
location, size or configuration of the premises, (ii) materially and adversely
affect visibility, ingress or egress to the premises.
73. SIGNS. Tenant shall have the right to install, at its cost and expense,
any signs in the interior of the premises, provided that the same are
professionally made and are not taped or attached to any window (except for
credit emblems and store hours). Tenant shall not install any exterior sign
without obtaining Owner's written consent, which consent shall not be
unreasonably withheld or delayed; provided, however, Tenant shall be entitled to
continue using all exterior signs being used as of the execution date by PFC.
74. USE. Nothing herein contained shall require Tenant to open or operate
any business in the premises as long as Tenant complies with this Lease.
7
<PAGE>
75. WAIVER OF DISTRAINT; TENANT FINANCING. Owner hereby waives, releases
and relinquishes any and all liens upon and right of distraint, levy, attachment
or recourse to (whether arising by virtue of statute, common law or otherwise)
the trade fixtures, furnishings, signs, equipment, machinery, cash registers,
point of sale terminals, inventory and personal property in the premises.
Although the foregoing waiver, release and relinquishment shall be
self-operative without the necessity for any further instrument or document,
Owner hereby agrees , at Tenant's sale cost and expense, to furnish Tenant or
any lessor, lender, vendor or other supplier under any lease, conditional sale,
chattel mortgage or other security arrangement, any consignor, any holder of
reserved title or any holder of a security interest, upon written request from
time to time, waivers of Owner's liens upon and right to distraint, levy,
attachment or recourse with respect thereto and exempting the same from
distraint, levy, attachment or recourse.
76. TITLE. Owner warrants that as of the date hereof it has good title to
the premises.
77. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State in which the demised premises are located.
All references in the printed portion of this Lease to sections of New York Law
shall be considered to be references to the counterpart provisions, if any, of
the laws of the State in which the demised premises are located.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
Witness for Owner: ------------------------------------------
- ---------------------------------- ------------------------------------------
Witness for Tenant: ------------------------------------------
- ---------------------------------- ------------------------------------------
9
<PAGE>
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 ,
before me personally came
to me known, who being by me duly sworn, did depose and say that he resides
in
that he is the of
the corporation described in and which executed the foregoing instrument, as
OWNER; that he knows the seal of said corporation; the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
---------------------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 ,
before me personally came
to be known and known to me to be the individual
described in and who, as OWNER, executed the foregoing instrument and
acknowledged to me that he executed the same.
---------------------------------------------------
CORPORATE TENANT
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 ,
before me personally came
to me known, who being by me duly sworn, did depose and say that he resides
in
that he is the of
the corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
---------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 ,
before me personally came
to be known and known to me to be the individual
described in and who, as TENANT, executed the foregoing instrument and
acknowledged to me that he executed the same.
---------------------------------------------------
10
<PAGE>
Dated: _____________________________________________________________ 19____
_______________________________________________________________________________
Guarantor
_______________________________________________________________________________
Witness
_______________________________________________________________________________
Guarantor's Residence
_______________________________________________________________________________
Business Address
_______________________________________________________________________________
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this day of , 19 ,
before me personally came
to me known and known to me to be the individual described in, and who executed
the foregoing Guaranty and acknowledged to me that he executed the same.
---------------------------------------------------
Notary
IMPORTANT -- PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND MADE
A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 35.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress to and egress from
the demised premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Owner. There shall not be used in any space, or in the public hall
of the building, either by any tenant or by jobbers, or others in the delivery
or receipt of merchandise, any hand trucks except those equipped with rubber
tires and safeguards.
2.
3. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those which they were designated or constructed.
4. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the demised premises, or permit or suffer the
demised premises to be occupied or used in a manner offensive or objectionable
to Owner or other occupants of the building by reason of noise, odors and/or
vibrations or interfere in any way with other Tenants or those having business
therein.
5. Except to the extent presently existing, no sign, advertisement, notice
or other lettering shall be exhibited, inscribed, painted or affixed by any
Tenant on any part of the outside of the demised premises or the building or on
the inside of the demised premises if the same is visible from the outside of
the premises without the prior written consent of the Owner, except that the
name of Tenant may appear on the entrance door of the premises. In the event of
the violation of the foregoing by any Tenant. Owner may remove same without any
liability and may charge the expense incurred by such removal to Tenant or
Tenants violating this rule. Signs on interior doors and directory tablet shall
be inscribed, painted or affixed for each Tenant by Owner at the expense of
such Tenant, and shall be of a size, color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum or
other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used
11
<PAGE>
an interlining of builder's deadening felt shall be first affixed to the floor,
by a paste or other material, soluble in water, the use of cement or other
similar adhesive material being expressly prohibited.
7. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations or the
lease of which these Rules and Regulations are a part.
8. Owner reserves the right to exclude from the building between the hours
of 6 P.M. and 8 A.M. and at all hours on Sundays, and holidays all persons who
do not present a pass to the building signed by Owner. Owner will furnish
passes to persons for whom any Tenant requests same in writing. Each Tenant
shall be responsible for all persons for whom he requests such pass and shall
be liable to Owner for all acts of such person.
9.
10. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
11. Tenant shall not place a load on any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry
and which is allowed by law. Owner reserves the right to prescribe the weight
and position of all safes, business machines and mechanical equipment. Such
installations shall be placed and maintained by Tenant at Tenant's expense in
setting sufficient in Owner's judgment to absorb and prevent vibration, noise
and annoyance.
12. Refuse and Trash -- Tenant covenants and agrees, at its sole cost and
expense, to comply with all present and future laws, orders and regulations of
all state, federal, municipal and local governments, departments, commissions
and boards regarding the collection, sorting, separation and recycling of waste
products, garbage, refuse and trash. Tenant shall pay all costs, expenses,
fines, penalties or damages that may be imposed on Owner or Tenant by reason of
Tenant's failure to comply with the provisions of this Building Rule 12, and,
at Tenant's sole cost and expense, shall indemnify, defend and hold Owner
harmless (including reasonable legal fees and expenses) from and against any
actions, claims and suits arising from such non-compliance, utilizing counsel
reasonably satisfactory to Owner.
12
<PAGE>
Address
Premises
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TO
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STANDARD FORM OF
STORE
LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
(COPYRIGHT)COPYRIGHT 1994. ALL RIGHTS RESERVED.
REPRODUCTION IN WHOLE OR IN PART PROHIBITED.
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Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by _________________________________________________
Checked by _______________________________________________
Entered by _______________________________________________
Approved by ______________________________________________
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13
Exhibit 10(Q)
SUBLEASE
THIS SUBLEASE is dated as of the day of , 1997, between REVLON
CONSUMER PRODUCTS CORPORATION a Delaware corporation ("Sublessor"), having an
office at 625 Madison Avenue, New York, New York 10022, and THE COSMETIC CENTER,
INC., a Delaware corporation ("Sublessee"), having an office at ______________.
.
WITNESSETH:
WHEREAS, pursuant to a lease ("Main Lease"), dated as of March , 1989,
between General Motors Corporation ("GM"), as landlord, and Revlon, Inc., as
tenant, Sublessor has leased certain premises located on (i) the 49th floor and
defined in the Main Lease as the "49 Floor Premises" and (ii) the concourse
level and defined in the Main Lease as the "Concourse Premises" in the building
(the "Building") located at 767 Fifth Avenue, New York, New York;
WHEREAS, Longstreet Associates, L.P. ("Landlord") is the
successor-in-interest to GM under the Lease; and
WHEREAS, Sublessor is the successor-in-interest to Revlon, Inc. under the
Lease; and
WHEREAS, Sublessee is a subsidiary of Sublessor which is "controlled by or
under common control with" Sublessor within the meaning of Section 8.03 of the
Lease; and
WHEREAS, Sublessee desires to sublease from Sublessor and Sublessor is
willing to sublease to Sublessee the Concourse Premises (the "Premises"), on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, it is hereby agreed as follows:
1. Sublessor hereby leases to Sublessee and Sublessee hereby takes and
hires from Sublessor the Premises, for a term ("Term") commencing on the date
hereof ("Commencement Date") and ending at noon on December 30, 2004
("Expiration Date"), unless such Term shall be sooner terminated as provided
herein.
2. A. The rent reserved under this Sublease for the Term hereby created
shall be and consist of:
(i) Fixed rent ("Fixed Rent"), consisting of (a) base rent ("Base
Rent") at the rate of per annum (in equal monthly installments of
) for the period commencing on the Commencement Date and
continuing through and including , and per annum
(in equal monthly installments of ) for the period commencing on
, and continuing through and including the Expiration Date, and
(b) charges for electric current at the rate of per annum (in
equal monthly installments of ); which Fixed Rent shall be
payable in equal monthly installments commencing on the Commencement Date
and thereafter payable at least five (5) Business Days (as defined in
Paragraph 2B hereof) prior to the first day of each month during the Term,
except that the first installment of Fixed Rent due hereunder and the first
installment of Additional Sublease Rent due in accordance with Paragraphs
2A (ii) (a) and (b) shall be payable by Sublessee upon the execution of
this Sublease; and
(ii) Additional rent ("Additional Sublease Rent") as follows:
(a) seven percent (7%) of any and all increases in "Taxes" (as
defined in Section 4.01(c) of the Main Lease) above the Base Year Taxes,
which for purposes of this Sublease shall mean Taxes payable for the New
York City real estate tax year commencing July 1, 1996, and ending June
30, 1997;
(b) seven percent (7%) of any and all increases in the "Wage Rate"
(as defined in Section 5.01(d) of the Main Lease) above the "Base Rate",
which for purposes of this Sublease shall mean the Wage Rate in effect
for the twelve month period commencing January 1, 1997;
(c) seven percent (7%) of any and all increases in "Building Energy
Costs" (as defined in Section 5.01(c) of the Main Lease) above the "Base
Building Energy Costs", which for purposes of this Sublease shall mean
Building Energy Costs incurred during the twelve month period commencing
January 1, 1997;
(d) seven percent (7%) of any and all costs, expenses, charges,
payments or adjustments under the Main Lease as shall be allocable to
the premises demised under the Main Lease generally other than the fixed
annual rental specified therein and the matters set forth in clauses
(a), (b), (c) and (e) of this Paragraph 2A(ii); and
(e) one hundred percent (100%) of any and all costs, expenses,
charges, payments or adjustments under the Main Lease which are
attributable solely to the Premises other than the fixed annual rental
specified therein and the matters set forth in clauses (a), (b), (c),
and (d) of this Paragraph 2A(ii).
<PAGE>
Sublessee shall only be obligated hereunder to pay to Sublessor such portion of
any such Additional Sublease Rent as shall be allocable to the period commencing
on the Commencement Date and ending on the Expiration Date. Additional Sublease
Rent shall be payable to Sublessor within five (5) days after billing by
Sublessor therefor, without any deduction, offset, abatement, defense and/or
counterclaim whatsoever.
B. "Rent" shall mean Fixed Rent and Additional Sublease Rent payable
hereunder, collectively. "Business Days" shall mean all days other than days on
which banks in the City of New York are required or permitted to close in
accordance with federal or state laws. "Losses" means all losses, costs,
liabilities, claims, damages, penalties, fines and expenses (including, without
limitation, attorneys' fees and expenses).
C. If the Commencement Date shall not occur on the first day of a calendar
month, or the Expiration Date shall not occur on the last day of a calendar
month, Rent for the month in which the Commencement Date or Expiration Date
occurs, as the case may be, shall be prorated on a per diem basis.
D. In the event that any sums payable by Sublessor under the Main Lease are
adjusted by Landlord at the end of a year or other period, then either (i)
Sublessee shall pay to Sublessor, within five (5) Business Days after billing
therefor, Sublessee's allocable portion of any deficiencies payable to Landlord
by reason of such adjustment, which obligation of Sublessee shall survive the
termination of this Sublease, or (ii) Sublessor shall credit against the next
payments of Additional Sublease Rent coming due hereunder Sublessee's allocable
portion of any refund or credit received by Sublessor from Landlord by reason of
such adjustment, except that if no further payments of Additional Sublease Rent
shall be due hereunder, then Sublessor shall refund such amount to Sublessee
promptly upon receipt of the same from Landlord. Statements rendered by Landlord
or Sublessor shall be conclusive and binding upon Sublessee for the purpose of
determining amounts payable by Sublessee under this Sublease.
E. Fixed Rent and, except as otherwise specifically provided in this
Sublease, Additional Sublease Rent shall be paid by Sublessee to Sublessor,
without notice or demand therefor, in lawful money of the United States of
America, by check drawn on a bank that is a member of the New York Clearing
House Association, at the address of Sublessor set forth herein or at such other
address as may be designated by Sublessor from time to time. Sublessor shall
have the same rights and remedies in the event of default or non-payment of
Additional Sublease Rent as are available to Sublessor in connection with a
default or non-payment of Fixed Rent. If any amount payable by Sublessee or
repayable to Sublessee as provided for herein shall be determined after
termination of this Sublease, such amount shall nevertheless be payable by
Sublessee or repayable to Sublessee, as the case may be, in the same manner as
if this Sublease had not terminated.
F. If any installment of Rent is not paid on or before the date on which it
is due, Sublessee shall also pay to Sublessor on demand, as Additional Sublease
Rent, interest thereon, from the original due date until paid, at an annual rate
of the lesser of (i) two percent (2%) plus the "prime" or "base" interest rate
announced by Citibank, N.A., New York, New York (or any successor thereto) from
time to time or (ii) the maximum rate permitted by law.
3. Sublessee is thoroughly acquainted with the condition of the Premises
and agrees to accept the Premises on the Commencement Date AS-IS and with all
defects, and agrees that Sublessor is not required to perform any work or
furnish materials of any kind, nature or description to the Premises either
prior to the Commencement Date or at any other time during the Term of this
Sublease. Sublessee is the successor by merger to Prestige Fragrance and
Cosmetics, Inc. ("PFC"), which has been in possession of the Premises since the
"Commencement Date" of the Main Lease. No alterations, installations,
renovations or other items of work are necessary to prepare the Premises for
Sublessee's occupancy.
4. Sublessee shall observe and perform, for the benefit of Sublessor and
Landlord, all of the terms, covenants, conditions, and obligations contained in
the Main Lease to be performed and observed on the part of Sublessor, as the
tenant thereunder, during the Term of this Sublease with respect to the
Premises, other than (i) the covenants of Sublessor to pay Landlord the fixed
annual rental reserved under the Main Lease, and (ii) the covenants of Sublessor
to pay to Landlord additional rent for increases in Taxes, Wage Rates, Building
Energy Costs and electricity, Sublessee's obligations with respect to Rent
having been separately set forth hereinabove. Sublessee shall refrain from doing
or causing to be done, or suffering or permitting any thing or act to be done,
which would or might constitute a breach or default under the Main Lease or
might cause the Main Lease or the rights of Sublessor, as tenant under the Main
Lease, to be canceled, terminated, forfeited, surrendered or materially
impaired, or which would or might make Sublessor liable for any Losses, it being
expressly agreed that any such breach or violation or default shall constitute a
material breach by Sublessee of a material obligation under this Sublease.
Sublessee shall indemnify, defend and hold Sublessor harmless from and against
any and all Losses incurred in connection with or arising out of Sublessee's
failure to perform those terms, covenants and conditions of the Main Lease which
are or shall be applicable to Sublessee, and all amounts payable on account of
such indemnity shall be
2
<PAGE>
deemed Additional Sublease Rent and shall be payable upon demand. This Sublease
is subject and subordinate in all respects to the Main Lease, and to the matters
to which the Main Lease is subject and subordinate, and Sublessor may (but shall
not be obligated to) exercise all of the rights, privileges, claims, powers and
remedies with respect to the Premises reserved to Landlord under the Main Lease,
to the same extent as if fully set forth herein at length, including, without
limitation, the rights (x) arising out of any default in the payment of money or
otherwise, (y) to give, refuse to give or receive any consent, notice, waiver or
approval, and (z) to exercise any election or option (including, without
limitation, election of remedies). This Sublease is also subject to any
amendments to the Main Lease or supplemental agreements hereafter made between
Landlord and Sublessor, provided that any such amendments and/or supplemental
agreements do not increase the monetary obligations of Sublessee under this
Sublease or otherwise materially and adversely affect Sublessee or its use of
the Premises.
5. The Premises shall be occupied and used by Sublessee only in accordance
with Article 2 of the Main Lease as specifically incorporated herein and for no
other purpose or manner of use. The continued use of the Premises as heretofore
operated by PFC shall be deemed to constitute compliance with such provision for
all purposes of this Sublease. Sublessee agrees to provide the employees of
Sublessor and its affiliates (hereinafter defined) with the same discounts on
sale and other preferential treatment with which Sublessee provides its own
employees from time to time. Sublessee shall be entitled to demand presentation
of a valid and current employer identification card or equivalent evidence of
employment before granting such discount or other preferential treatment. Such
preferential treament may include, but not be limited to, special pricing or
discounts on items sold. For purposes of this Paragraph 5 and Paragraph 26
hereof, an "affiliate" shall mean any entity controlling, controlled by, or
under common control with Sublessor. "Control" shall have the meaning given to
such term in the Main Lease.
6. A. Except as otherwise provided either in this Paragraph 6 or elsewhere
in this Sublease, this Sublease shall specifically incorporate all of the terms,
covenants, conditions and provisions of the Main Lease (the incorporated terms,
covenants, conditions and provisions being hereinafter collectively referred to
as the "Incorporated Articles"). Sublessor shall have all the rights, but none
of the obligations, of Landlord under the Incorporated Articles. Sublessee shall
be entitled, during the term of this Sublease (i) to receive all services,
utilities, repairs and facilities to be provided by Landlord under the Main
Lease, subject to and in accordance with the provisions of the Main Lease
relating to the furnishing of such services, utilities, repairs and facilities,
and (ii) to have all the rights and benefits afforded to Sublessor by the Main
Lease, except as otherwise provided in this Sublease and except that the
following provisions of the Main Lease shall be deemed to be inapplicable, as
between Sublessor and Sublessee (but shall continue in full force and effect
with respect to the relationship between Landlord and Sublessor), with respect
to this Sublease: Article 1 (except that the definition of "Building", "49th
Floor Premises" and "Concourse Premises" are specifically incorporated herein);
the first sentence of Section 2.01; Article 3; Section 4.01(d); Section 4.04;
the third sentence of Section 4.05; Section 5.01(f); Section 5.03(b); Section
6.04; Article 7; Article 8 (other than Section 8.02 which is specifically
incorporated herein by reference); Section 12.05; Section 14.02; the first
sentence of Section 17.02 ; Lines 7- 40 on page 41; Section 21.03; Section
21.08; Section 31.01; Section 36.02; Article 40; Section 41.02 and any other
provision contained in the Main Lease relating expressly and solely to the 49th
Floor Premises.
B. Anything contained herein to the contrary notwithstanding, the specific
inclusion of any article of the Main Lease shall not require Sublessee to make
double payments of any charges or escalations thereunder. Any reference to
"demised Premises" or "Premises" in the Incorporated Articles shall be deemed a
reference to the Premises herein. If there shall be any inconsistency between
the Incorporated Articles and the express provisions of this Sublease, such
provisions of this Sublease shall govern. Notwithstanding the foregoing, any
reference to the Main Lease without reference to the Incorporated Articles or to
any specific provisions of the Main Lease shall mean all terms covenants,
conditions and provisions of the Main Lease.
C. Sublessor shall have no responsibility or liability of any nature
whatsoever to Sublessee as a consequence of any default of or by Landlord under
the Main Lease or for Landlord's failure or delay in furnishing to Sublessee or
the Premises any services of any kind whatsoever which Landlord is required to
furnish to Sublessor or to the Premises. In furtherance (and without limitation)
of the foregoing, Sublessee agrees that Sublessor shall have no obligation to
furnish heat, air conditioning, electricity, cleaning service, and/or any other
building services of any kind whatsoever, and that Sublessor shall not be
obligated to make any repairs or restorations of any kind whatsoever in the
Premises, Building or building facilities.
D. If Landlord shall default in any of its obligations to Sublessor with
respect to the Premises, Sublessee shall be entitled to participate with
Sublessor in the enforcement of Sublessor's rights against Landlord (and in any
recovery or relief obtained), but Sublessor shall have no obligation to bring
any action or proceeding or to take any steps to enforce Sublessor's rights
against Landlord. Any action or proceeding so instituted by Sublessor shall be
at the expense of Sublessee. If, after written request from Sublessee, Sublessor
shall fail or refuse to take appropriate action for the enforcement of
Sublessor's rights against Landlord, Sublessee shall have the right to take such
action in its own name and, for that purpose and only to
3
<PAGE>
such extent, the rights of Sublessor to enforce the obligations of Landlord
under the Main Lease with respect to the Premises are hereby conferred upon and
are conditionally assigned to Sublessee and Sublessee hereby is subrogated to
such rights (including, without limitation, the benefit of any recovery or
relief); provided, however, that (i) Sublessee shall only have such rights if
Sublessee shall not be in default under this Sublease and (ii) Sublessor shall
have the right to require Sublessee to discontinue such action if, in the
reasonable opinion of Sublessor, such action may cause a cancellation,
forfeiture, termination or material impairment of the rights of Sublessor under
the Main Lease. Sublessee shall indemnify, defend and hold Sublessor harmless
from and against any and all Losses incurred in connection with or arising out
of the taking of any such action by Sublessee.
7. A. All alterations, decorations, installations, additions, fixtures,
equipment and improvements in and to the Premises made by either Sublessor or
Sublessee (collectively, the "Leasehold Improvements"), except for movable
furniture, counters, shelving and equipment installed at Sublessee's expense
(collectively, "Sublessee's Property"), shall be and remain part of the Premises
and shall not be removed by Sublessee. Sublessee's Property shall be and remain
the property of Sublessee, may be removed by it at any time during the term of
this Sublease, and shall be removed by Sublessee at the termination of this
Sublease, whereupon Sublessee shall repair any damage caused by such removal.
Notwithstanding anything to the contrary contained herein, if Sublessee has made
any Alterations (as defined in Paragraph 7B hereof) to the Premises
(irrespective of whether Sublessor has consented to such Alterations) and if
Sublessor shall be required by Landlord pursuant to the terms of the Main Lease
to (i) remove all or any part of the Leasehold Improvements at the termination
of this Sublease and (ii) repair any damage occasioned to the Premises or the
Building by reason of such removal, Sublessor shall have the right to require
Sublessee to so remove such Leasehold Improvements and so repair the Premises.
Any of Sublessee's Property which shall remain in the Premises following the
termination of this Sublease and the vacation of the Premises by Sublessee may,
at the option of Sublessor, be deemed to have been abandoned and either may be
retained by Sublessor as its property or be removed and disposed of, without
accountability and at Sublessee's expense, in such manner as Sublessor may see
fit, with any damage to the Premises or the Building caused by such removal to
be repaired at Sublessee's expense. As a courtesy Sublessor shall use reasonable
efforts to notify Sublessee prior to such removal, but shall have no liability
to Sublessee for failure to so notify.
B. Sublessee shall make no alterations, decorations, installations,
additions or improvements (collectively, "Alterations") in the Premises without
the prior written consent of Sublessor, which consent Sublessor shall not
unreasonably withhold provided that Landlord has consented thereto and that
Sublessee complies with all applicable provisions of the Main Lease and this
Sublease. Any Alterations so consented to shall be performed by Sublessee, at
its sole cost and expense, in accordance with the applicable provisions of this
Sublease and the Main Lease.
8. Supplementing Sections 10.04 and 10.05 of the Main Lease, Sublessee
shall, at its sole cost and expense, obtain and maintain in full force and
effect during the Term, (i) a policy of fire and extended coverage insurance
insuring the Leasehold Improvements, Sublessee's Property and other personal
property in the Premises against loss of damage by fire or other casualty, in an
amount equal to the full replacement value thereof, and (ii) a policy of
comprehensive/commercial general public liability and property damage insurance
with broad form contractual liability endorsement, insuring against loss of
life, bodily injury and/or property damage with respect to the Premises and the
business operated by Sublessee in the Premises, with limits of liability of not
less than $3,000,000 for combined single limit, bodily injury and property
damage liability or such greater amount as may be required by Landlord or
Sublessor from time to time. All insurance required to be carried by Sublessee
hereunder shall be effected under valid and enforceable policies issued by
reputable solvent insurers with a rating by A.M. Best of not less than "A"-X,
licensed and admitted to do business in the State of New York, and shall
otherwise conform to the applicable provisions of the Main Lease and shall name
Landlord, Sublessor (and any other parties required to be named under the Main
Lease) as additional insureds. Evidence of such insurance, in form acceptable to
Sublessor, shall be delivered to Sublessor prior to the Commencement Date.
9. Sublessee hereby assumes all risk of loss or physical damage to its
property occurring as a result of fire or other casualty or theft, and Sublessee
hereby releases and waives all right of recovery for loss or damage to property
resulting from fire or other casualty or theft against Sublessor or anyone
claiming through or under Sublessor by way of subrogation or otherwise.
10. Neither Sublessor nor any agent, representative or employee of
Sublessor has made any representations, agreements or promises with respect to
the Building or the Premises or the use thereof, other than those expressly set
forth in this Sublease, and no rights are to be deemed acquired by Sublessee, by
implication or otherwise, except those expressly granted herein. This Sublease
contains the entire agreement between Sublessor and Sublessee with respect to
the Premises, and all prior negotiations and agreements are merged in this
Sublease. Any agreement made between Sublessor and Sublessee shall
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be ineffective to change, modify, waive, release, discharge, terminate or effect
an abandonment or surrender of this Sublease, in whole or in part, unless such
agreement is in writing and signed by both parties and consented to by Landlord
if such consent is required by the Main Lease.
11. In the event that Sublessee shall default in the performance of any
monetary obligations under this Sublease and the same is not cured within three
(3) Business Days after written notice thereof from Sublessor, or in the event
that Sublessee shall default in the performance of any non-monetary obligations
under this Sublease or any of the terms, covenants and conditions on the
tenant's part to be performed under the Main Lease and the same is not cured
within the earlier to occur of (a) twenty (20) days after receipt of written
notice thereof from Sublessor or (b) the expiration of one-half (1/2) the grace
or cure period afforded Sublessor under the Main Lease (if such non-monetary
default under this Sublease is a violation of a provision of the Main Lease that
has been incorporated by reference into this Sublease), then Sublessor shall
have the same rights and remedies with respect to such default as are given to
Landlord under the Main Lease with respect to defaults by the tenant under the
Main Lease, all with the same force and effect as though the provisions of the
Main Lease with respect to defaults and the rights and remedies of Landlord
thereunder in the event thereof were set forth at length herein. If Sublessee
shall default in the performance of any of Sublessee's obligations under this
Sublease or under the provisions of the Main Lease, and such default shall
continue beyond any grace period provided for in this Sublease, Sublessor,
without thereby waiving such default, may, at Sublessor's option, perform the
same for the account and at the expense of Sublessee. If Sublessor makes any
expenditures or incurs any obligations for the payment of money, including,
without limitation, attorney's fees and/or other professional fees and/or
expenses, in instituting, prosecuting or defending any action or proceeding, by
reason of any default of Sublessee under this Sublease, such sums paid or
obligations incurred, with interest thereon at an annual rate equal to the
lesser of (i) two percent (2%) plus the "prime" or "base" interest rate
announced by Citibank, N.A., New York, New York (or any successor thereto) from
time to time or (ii) the maximum rate permitted by law, shall be deemed to be
Additional Sublease Rent and shall be paid by Sublessee to Sublessor on demand.
12. Neither Sublessor nor its shareholders, partners, officers, directors,
agents, representatives or employees, contractors, or licensees shall be liable
to Sublessee, its agents, representatives, employees, contractors or licensees,
and Sublessee shall indemnify, defend and hold harmless Sublessor, its
shareholders, partners, officers, directors, agents, representatives and
employees and Landlord (collectively, the "Indemnified Parties," and each
individually an "Indemnified Party") from and against any and all Losses
incurred in connection with or arising from any injury to Sublessee or to any
other person or for any damage to the Premises or for any damage to, or loss (by
theft or otherwise) of, any of Sublessee's Property and/or of the property of
any other person, irrespective of the cause of such injury, damage or loss other
than Sublessor's gross negligence or willful misconduct. Sublessee shall
indemnify, defend and hold harmless the Indemnified Parties from and against any
and all Losses incurred in connection with or arising from (a) any default by
Sublessee in the observance or performance of any of the terms, covenants or
conditions of this Sublease and/or the Main Lease on Sublessee's part to be
observed or performed, or (b) the use or occupancy or manner of use or occupancy
of the Premises by Sublessee or any person claiming by, through or under
Sublessee, or (c) the condition of the Premises, or (d) any acts, omissions,
carelessness, negligence or reckless or willful misconduct of Sublessee or any
such person, or the contractors, agents, representatives, employees, servants,
visitors or licensees of Sublessee or any such person, in or about the Premises
or the Building either prior to, during, or after the expiration of the Term of
this Sublease. If any action or proceeding shall be brought against any
Indemnified Party hereunder by reason of any such claim, Sublessee, upon notice
from Sublessor or such other Indemnified Party, agrees to resist or defend such
action or proceeding and to employ counsel therefor reasonably satisfactory to
Sublessor. Sublessee shall pay to Sublessor or the applicable Indemnified Party
on demand all sums which may be owing to Sublessor or such other Indemnified
Party hereunder by reason of the provisions of this Paragraph 12. Sublessee's
obligations under this Paragraph 12 shall survive the termination of this
Sublease. All amounts payable to Sublessor or Landlord under this Paragraph 12
shall constitute "Rent" under this Sublease.
13. Any notice, demand or communication which, under the terms of this
Sublease or under any statute or municipal regulation (unless provided to the
contrary in such statute or regulation), must or may be given by the parties
hereto, may also be given on behalf of such party by its counsel and shall be
effective only if in writing and given or made by personal delivery on Business
Days between the hours of 9:00 a.m. and 5:00 p.m. or by mailing the same by
registered or certified mail, postage prepaid, return receipt requested, or by
reliable overnight courier (such as Federal Express) with all charges prepaid
and delivery receipted for, addressed as follows: if to Sublessee, at its
address as set forth on page 1 hereof, and in each instance, with a copy to:
Attention: , and, if
to Sublessor, at its address set forth on page 1 hereof, marked "Sublease
Notice", Attention: Vice President for Real Estate. Either party, however, may
designate a new or other address or person to which such notice, demand or
communication shall thereafter be
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given, made or mailed. Any notices, demands or communications given hereunder
shall be deemed delivered on the date of such personal delivery or on the third
(3rd) Business Day after such mailing.
14. In the event that Sublessee shall require overtime heating, ventilating
or air conditioning, or cleaning in excess of that normally provided by
Landlord, or any other service for which Landlord may impose a separate charge,
Sublessee shall notify Landlord directly and shall request Landlord to bill
Sublessee directly for any charges therefor. If Landlord fails to respond to
Sublessee, Sublessor shall, at Sublessee's cost, make such request to Landlord
on Sublessee's behalf. If such charges shall be billed by Landlord to Sublessor,
Sublessee shall reimburse Sublessor for the full amount of the charges made by
Landlord for providing such services, such reimbursement to be paid on demand.
All amounts to be so reimbursed to Sublessor shall constitute "Rent" under this
Sublease.
15. Sublessee acknowledges that it has received and reviewed a copy of the
Main Lease.
16. Sublessee hereby waives the right to interpose a counterclaim in any
summary proceeding instituted to remove Sublessee from the Premises or in any
action instituted for unpaid Rent under this Sublease, except any counterclaim
which would be waived if not so brought.
17. Neither this Sublease nor the term and estate hereby granted nor any
interest in the Premises shall be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Sublessee, by operation of law or otherwise, and
neither the Premises, nor any part hereof, shall be sublet or used or occupied,
or utilized for desk space or for mailing privileges, by any one other than
Sublessee without the prior written consent of Sublessor in each instance,
provided that the provisions of the Main Lease with respect to a proposed
subletting shall be complied with and subject to the rights of Landlord with
respect thereto, and further provided that the provisions of Sections 8.05, 8.06
and 8.07 of the Main Lease shall be applicable to such subletting as between
Sublessor and Sublessee so that Sublessor shall have the same rights given to
Landlord thereunder with respect to such subletting (including, without
limitation, the right to collect from Sublessee, as Additional Rent, all of any
rents, additional charges or other consideration payable to Sublessee by its
sublessee which is in excess of the proportionate share of Fixed Rent and
Additional Rent payable in accordance with this Sublease accruing during the
term of such sublease in respect of the subleased portion of the Premises
pursuant to and in accordance with the terms of Section 8.07 of the Main Lease).
18. Sublessee shall pay directly to the City of New York all occupancy and
rent taxes which may be payable by Sublessee with respect to Rent and shall pay
directly to the appropriate taxing authority any and all other taxes the payment
of which shall be imposed directly on the occupant of the Premises.
19. In the event of and upon the termination or cancellation of the Main
Lease pursuant to the terms and provisions thereof, this Sublease shall
automatically cease and terminate.
20. Sublessor and Sublessee represent and warrant each to the other that
the party making such representation has not (a) dealt with any broker, finder
or similar person who could be entitled to a commission, fee or other
compensation in connection with the consummation of this Sublease, or (b) held
any conversations or prior negotiations with any broker, finder or similar
person concerning the renting of the Premises to Sublessee which would entitle
such broker, finder or person to receive a commission, fee or other compensation
in connection with this Sublease. Each party shall indemnify, defend and hold
the other harmless from and against any and all claims for a commission, fee or
other compensation arising from a breach of the foregoing warranty. The
provisions of this Paragraph 20 shall survive the termination of this Sublease.
21. Reference in this Sublease to "termination" of this Sublease includes
expiration or earlier termination of the term hereof or cancellation of this
Sublease pursuant to any of the provisions of this Sublease or pursuant to law.
Upon the termination of this Sublease, the term and estate granted by this
Sublease shall end at noon on the date of termination as if such time and date
were the time and date of expiration of the Term hereof, and neither party shall
have any further obligation or liability to the other after such termination,
except (i) as shall be expressly provided for in this Sublease, and (ii) for
such obligations as by their nature or under the circumstances can only be, or
by the provisions of this Sublease, may be, performed after such termination
and, in any event, unless otherwise expressly provided in this Sublease any
liability for a payment which shall have accrued to or with respect to any
period ending at the time of such termination shall survive the termination of
this Sublease.
22. Each right and remedy of Sublessor provided for in this Sublease shall
be cumulative and shall be in addition to every other right and remedy provided
for in this Sublease or now or hereafter existing at law or in equity or by
statute or otherwise.
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23. The terms, covenants and conditions contained in this Sublease shall
bind and inure to the benefit of Sublessor and Sublessee and their respective
successors and assigns, except that no violation of the provisions of Paragraph
17 hereof shall operate to vest any rights in any successor or assignee of
Sublessee. It is understood and agreed that the obligations of Sublessor under
this Sublease shall not be binding upon Sublessor with respect to any period
subsequent to the transfer of its interest in the Main Lease, and that in the
event of such transfer said obligations shall be binding upon the transferee of
Sublessor's interest as tenant under the Main Lease, but only with respect to
the period commencing on the date of such transfer and ending on the date of a
subsequent transfer thereof.
24. If any term, covenant, condition or provision of this Sublease, or the
application thereof to any circumstance or to any person, firm or corporation,
shall be invalid or unenforceable to any extent, the remaining terms, covenants,
conditions and provisions of this Sublease, or the application thereof to any
circumstances or to any person, firm or corporation, other than those as to
which any term, covenant, condition or provision is held invalid or
unenforceable, shall not be affected thereby, and each remaining term, covenant,
condition and provision of this Sublease shall be valid and shall be enforceable
to the fullest extent permitted by law.
25. This Sublease shall not be binding on Sublessor or Sublessee until it
has been executed by both parties and a copy thereof delivered to each party.
26. If any transaction or event shall occur which would result in Sublessee
no longer being controlled by, under common control with or in control of
Sublessor, as such terms are defined in Section 8.03 of the Main Lease, then
this Sublease shall become expressly conditioned on the receipt of the written
consent of Landlord ("Landlord's Consent") to this Sublease. In the event
Landlord's Consent is not received within thirty (30) days following the
occurrence of such transaction or event then the Term of this Sublease shall
automatically expire on the 31st day. Upon the redelivery of possession of the
Premises to Sublessor and the return of any payments theretofore made by
Sublessee in respect of Fixed Rent or Sublease Additional Rent, neither party
shall have any further rights or obligations under this Sublease. With respect
to this Sublease, Sublessee shall cooperate in good faith with Sublessor in
obtaining Landlord's Consent and shall comply with any reasonable request made
of Sublessee by Sublessor or Landlord in connection with the procurement of
Landlord's Consent. With respect to this Sublease, Sublessor shall not be
obligated to make any payment, relinquish any right or increase its obligations
under the Main Lease in order to obtain Landlord's Consent.
27. During the Term of this Sublease, Sublessor shall promptly give to
Sublessee copies of any and all notices, including notices of default, of any
kind or nature given to or received from Landlord with respect to the Premises
or this Sublease.
28. Sublessor hereby represents and warrants to Sublessee as follows:
(a) The Main Lease is in full force and effect and Sublessor has
received no notice from Landlord that a default presently exists under the
Main Lease;
(b) The copy of the Main Lease attached hereto is a true and complete
copy of the Main Lease and all amendments thereto; and
(c) The current term of the Main Lease expires on December 31, 2004.
29. Sublessor agrees that, during the Term of this Sublease, Sublessor
shall not voluntarily cause the termination of the Main Lease, or take any
action which would cause the Main Lease to be canceled, terminated, forfeited or
surrendered.
30. If at anytime during the Term of this Sublease, Sublessor terminates
its Purchase and Supply Agreement, dated , 199 , with Sublessee and
does not agree to continue to supply products for resale at the Premises,
Sublessee shall have the right at any time thereafter to terminate this Sublease
upon ninety (90) days' prior written notice to Sublessor.
31. Either party shall, without charge, at any time hereafter, within
twenty (20) Business Days after receipt of written request from the other,
certify by written instrument, duly executed and acknowledged, to any ground
lessee, mortgagee or purchaser, or assignee or sublessee of Sublessee permitted
under the provisions of this Sublease, the following: (a) whether this Sublease
has been supplemented or amended, and if so, the substance and manner of such
supplement or amendment; (b) the existence of any default under this Sublease as
to which such party is aware on the part of the nonexecuting party, and, if so,
a description of such default; (c) the Commencement Date and the Expiration Date
of this Sublease; (d) Any other factual matters specifically concerning this
Sublease as may reasonably be so requested. Any such certificate may be relied
upon by the addressee thereof and shall be binding upon the certifying party as
against such addressee.
32. In the event either party hereto brings or commences legal proceedings
to enforce any of the terms of this Sublease, the successful party in such
action shall then be entitled to receive and shall receive from the other of
said parties, in every
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such action commenced, a reasonable sum as attorneys' fees and costs, to be
fixed by the court in the same action, provided that such sum shall be based
solely on reimbursement for payment by the other party calculated at standard
hourly rates and not upon any recovery or award constituting a percentage or
"contingency" fee.
33. To the extent permitted under the Main Lease, Sublessee may insure for
the amount of any insurance required to be carried under this Sublease by
Sublessee, under a blanket policy or policies, covering other liabilities of
Sublessee and its subsidiaries, controlling or affiliated corporation.
34. To the fullest extent permitted by the Main Lease, Sublessor hereby
waives, releases and relinquishes any and all liens upon and rights of
distraint, levy, attachment or recourse to (whether arising by virtue of
statute, common law or otherwise) the trade fixtures, furnishings, signs,
equipment, machinery, cash registers, point of sale terminals, inventory and
personal property in the Premises. Although the foregoing waiver, release and
relinquishment shall be self-operative without the necessity for any further
instrument or document, Sublessor hereby agrees to furnish, at Sublessee's sole
cost and expense, to Sublessee or any lessor, lender, vendor or other supplier
under any lease, conditional sale, chattel mortgage or other security
arrangement, any consignor, any holder of reserved title or any holder of a
security interest, upon written request from time to time, waivers of
Sublessor's liens upon and right to distraint, levy, attachment or recourse with
respect thereto and exempting the same from distraint, levy, attachment or
recourse.
35. This Sublease shall be governed and construed in accordance with the
laws of the State of New York.
36. This Sublease shall be construed without regard to any presumption or
other rule requiring construction against the party causing it to be drafted,
both parties having been represented by counsel and both having contributed to
the final drafting of this Sublease.
IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this
Sublease as of the day and year first above written.
SUBLESSOR:
REVLON CONSUMER PRODUCTS CORPORATION
---------------------------------------
By:
Title:
SUBLESSEE:
THE COSMETIC CENTER, INC.
---------------------------------------
By:
Title:
8
AGREEMENT OF LEASE
AGREEMENT OF LEASE dated as of _____, 199_ (as the same may be amended or
otherwise modified from time to time, the "Lease") by and between REVLON
CONSUMER PRODUCTS CORPORATION, a Delaware corporation ("Lessor"), having an
office at 625 Madison Avenue, New York, NY, and THE COSMETIC CENTER, INC., a
Delaware corporation("Lessee"),having an office at ____________________________.
1. Certain Definitions. The terms defined in this PARAGRAPH shall, for all
purposes of this Lease, have the meanings specified herein, unless the context
otherwise requires.
1.1 "Building": Commonly described as being located at 2182 Route 35, in
the Township of Holmdel, County of Monmouth, State of New Jersey. "Building"
shall include any adjacent parking structures, if any, used in connection with
the Building.
1.2 "Industrial Center": The Premises, the Building, the Common Areas, the
land upon which the same are located, along with all other buildings and
improvements currently thereon or thereunder, as shown on EXHIBIT A-1.
1.3 "Premises": That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
consisting of approximately 15,000 square feet of office space ("Office Space")
and approximately 78,000 square feet of warehouse space ("Warehouse Space"),
totalling approximately 93,000 square feet, as shown on EXHIBIT A hereto.
1.4 "Prime Rate": The fluctuating rate of interest per annum published in
the Wall Street Journal, Eastern Edition (or in any similar financial
periodical, as Lessor, in its sole discretion may choose in the event that the
Wall Street Journal ceases to publish a "Prime Rate"), from time to time as
being the "Prime Rate" of interest. Any change in the Prime Rate shall be
effective as of the date such published Prime Rate changes.
2. Premises, Parking and Common Areas.
2.1 Premises. Subject to the terms and conditions of this Lease, including
the Rules and Regulations, Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, for the Term, the Premises.
2.2 Vehicle Parking.
(a) Subject to the Rules and Regulations, and the terms and
conditions of this Lease, Lessee shall be entitled during the Term to use the
unreserved parking spaces in the Industrial Center designated from time to time
by Lessor for parking. The spaces presently so designated are shown on EXHIBIT B
hereto. Lessee shall not use more parking spaces than those so designated. Said
parking spaces shall be used for parking by vehicles no larger than full-size
passenger automobiles, pick-up trucks or vans, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations.
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the Rules and Regulations, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and charge
the cost to Lessee, which cost shall be immediately payable upon demand by
Lessor.
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2.3 Common Areas-Definition. "Common Areas" means all areas
and facilities outside the Premises and within the exterior boundary line of the
Industrial Center and all interior utility raceways within the Premises that are
provided and designated by Lessor for the general non-exclusive use of Lessor,
Lessee and other lessees or users of the Industrial Center and their respective
employees, suppliers, shippers, customers, contractors and invitees, including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways and landscaped areas. The Common Areas are shown
on EXHIBIT A-1.
2.4 Common Areas-Lessee's Rights. Lessor hereby grants to
Lessee, for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the Term, the non-exclusive right to
use, in common with others entitled to such use, the Common Areas as they exist
from time to time, subject to any rights, powers, and privileges reserved by
Lessor under the terms hereof or under the Rules and Regulations. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost of such
removal to Lessee, which cost shall be immediately payable by Lessee upon demand
by Lessor.
2.5 Common Areas-Rules and Regulations. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right to establish, modify, amend and
enforce the Rules and Regulations. Lessee agrees to abide by and conform to the
Rules and Regulations, and to cause its agents, employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform.
2.6 Common Areas-Changes. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Building interior and
exterior and/or to the Common Areas, including, without limitation, changes in
the location, size, shape and number of driveways, entrances, parking spaces,
parking areas, loading and unloading areas, ingress, egress, direction of
traffic, landscaped areas, walkways and utility raceways; provided such changes
do not materially adversely affect Lessee's use of the Premises.
(b) To close temporarily any of the Common Areas for
maintenance or other purposes so long as reasonable access to the Premises
remains available;
(c) To designate other land outside the boundaries of
the Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to
the Common Areas;
(e) To use the Common Areas, to the exclusion of
Lessee, while engaged in making additional improvements, repairs or alterations
to the Industrial Center, or any portion thereof; and/or
(f) To do and perform such other acts and make such
other changes in, to or with respect to the Common Areas and the Industrial
Center as Lessor may, in the exercise of sound business judgment, reasonably
deem to be appropriate.
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3. Term; Commencement Date, Option(s) to Extend.
3.1 Term. The term of this Lease (the "Term") shall, subject
to the remaining provisions of PARAGRAPH 3, commence on the date of this Lease
(such date, the "Commencement Date") and shall end on the last day of the month
which is 60 months after the Commencement Date, or any earlier termination of
this Lease (such earlier date, the "Expiration Date"), as provided in PARAGRAPH
3.3.
3.2 Possession. Lessee acknowledges that its predecessor-in-
interest, Prestige Fragrance and Cosmetics, Inc., a Delaware corporation ("PFC")
has been in possession of the Premises since _________________. Lessee will
continue in possession as PFC's successor by merger, and accepts possession
AS-IS and with all defects, patent and latent.
3.3 Early Termination.
(a) The Lessee shall be entitled to terminate this Lease by
giving Lessor at least sixty (60) days' prior written notice of such termination
("Termination Notice"). If any of the events set forth in PARAGRAPH 3.3(b) shall
occur ("Lessor Termination Events"), the Lessor shall be entitled to terminate
this Lease by giving Lessee a Termination Notice at least one hundred eighty
(180) days prior to the effective date thereof. Any Termination Notice given
under this PARAGRAPH shall specify the effective date of such termination.
Lessee shall not be liable to pay any termination or other fee or expense in
connection with the termination of the Lease under this PARAGRAPH, and, upon
termination of the Lease under this PARAGRAPH, Lessee shall have no further
liability to Lessor under this Lease, except as otherwise provided in this
Lease.
(b) Each of the following shall be a "Lessor Termination
Event" giving Lessor the right but not the obligation to terminate this Lease as
set forth in PARAGRAPH 3.3(a):
(i) The acceptance by Lessor of an offer to lease or
sell the Building to a third party. For purposes hereof, a sale of assets, sale
of stock, merger or other transaction in which control of Lessor or the Building
is to be conveyed to a third party shall constitute a "sale" of the Building.
(ii) The cessation of all or a substantial portion of
the operations of Lessor at the Industrial Center.
(iii) The entry by Lessor into an agreement with a
third party for a change in control of Lessee, or the occurrence of a change in
control of Lessee. A "change in control" of Lessee for purposes of this Lease
shall be deemed to have taken place if (A) Lessor or any of its affiliates no
longer have the power to vote, directly or indirectly, whether through record or
beneficial ownership, a voting trust arrangement, or other contractual
arrangement, a majority of the voting power of the outstanding shares of Lessee,
or (B) all or substantially all of Lessee's assets are sold to any person other
than an affiliate of Lessor. For purposes hereof, a "person" includes an
individual, corporation, partnership, trust, association, joint venture, pool,
syndicate, unincorporated organization, joint stock company, or similar
organization or group acting in concert. A "person" for these purposes shall be
deemed to be a "beneficial owner" as that term is used in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
4. Rent.
4.1 Payment of Base Rent; Initial Payment of Base Rent. Except
as may be otherwise expressly provided in this Lease, Lessee shall pay to Lessor
without offset, counterclaim or deduction, the Base Rent and all other rent or
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charges. Lessee shall pay Lessor upon the execution hereof the Base Rent for the
month during which the Commencement Date occurs. Base Rent and all other rent
and charges for any period of the Term which is for less than one full month
shall be prorated based upon the actual number of days of the month involved.
Payment of Base Rent and other charges shall be made to Lessor at its address
stated herein or to such other persons or at such other addresses as Lessor may
designate in writing.
4.2 Amount of Base Rent; Rent Adjustment. The base rent ("Base
Rent") payable during the initial Term of this Lease shall be as set forth
below, and such monthly base rent shall be paid, in advance, on the first day of
each month:
Annual Base Rent Monthly Base Rent
---------------- -----------------
Office Space $ 63,750.00 $ 5,312.50
- -------------------- ----------- ----------
Warehouse Space $331,500.00 $27,625.00
- -------------------- ----------- ----------
Total Base Rent: $395,250.00 $32,937.00
4.3 Common Area Operating Expenses. In accordance with the
following provisions, Lessee shall pay to Lessor during the Term, in addition to
the Base Rent, Lessee's Share of all Common Area Operating Expenses during each
calendar year (or part thereof) of the Term, in accordance with the following
provisions:
(a) "Lessee's Share" shall mean 17.2 percent (17.2%),
as determined by the square footage of the Premises as compared to the total
leasable square footage of the Industrial Center, which shall be conclusively
presumed to be 540,000 square feet for all purposes of this Lease. Lessor and
Lessee agree that the square footage figures set forth herein are
approximations, are reasonable and are binding upon them. Lessee's Share shall
not be subject to revision except in connection with a change in the size of the
Premises or a change in the space available for lease in the Industrial Center.
(b) "Common Area Operating Expenses" shall mean all
reasonable and customary costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in
neat, clean, good order and condition, of
the Industrial Center, or any part
thereof, including but not limited to,
the following:
(aa) The Common Areas, including parking
areas, loading and unloading areas,
trash areas, roadways, sidewalks,
walkways, parkways, driveways,
landscaped areas, striping, bumpers,
irrigation systems, Common Area
lighting facilities, fences and gates,
elevators and roof.
(bb) Exterior signs and any tenant
directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and
telephone to service the Common Areas.
(iii) Trash disposal, property management and
security services and the costs of any
environmental inspections.
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(iv) Reserves set aside for maintenance and
repair of Common Areas.
(v) The amount of Real Property Taxes to be
paid by Lessor under PARAGRAPH 5 hereof.
(vi) The cost of the premiums for the
insurance policies maintained by Lessor
in respect of the Industrial Center,
including, without limitation, any
policies maintained pursuant to the
provisions of this Lease.
(vii) Any deductible portion of an insured loss
concerning the Building or the Common
Areas.
(viii) Management fees attributable to the
operation of the Industrial Center (not
to exceed 6% of the gross rents payable
by all lessees of the Industrial Center),
including any management fees payable to
an affiliate of Lessor.
(ix) Any other services to be provided by
Lessor to Lessee, and any similar service
which is provided by Lessor to other
lessees of the Industrial Center or any
part thereof and any other expense
elsewhere in this Lease described as a
Common Area Operating Expense.
Notwithstanding anything to the contrary contained in this Lease, the following
shall be excluded from the definition of Operating Expenses:
(i) the overhead and profit increment paid
to Affiliates of Lessor for services relating to the
Building, to the extent that the cost of such
services exceeds competitive costs for such services
rendered by unaffiliated Persons or entities with
similar skill, competence and experience;
(ii) Lessor's general overhead and general
and administrative expenses;
(iii) interest, fines or penalties due to
late payment of Real Estate Taxes or Operating
Expenses;
(iv) financing or mortgage costs, including
payment of the interest on or principal of borrowed
money;
(v) depreciation expense;
(vi) leasing commissions;
(vii) the cost of lessee improvements;
(viii) ground rent;
(ix) legal fees for leasing vacant space in
the Building and for enforcing lessees' leases;
(x) the cost of electricity and other
utility charges for heating, ventilating and
air-conditioning which are separately metered to, and
paid by, other lessees of the Building; and
(xi) the cost of any improvements which, in
accordance generally accepted accounting principles,
are classified as a capital expenditure, subject to
the provisions of PARAGRAPH 8.2(d).
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(c) Any Common Area Operating Expenses and Real
Property Taxes that are specifically attributable to the Building or to any
other building in the Industrial Center or to the operation, repair and
maintenance thereof, shall be allocated entirely to the Building or to such
other building. However, any Common Area Operating Expenses and Real Property
Taxes that are not specifically attributable to the Building or to any other
building or to the operation, repair and maintenance thereof, shall be equitably
allocated by Lessor to all buildings in the Industrial Center.
(d) The inclusion of the improvements, facilities and
services set forth in PARAGRAPH 4.3(b) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same, Lessor
already provides the services, or Lessor has agreed elsewhere in this Lease to
provide the same or some of them.
(e) Lessee's Share of any Common Area Operating
Expenses shall be payable by Lessee within thirty (30) days after a statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time in advance of the payment
by Lessee of Lessee's Share of actual annual Common Area Operating Expenses and
the same shall be payable monthly or quarterly, as Lessor shall designate,
during each 12-month period of the Term, on the same day as the Base Rent is due
hereunder. Lessor's estimates shall be reasonable. Lessor shall deliver to
Lessee within ninety (90) days after the expiration of each calendar year a
statement showing Lessee's Share of the actual Common Area Operating Expenses
incurred during the preceding year. If Lessee's payments under this PARAGRAPH
during said preceding year exceed Lessee's Share as indicated on said statement,
Lessee shall be credited the amount of such over-payment, first against the next
Lessee's Share of Common Area Operating Expenses becoming due, and to the extent
of any overage, next against the installment of Base Rent next coming due; or,
if, at the expiration of the Term, there are no additional payments or
installments becoming due, Lessor shall pay to Lessee the amount of such
over-payment within thirty (30) days after delivery by Lessor to Lessee of said
statement. If Lessee's payments under this PARAGRAPH during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. Real Property Taxes.
5.1 Payment of Taxes. Except as otherwise provided in
PARAGRAPH 5.2, it shall be Lessor's obligation to pay the Real Property Tax
applicable to the Industrial Center, subject to reimbursement by Lessee of
Lessee's Share of such Real Property Taxes in accordance with the provisions of
PARAGRAPH 4.3.
5.2 Additional Improvements. Common Area Operating Expenses
shall not include any Real Property Taxes specified in the tax assessor's
records and work sheets as being caused by additional improvements (in excess of
Building standard and in excess of those improvements currently in the Premises)
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Notwithstanding PARAGRAPH 5.1 hereof,
Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses
are payable under PARAGRAPH 4.3 the entirety of any increase in any Real
Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or
Utility Installations (in excess of Building standard and in excess of those
improvements currently in the Premises) placed upon the Premises by Lessee or at
Lessee's request.
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5.3 Definition of Real Property Tax. The term "Real Property
Taxes" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "Real Property Taxes" shall also include any tax,
fee, levy, assessment or charge of the type described in the preceding sentence,
or any increase therein, imposed by reason of events occurring, or changes in
Applicable Law taking effect, during the Term, including but not limited to a
change in the ownership of the Industrial Center or in the improvements thereon,
the execution of this Lease, or any modification, amendment or transfer thereof,
and whether or not contemplated by the parties. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax
year shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and tax
year have in common. Notwithstanding anything to the contrary contained in this
Lease, Real Estate Taxes and Operating Expenses shall not include any
inheritance, personal income, estate, transfer or recordation taxes.
5.4 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes
assessed against and levied upon its Alterations and Utility Installations,
Trade Fixtures, furnishings, equipment and all other personal property of Lessee
contained in the Premises or stored within the Industrial Center or elsewhere.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of such personal property of Lessee shall
be assessed with Lessor's property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within thirty (30) days after receipt of a
written statement setting forth the taxes applicable to Lessee's property.
5.5 Joint Assessment. If the Building is not separately
assessed, Real Property Taxes allocated to the Building shall be an equitable
proportion of the Real Property Taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets or
such other information as may be reasonably available. Lessor's reasonable
determination thereof shall be conclusive.
5.6 Rent Tax. If applicable in the jurisdiction where the
Premises is situated, Lessee shall pay and be liable for all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payment is to be in
addition to all other payments required to be paid to Lessor by Lessee under the
terms of this Lease. Any such payment shall be paid concurrently with the
payment of the Base Rent or other charge upon which the tax is based as set
forth above.
6. Use; Compliance with Law; Condition of Premises.
6.1 Permitted Use. The Premises shall be used and occupied by
Lessee only for the following purpose (the "Permitted Use") and no other
purpose: the Office Space shall be used for general office purposes, and the
Warehouse Space shall be used as a storage and distribution facility for
products sold in PFC's and Lessee's retail stores.
6.2 Condition of the Premises. Lessee shall accept the
Premises in AS-IS condition at the Commencement Date. Lessor makes no
representations or
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warranties whatsoever regarding the Premises, the Building or the Industrial
Center, including without limitation about the condition of the Premises.
6.3 Compliance with Covenants, Restrictions and Building Code.
Lessee represents to Lessor that Lessee has received no written notice of any
claim by any governmental agency that a violation or violations of applicable
building codes, regulations, or ordinances exist with regard to the Premises as
of the Commencement Date. Said representation shall not apply to any Alterations
or Utility Installations made, or to be made, by Lessor. If the Premises do not
comply with said representation, Lessee shall, except as otherwise provided in
this Lease, promptly after receipt of written notice from Lessor, rectify any
such violation.
6.4 Acceptance of Premises. Lessee hereby acknowledges: (a)
that it has been advised to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, the presence or absence of lead paint,
seismic and earthquake requirements, and compliance with the Americans with
Disabilities Act and applicable zoning, municipal, county, state and federal
laws, ordinances and regulations and any covenants or restrictions of record
(collectively, "Applicable Laws") and the present and future suitability of the
Premises for Lessee's intended use; (b) that it has made such investigation as
it deems necessary with reference to such matters, is satisfied with reference
thereto, and assumes all responsibility therefor as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease; (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written representations
or warranties with respect to said matters; and (d)it accepts the Premises and
Industrial Center in their condition on the Commencement Date, "AS IS" and with
all defects, patent and latent.
6.5 Hazardous Substances.
(a) Reportable Uses Require Consent. The term
"Hazardous Substance" as used in this Lease shall mean any product, substance,
chemical, material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and compliance in a timely manner (at Lessee's sole
cost and expense) with all Applicable Requirements. "Reportable Use" shall mean
(i) the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority, and (iii) the presence in, on or about the Premises of a
Hazardous Substance with respect to which any Applicable Laws require that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but upon prior written notice to Lessor and in compliance with all
Applicable Requirements, use any ordinary and customary materials reasonably
required to be used by Lessee in the normal course of the Permitted Use, so long
as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to any Reportable Use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
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itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal) on or before the Expiration
Date of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit under
PARAGRAPH 15. Notwithstanding anything to the contrary contained in this Lease,
Lessor hereby consents to Lessee's storage and handling in and about the
Premises of all cosmetic and other products held by Lessee for sale. Lessee
agrees to comply with all Applicable Requirements relating to the storage and
handling of such products in or about the Premises.
(b) (1) Notification of Any Release or Discharge.
Lessee shall immediately notify Lessor in
writing of any "Release" of any Hazardous
Substance of which Lessee has knowledge,
whether or not the Release is in quantities
that would require under Applicable
Requirements the reporting of such Release
to a governmental or regulatory agency.
"Release" shall mean any spilling, leaking,
pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching,
dumping, or disposing into the indoor or
outdoor environment, including, without
limitation, the abandonment or discarding of
barrels, drums, containers, tanks or other
receptacles containing or previously
containing any Hazardous Substance, by
Lessee or its agents, contractors, employees
or invitees.
(2) Notification of Any Notice, Investigation,
or Claim. Lessee shall also immediately
notify Lessor in writing of, and shall
contemporaneously provide Lessor with a copy
of,
(A) Any written notice of Release of
Hazardous Substances in the Premises
that is provided by Lessee or any
subtenant or other occupant of the
Premises to a governmental or
regulatory agency;
(B) Any notice of a violation, or a
potential or alleged violation, of
any Applicable Requirement that is
received by Lessee or any subtenant
or other occupant of the Premises
from any governmental or regulatory
agency;
(C) Any inquiry, investigation,
enforcement, cleanup, removal, or
other action that is instituted or
threatened by a governmental or
regulatory agency against Lessee or
any subtenant or other occupant of
the Premises and that relates to the
Release of any Hazardous Substance
on or from the Premises;
(D) Any claim that is instituted or
threatened by any third party
against Lessee or any subtenant or
other occupant of the Premises and
that relates to any Release of any
Hazardous Substance on or from the
Premises; and
(E) Any notice of the loss of any
environmental operating permit by
Lessee or any subtenant or other
occupant of the Premises.
(3) Failure to Comply. Failure to comply with
the provisions of this PARAGRAPH 6.5 shall
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constitute a material default under this
Lease. In the event of such default, Lessor
shall have all rights available under the
Lease and at law or equity including,
without limitation, the right to either:
(A) Terminate the Lease and collect
damages Lessor incurs as a result of
such default, including, without
limitation, cleanup costs incurred
by Lessor resulting from the cleanup
of any Hazardous Substances released
into the Premises, soil, or
groundwater; or
(B) Require the cleanup of such
Hazardous Substance at the Lessee's
sole expense while still enforcing
the remaining terms and obligations
of the Lease.
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its shareholders, agents, employees, lenders and ground lessor,
if any, and the Industrial Center, harmless from and against any and all
damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss
of permits and attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee or by anyone
under Lessee's control. Lessee's obligations under this PARAGRAPH shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered to exist by Lessee, and the cost
of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. Lessee's obligations under this PARAGRAPH shall also
include, but not be limited to, the defense or pursuit of any claim or any
action or proceeding involved therein, and whether or not (in the case of claims
made against Lessor and/or such other indemnified persons and entities)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor and/or such other indemnified persons and entities by
reason of any of the foregoing matters, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessor or such other
indemnified persons and entities need not have first paid any such claim in
order to be so indemnified. The provisions of this PARAGRAPH 6.5 shall survive
the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement by reference to this PARAGRAPH.
(d) Indemnification. Lessor shall indemnify, protect,
defend and hold Lessee, its shareholders, agents, employees, and lenders if any,
harmless from and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Industrial Center, other than by or for Lessee or by anyone under
Lessee's control. Lessor's obligations under this PARAGRAPH shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered to exist by Lessor, and the cost
of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. Lessor's obligations under this PARAGRAPH shall also
include, but not be limited to, the defense or pursuit of any claim or any
action or proceeding involved therein, and whether or not (in the case of claims
made against Lessee and/or such other indemnified persons and entities)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessee and/or such other indemnified persons and entities by
reason of any of the foregoing matters, Lessor upon notice from Lessee shall
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defend the same at Lessor's expense by counsel reasonably satisfactory to Lessee
and Lessee shall cooperate with Lessor in such defense. Lessee or such other
indemnified persons and entities need not have first paid any such claim in
order to be so indemnified. The provisions of this PARAGRAPH 6.5 shall survive
the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessor from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessee in writing at the time of
such agreement by reference to this PARAGRAPH.
6.6 Lessee's Compliance with Requirements. Lessee shall, at
Lessee's sole cost and expense, fully, diligently and in a timely manner, comply
with all Applicable Requirements. "Applicable Requirements" means all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, and the requirements of any applicable fire
insurance underwriter or rating bureau, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.7 Inspection; Compliance with Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Industrial Center or any
interest therein ("Lenders") shall have the right to enter the Premises at any
time in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease and all Applicable Requirements, and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Rules and Regulations. Lessor shall have the right to enact, modify, amend
and enforce reasonable rules and regulations for the Industrial Center (the
"Rules and Regulations"). Lessee and Lessee's employees, suppliers, shippers,
contractors, customers, invitees and agents shall observe faithfully and comply
strictly with the Rules and Regulations; provided, however, that in case of any
conflict or inconsistency between the provisions of this Lease and of any of the
Rules and Regulations as originally or as hereafter adopted, the provisions of
this Lease shall control. Lessor shall not be responsible to Lessee for the
non-compliance with the Rules and Regulations by other lessees of the Industrial
Center, or any part thereof, and/or any of their employees, suppliers, shippers,
contractors, customers, invitees and agents. Written notice of any additional
Rules and Regulations shall be given to Lessee. No written Rules and Regulations
presently exist.
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8. Maintenance, Repairs, Utility Installations, Trade Fixtures,
Alterations and Common Area Service.
8.1 Lessor's Obligations. Subject to the other provisions of
this Lease, including, without limitation, PARAGRAPHS 6.2 (Condition of the
Premises), 6.3 (Compliance with Covenants, Restrictions and Building Code), 4.3
(Common Area Operating Expenses), 6.1 (Permitted Use), 11 (Damage or
Destruction) and 10 (Condemnation), Lessor, subject to reimbursement pursuant to
PARAGRAPH 4.3, shall keep in good order, condition and repair the foundations,
exterior walls, structural condition of interior bearing walls, exterior roof,
fire sprinkler and/or standpipe and hose (if located in the Common Areas) or
other automatic fire extinguishing system, including fire alarm and/or smoke
detection systems and equipment of the Industrial Center, including, fire
hydrants, parking lots, walkways, parkways, driveways, landscaping, fences,
signs and utility systems serving the Common Areas and all parts thereof. Lessor
shall not be obligated to paint the exterior or interior surfaces of exterior
walls nor shall Lessor be obligated to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall not be obligated to paint,
repair or replace wall coverings or to repair or replace any improvements that
have become damaged as a result of the negligent or intentional acts of Lessee.
Lessor shall in no event be responsible to repair, replace or otherwise maintain
any improvements to the Premises made by Lessee. Except as provided in PARAGRAPH
11.5, there shall be no abatement of rent or liability of Lessor on account of
any injury or interference with Lessee's business with respect to any
improvements, alterations or repairs made by Lessor to the Industrial Center or
any part thereof. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or terminate this Lease because of Lessor's failure
to keep the Building, the Industrial Center or the Common Areas in good order,
condition and repair. Lessor shall have the right and responsibility to make all
capital improvements to the Industrial Center, and to charge Lessee for same as
hereinafter provided.
8.2 Lessee's Obligations.
(a) Subject to the other provisions of this Lease,
including, without limitation, PARAGRAPHS 8.1 (Lessor's Obligations), 11 (Damage
or Destruction), and 10 (Condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, put and keep the Premises and every part thereof in
good order, condition and repair (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements or the age of such portion
of the Premises), including, without limiting the generality of the foregoing,
all equipment or facilities specifically serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire hose connections if within the
Premises, fixtures, interior walls, interior surfaces of exterior walls,
ceilings, floors, windows, doors, plate glass, and skylights, but excluding any
items which are the responsibility of Lessor pursuant to PARAGRAPH 8.1. Lessee,
in putting and keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to put and keep
the Premises and all improvements thereon or a part thereof in good order,
condition and state of repair, but only to the extent that such restorations,
replacements or renewals do not constitute capital improvements.
(b) Lessee shall, at Lessee's sole cost and expense,
procure and maintain a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises. However, Lessor reserves the right, upon
notice to Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
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(c) If Lessee fails to perform Lessee's obligations
under this PARAGRAPH, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in the case of an emergency, in which
case no notice shall be required), perform such obligations on Lessee's behalf,
and put the Premises in good order, condition and repair, in accordance with
PARAGRAPH 14.2, and Lessee shall pay Lessor, within thirty (30) days of demand,
the costs therefor.
(d) In the event that Lessor makes any capital
expenditure benefitting the Premises during the Term of this Lease, the amount
of such expenditure shall be amortized over the useful life of the improvement
for which the expenditure was made, and the amortized cost allocated to each
calendar year during the Term shall be treated as an Operating Expense.
8.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. "Utility
Installations" shall mean all air lines, power panels, electrical distribution,
security, fire protection systems, communications systems, lighting fixtures,
heating, ventilating and air conditioning equipment, plumbing, and fencing in,
on or about the Premises installed after the date of this Lease. "Trade
Fixtures" shall mean Lessee's machinery and equipment which can be removed
without doing material damage to the Premises. "Alterations" shall mean any
modification after the date of this Lease of the improvements on the Premises
which are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility
Installations" shall mean Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor pursuant to PARAGRAPH 8.4(a). Lessee
shall not make nor cause to be made any Alterations or Utility Installations in,
on, under or about the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without Lessor's consent but upon prior written
notice to Lessor, so long as they are not visible from the outside of the
Premises, do not involve puncturing, relocating or removing the roof or any
existing walls, or changing or interfering with the fire sprinkler or fire
detection systems and the cumulative cost thereof during the Term does not
exceed $10,000.00.
(b) Consent. Any Alterations or Utility Installations
that Lessee shall desire to make and which require the consent of Lessor shall
be presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of PARAGRAPH 8.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities; (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon; and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the Term shall be done in a good and workmanlike manner, with good
and sufficient lien-free materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $10,000.00 or more upon Lessee's providing Lessor with a
lien and completion bond, or other security reasonably satisfactory to Lessor,
in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation. At the expiration of the Term, Lessor may
require the removal of any or all of the Alterations, improvements, additions or
Utility Installations, and the restoration of the Premises and, to the extent
Lessee has performed any work on the same, the Industrial Center to their prior
condition, at Lessee's expense. Should Lessor permit Lessee to make its own
Alterations, improvements, additions or Utility Installations, Lessee shall use
only a contractor who has been expressly approved by Lessor in writing. Should
Lessee make any Alterations, improvements, additions or Utility Installations
without the prior written approval of Lessor (except those for which Lessee is
not required to have Lessor's consent), or use a contractor not expressly
approved by Lessor, Lessor may, at any time during the Term, require that Lessee
remove any part or all of the same.
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(c) Lien Protection. Lessee shall pay when due all
claims for labor or materials furnished or alleged to have been furnished to or
by Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Industrial Center or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in, on, or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
as provided by law or otherwise. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Industrial Center against the
same and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against Lessor or the Industrial Center.
If Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the amount
of such contested lien claim or demand, indemnifying Lessor against liability
for the same, as required by law for the holding of the Industrial Center free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys' fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
8.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require
their removal and to cause Lessee to become the owner thereof as hereinafter
provided in this PARAGRAPH 8.4, all Alterations and Utility Installations made
to the Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Lessor may, at any time and at its option,
elect, in a writing to Lessee, to be the owner of all or any specified part of
the Lessee-Owned Alterations and Utility Installations. Unless otherwise
instructed pursuant to PARAGRAPH 8.4(b), all Lessee-Owned Alterations and
Utility Installations shall, at the expiration or earlier termination of this
Lease, become the property of Lessor and remain upon the Premises and be
surrendered with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing,
Lessor may require that any or all Lessee-Owned Alterations or Utility
Installations be removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by Lessor.
Lessor may require the removal at Lessee's sole expense, at any time of all or
any part of any Alterations or Utility Installations made without the required
consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the
Premises by the end of the Term or any earlier termination date, clean and free
of debris and in good operating order, condition and state of repair, ordinary
wear and tear excepted. Ordinary wear and tear shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified herein, the Premises, as surrendered, shall include the
Alterations and Utility Installations. The obligation of Lessee shall include
the repair of any damage occasioned by the installation, maintenance or removal
of Lessee's Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations
and Utility Installations, as well as the removal of any storage tank installed
by or for Lessee, and the removal, replacement or remediation of any soil,
material or ground water contaminated by Lessee, all as may then be required by
Applicable Requirements and/or good practice. Lessee's Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee subject to its
obligations to repair and restore the Premises pursuant to this Lease.
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8.5 Americans with Disabilities Act of 1990. Within ten (10)
days after receipt, Lessor and Lessee shall advise the other party in writing,
and provide the other with copies of (as applicable), any notices alleging
violation of the Americans with Disabilities Act of 1990 ("ADA") relating to any
portion of the Premises; any claims made or threatened in writing regarding
noncompliance with the ADA and relating to any portion of the Premises; or any
governmental or regulatory actions or investigations instituted or threatened
regarding noncompliance with the ADA and relating to any portion of the
Premises.
9. Insurance; Indemnity.
9.1 Payment of Premium and Blanket Policies. The cost of the
premiums for the insurance policies maintained by Lessor under this PARAGRAPH
shall be a Common Area Operating Expense pursuant to PARAGRAPH 4.3 hereof.
Premiums for policy periods commencing prior to, or extending beyond, the Term
shall be pro-rated to coincide with the corresponding Commencement Date or
Expiration Date. The casualty insurance policies required under this PARAGRAPH
shall provide that the proceeds thereof shall be payable to Lessor and may be
payable to any Lender, as their respective interests may appear, pursuant to a
standard mortgagee clause or loss payee clause. Insurance required to be carried
by Lessor and Lessee pursuant to this PARAGRAPH may, at Lessor's or Lessee's
option, be effected by either "blanket" or "umbrella" policies issued to Lessor
or Lessee, as the case may be, covering the Premises and other properties owned
or leased by Lessor or Lessee, as the case may be, provided that such policies
otherwise comply with the provisions of this Lease and allocate to the Premises
the specified coverage without possibility of reduction or coinsurance by reason
of, or because of, damage to any other properties named therein. If the
insurance required to be obtained by Lessee pursuant to this Lease is effected
by any such blanket or umbrella policies, Lessee shall furnish Lessor with
copies of such policies as provided in this PARAGRAPH, together with schedules
attached thereto giving the amount of insurance applicable to the Premises and
evidence, satisfactory to Lessor, that the premiums of such policies for at
least the first year of the Term (or installment payments then required to have
been paid on account of such premiums) have been paid.
9.2 Liability Insurance - Lessee. Lessee shall obtain and keep
in full force and effect during the Term a Commercial General Liability policy
of insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for bodily
injury, personal injury and property damage based upon, involving or arising out
of the ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $3,000,000 per occurrence with
(a) "Additional Insured-Manager of Lessor of Premises" endorsement and (b)
contain the "Amendment of the Pollution Exclusion" endorsement for damage caused
by heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
9.3 Liability Insurance - Lessor. Lessor shall also maintain
liability insurance described in PARAGRAPH 9.2 above, in addition to and not in
lieu of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
9.4 Property Insurance-Building and, Improvements.
(a) Building and Improvements. Lessor shall obtain
and keep in full force and effect during the Term a policy or policies in the
name of Lessor, with loss payable to Lessor and to any Lender(s), insuring
against loss or damage to the Premises, but not against loss or damage to
Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's
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personal property. Such insurance shall be for full replacement cost, as the
same shall exist from time to time, or the amount required by any Lender(s), but
in no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to PARAGRAPH 9.5 and Lessor shall not be
responsible for insuring the same. If the coverage is available and commercially
appropriate, Lessor's policy or policies shall insure against all risks of
direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law requiring the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Additional Insurance Premiums. Lessee shall pay any
increase in the premiums for the property insurance of the Building and for the
Common Areas or other buildings in the Industrial Center if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(c) Lessee's Improvements. Lessor shall not be required to
insure Lessee-Owned Alterations and Utility Installations, Trade Fixtures and
Lessee's personal property unless the item in question has become the property
of Lessor under the terms of this Lease.
9.5 Lessee's Property Insurance. Lessee at its cost shall
either by separate policy or, at Lessor's option, by endorsement to a policy
already carried, maintain insurance coverage on all of Lessee's personal
property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by Lessor
under PARAGRAPH 9.4(a). Such insurance shall be full replacement cost coverage
with a deductible not to exceed $1,000 per occurrence. The proceeds from any
such insurance shall be used by Lessee for the replacement of personal property
and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility
Installations. Upon request from Lessor, Lessee shall provide Lessor with
written evidence that such insurance is in force.
9.6 INTENTIONALLY OMMITED.
9.7 Insurance Policies. Insurance required hereunder shall be
in companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least A, X or such other rating as may be required by a Lender, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies referred to in this PARAGRAPH. Lessee shall deliver to Lessor, no later
than the Commencement Date, certified copies of, or certificates evidencing the
existence and amounts of, the insurance required under PARAGRAPHS 9.2 and 9.5.
No such policy shall be cancelable or subject to reduction except after thirty
(30) days' prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may (but
shall not be obligated to) order such insurance and charge the cost thereof to
Lessee, which amount shall be payable by Lessee to Lessor upon demand.
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9.8 Waiver of Subrogation. Notwithstanding anything to the
contrary contained in this Lease, without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under this PARAGRAPH. The effect of
such releases and waivers of the right to recover damages shall not be limited
by the amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
9.9 Indemnity. Except for Lessor's negligence and/or breach of
express covenants and warranties, Lessee shall indemnify, protect, defend and
hold harmless the Industrial Center, Lessor, its shareholders, agents, officers,
directors, employees and its master or ground lessor, partners and Lenders, from
and against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, loss of permits, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the occupancy of the Premises by Lessee, the conduct of Lessee's business, any
act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor and/or such other indemnified
persons and entities) litigated and/or reduced to judgment. In case any action
or proceeding be brought against Lessor and/or such other indemnified persons
and entities by reason of any of the foregoing matters, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor or such other indemnified persons and entities need not have first paid
any such claim in order to be so indemnified.
9.10 Exemption of Lessor from Liability. Except to the extent
of direct damages caused by breach of any covenant of Lessor contained in
PARAGRAPH 8.1, or the gross negligence or reckless or wilful misconduct of
Lessor, and Subject to the last sentence of this PARAGRAPH, Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's shareholders, officers, directors, employees,
contractors, invitees, customers, or any other person in or about the Premises,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, fire sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether said injury
or damage results from conditions arising upon the Premises or upon other
portions of the Building of which the Premises are a part, or from other sources
or places, and regardless of whether the cause of such damage or injury or the
means of repairing the same is accessible or not. Lessor shall not be liable for
any damages arising from any act or neglect of any other lessee of Lessor or
from the failure by Lessor to enforce the provisions of any other lease in the
Industrial Center. Notwithstanding Lessor's gross negligence, wilful or reckless
misconduct or breach of any covenant, including without limitation those
contained in PARAGRAPH 8.1, or any other provision of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any loss
of income or profit therefrom, or for consequential or indirect damages
resulting from Lessor's acts or omissions.
9.11 No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this PARAGRAPH are adequate to cover Lessee's property or obligations under this
Lease.
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10. Condemnation. If the Premises or any portion thereof is taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, which ever first occurs. If more than twenty-five percent (25%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
thirty (30) days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within thirty (30) days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in the same proportion as the rentable floor
area of the Premises taken bears to the total rentable floor area of the
Premises. No reduction of Base Rent shall occur if the condemnation does not
apply to any portion of the Premises. Lessor shall have the option, in its sole
discretion, to terminate this Lease as of the taking of possession by the
condemning authority, by giving written notice to Lessee of such election within
thirty (30) days after receipt of notice of a taking by condemnation of any
substantial part (i.e., 25% or more of the rentable area) of the Building or of
the Industrial Center. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution of value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
11. Damage or Destruction.
11.1 Definitions.
(a) "Insured Loss" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in PARAGRAPH 9.4(a) irrespective of any deductible amounts
or coverage limits involved.
(b) "Premises Partial Damage" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures, the repair cost of which damage or destruction
is less than twenty-five percent (25%) of the then Replacement Cost of the
Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(c) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures, the repair cost of which damage or destruction
is twenty-five percent (25%) or more of the then Replacement Cost of the
Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction. In addition, damage
or destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is twenty-five percent (25%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
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(d) "Replacement Cost" shall mean the cost to repair
or rebuild the damaged improvements owned by Lessor to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees.
(e) "Hazardous Substance Condition" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance in, on, or under the Premises.
11.2 Premises Partial Damage.
(a) Insured Loss. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonably and available, Lessor shall
have no obligation to pay for the shortage of insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof satisfactory to Lessor
in its sole discretion within said ten (10) day period, Lessor shall complete
such restoration and repairs as soon as reasonably possible and this Lease shall
remain in full force and effect. If Lessor does not receive such funds or
assurance within said period, Lessor may nevertheless elect by written notice to
Lessee within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within such ten (10) day period, and if Lessor
does not so elect to restore and repair, then this Lease shall terminate sixty
(60) days following the occurrence of the damage or destruction. Unless
otherwise agreed, Lessee shall in no event have any right to reimbursement from
Lessor for any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall be subject
to PARAGRAPH 11.2(b) rather than PARAGRAPH 11.2(a), notwithstanding that there
may be some insurance coverage, but the net proceeds of any such insurance shall
be made available for the repairs if made by either party.
(b) Uninsured Loss. If Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or assurance thereof satisfactory to Lessor in its sole discretion within thirty
(30) days following such commitment from Lessee. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such repairs
as soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
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11.3 Total Destruction. Notwithstanding any other provision
hereof, if Premises Total Destruction occurs (including any destruction required
by any authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in PARAGRAPH 9.8.
11.4 Damage Near End of Term.
(a) If at any time during the last six (6) months of
the Term there is damage to the Premises for which the cost to repair exceeds
one month's total Base Rent for Office Space and Warehouse Space, whether or not
an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective
thirty (30) days following the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so.
(b) Provided, however, if Lessee at that time has an
exercisable option to extend this Lease, then Lessee may preserve this Lease by
(i) exercising such option, and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the repairs on
or before the earlier of (aa) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (bb)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this PARAGRAPH 11.4.
11.5 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or
(ii) a Hazardous Substance Condition for which Lessee is not legally
responsible, the Base Rent, Common Area Operating Expenses and other charges, if
any, payable by Lessee hereunder for the period during which such damage or
condition, its repair, remediation or restoration continues, shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not in excess of proceeds from insurance required to be carried under PARAGRAPH
9.4(b). No such abatement shall be given if or to the extent that the impairment
of use consists of relocation or re-allocation of parking or loading dock
privileges. Except for abatement of Base Rent, Common Area Operating Expenses
and other charges, if any, as aforesaid, all other obligations of Lessee
hereunder shall be performed by Lessee, and Lessee shall have no claim against
Lessor for any damage suffered by reason of any such damage, destruction,
repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore
the Premises under the provisions of this PARAGRAPH 11 and shall not commence,
in a substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within thirty
(30) days after receipt of such notice, this Lease shall terminate as of the
date specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after the receipt of such
notice, this Lease shall continue in full force and effect. "Commence" as used
in this PARAGRAPH 11.5 shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever occurs first.
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11.6 Hazardous Substance Conditions. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and effect,
but subject to Lessor's rights under PARAGRAPH 6.5 and PARAGRAPH 14), Lessor may
at Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly total Base Rent or $100,000, whichever is greater, give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the date
of such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the excess costs of (a) investigation and
remediation of such Hazardous Substance Condition to the extent required by
Applicable Requirements, over (b) an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor
with the funds required of Lessee or assurance thereof satisfactory to Lessor in
its sole discretion within thirty (30) days following said commitment by Lessee.
In such event this Lease shall continue in full force and effect, Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the time
period specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
11.7 Termination-Advance Payments. Upon termination of this
Lease pursuant to this PARAGRAPH 11, provided Lessee is not in default of its
obligations under the Lease, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
11.8 Waiver of Statutes. Lessor and Lessee agree that the
terms of this Lease shall govern the effect of any damage to or destruction of
the Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
12. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
PARAGRAPH 4.3(e). However, Lessor, at Lessee's sole cost and expense, may
install submeters to measure Lessee's consumption of utilities at the Premises,
in which event Lessee shall pay for the utilities so consumed by it as shown in
such meters.
13. Assignment and Subletting.
13.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of
law assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in the
Premises.
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(b) An "assignment" within the meaning of this
PARAGRAPH shall include any direct or indirect transfer of twenty-five (25%)
percent or greater interest (whether stock, partnership or otherwise) of Lessee,
or any permitted sublessee or assignee of this Lease, however accomplished, and
whether in a single transaction or in any series of transactions, whether
related or unrelated; provided however that an assignment by Lessor or any of
its affiliates of an interest in Lessee shall not be considered an "assignment"
requiring consent under this PARAGRAPH.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee
by an amount equal to or greater than twenty-five percent (25%) of such Net
Worth of Lessee as it was represented to Lessor at the time of the execution and
delivery of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may withhold its consent. "Net Worth of Lessee" for
purposes of this Lease shall be the net worth of Lessee (excluding any
Guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment of Lessee's interest in this Lease
or subletting of the Premises without Lessor's specific prior written consent
shall, at Lessor's option, be a Default curable after notice per PARAGRAPH 14.1,
or a non- curable Breach without the necessity of any notice and grace period.
If Lessor elects to treat such non-consented to assignment or subletting as a
non-curable Breach, Lessor shall have the right to either: (i) terminate this
Lease, or (ii) upon thirty (30) days' written notice ("Lessor's Notice"),
increase the monthly total Base Rent for the Premises to the greater of the then
fair market rental value of the Premises, as reasonably determined by Lessor, or
one hundred ten percent (110%) of the total Base Rent then in effect. Pending
determination of the new fair market rental value, if disputed by Lessee, Lessee
shall pay the amount set forth in Lessor's Notice, with any overpayment credited
against the next installment(s) of Base Rent coming due, and any underpayment
for the period retroactively to the effective date of the adjustment being due
and payable immediately upon the determination thereof. Further, in the event of
such Breach and rental adjustment, (i) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (ii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
13.2 Terms and Conditions Applicable to Assignment and
Subletting.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of
Lessee's obligations from any person other than Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or disapproval of
such assignment nor the acceptance of any rent for performance shall constitute
a waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
Lessor shall respond to a request for consent within thirty (30) days after the
request is made, provided that failure to so respond shall be deemed to
constitute a denial of consent.
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(c) The consent of Lessor to any assignment or
subletting shall not constitute a consent to any subsequent assignment or
subletting by Lessee or to any subsequent or successive assignment or subletting
by the assignee or sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable under this Lease or the
sublease and without obtaining their consent, and such action shall not relieve
such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility appropriateness
of the proposed assignee or sublessee, including but not limited to the intended
use and/or required modification of the Premises, if any. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease
shall, by reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to be
observed or performed by Lessee during the term of said assignment or sublease,
other than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented in
writing.
(g) Lessor, as a condition to giving its consent to
any assignment or subletting, may require that the amount and adjustment
schedule of the rent payable under this Lease be adjusted to what is then the
market value and/or adjustment schedule for property similar to the Premises as
then constituted, as determined by Lessor.
13.3 Additional Terms and Conditions Applicable to Subletting.
The following terms and conditions shall apply to any subletting by Lessee of
all or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all
of Lessee's interest in all rentals and other income arising from any sublease
made by Lessee, and Lessor may collect such rent and other income and apply same
toward Lessee's obligations under this Lease; provided, however, that until a
Breach shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents and other income from a sublessee, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee under such Sublease. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges and income due and to become due under the sublease. Sublessee shall
rely upon any such statement and request from Lessor and shall pay such rents
and other charges and income to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
such sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges and income so paid by said sublessee to Lessor.
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(b) In the event of a Breach by Lessee in the
performance of its obligations under this Lease, Lessor, at its option and
without any obligation to do so, may require any sublessee to attorn to Lessor,
in which event Lessor shall undertake the obligations of the sublessor under
such sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents, charges or security deposit paid by such sublessee to such sublessor or
for any other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor.
(d) No sublessee under a sublease approved by Lessor
shall further assign its sublease or sublet all or any part of the Premises
without Lessor's prior written consent.
(e) Lessor shall endeavor (but shall not be obligated
to) deliver a copy of any notice of Default or Breach by Lessee to the
sublessee, who shall thereupon have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
14. Default; Breach; Remedies.
14.1 Default; Breach. Lessee agrees that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach, $750.00 is a
reasonable minimum sum per such occurrence for legal services and costs in the
preparation and service of a notice of Default, and that Lessor may include the
cost of such services and costs in said notice as rent due and payable to cure
said Default. A "Default" by Lessee is defined as a failure by Lessee to
observe, comply with or perform any of the terms, covenants, conditions or rules
applicable to Lessee under this Lease. A "Breach" by Lessee is defined as the
occurrence of any one or more of the following Defaults, and, where a grace
period for cure after notice is specified herein, the failure by Lessee to cure
such Default prior to the expiration of the applicable grace period, and shall
entitle Lessor to pursue the remedies set forth in PARAGRAPHS 14.2 and/or 14.3:
(a) The vacation of the Premises which continues for
ninety (90) consecutive days without the intention to reoccupy same, or the
abandonment of the Premises which continues for ninety (90)consecutive days.
(b) Except as expressly otherwise provided in this
Lease, the failure by Lessee to make any payment of Base Rent, to make any
payment of other rent or to make any other monetary payment required to be made
by Lessee hereunder, where such failure continues for a period of five (5) days
following written notice thereof by or on behalf of Lessor to Lessee; the
failure by Lessee to provide Lessor with reasonable evidence of insurance or
surety bond required under this Lease; or the failure of Lessee to fulfill any
obligation under this Lease which endangers or threatens life or property, where
such failure continues for a period of five (5) days following written notice
thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this
Lease, the failure by Lessee to provide Lessor with reasonable written evidence
(in duly executed original form, if applicable) of (i) compliance with
Applicable Requirements per PARAGRAPH 6.6, (ii) the inspection, maintenance and
service contracts required under PARAGRAPH 8.2(b), (iii) the rescission of an
unauthorized assignment or subletting per PARAGRAPH 13.1, (iv) a Tenancy
Statement per PARAGRAPHS 17 or 37, (v) the subordination or non-subordination of
this Lease per PARAGRAPH 30, (vi) the guaranty of the performance of Lessee's
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obligations under this Lease if required under PARAGRAPHS 37 or (vii) any other
documentation or information which Lessor may reasonably require of Lessee under
the terms of this Lease, where any such failure continues for a period of ten
(10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the Rules and Regulations, that
are to be observed, complied with or performed by Lessee, other than those
described in PARAGRAPH 14.1(a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereinafter
diligently and continuously prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i)
the making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this PARAGRAPH 14.1(e) is contrary to any applicable
law, such provision shall be of no force or effect, and shall not affect the
validity of the remaining provisions.
(f) The discovery by Lessor that any financial
statement of Lessee, any Guarantor, or assignee or sublessee given to Lessor by
Lessee, any Guarantor or any person in connection with assignment or subletting,
was materially false.
(g) If the performance of Lessee's obligations under
this Lease is guaranteed in whole or in part: (i) the death of a Guarantor, (ii)
the termination of a Guarantor's liability with respect to this Lease other than
in accordance with the terms of such guaranty, (iii) a Guarantor's becoming
insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to
honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis.
14.2 Remedies. If Lessee fails to perform any affirmative duty
or obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at its
option (but without obligation to do so), perform such duty or obligation on
Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be due
and payable by Lessee to Lessor upon invoice therefor. If any check given to
Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of any Breach,
with or without further notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such Breach,
Lessor may:
(a) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease and the Term shall
terminate and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the
worth at the time of judgment of the unpaid rent which had been earned at the
time of termination; (ii) the worth at the time of judgment of the amount by
which the unpaid rent which would have been earned after termination until the
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time of judgment exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of judgment of
the amount by which the unpaid rent for the balance of the Term after the time
of judgment exceeds the amount of such rental loss that the Lessee proves could
be reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees and costs,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired Term (but excluding consequential
damages). The worth at the time of judgment of the amount referred to in
provision (iii) of the immediately preceding sentence shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of New
York or the Federal Reserve Bank District in which the Premises are located at
the time of the award plus one percent (1%). Efforts by Lessor, if any, to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this PARAGRAPH. If termination of
this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve the right to recover
all or any part thereof in a separate suit for such rent and/or damages. If a
notice and grace period required under PARAGRAPH 14.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by PARAGRAPH 14.1 (b), (c) or (d). In such case,
the applicable grace period under the unlawful detainer statute shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to
possession in effect after Lessee's Breach and recover the rent as it becomes
due. Acts of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available
to Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or
the termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the Term or by reason of Lessee's occupancy of the Premises.
14.3 Inducement Recapture in Event of Breach. Any agreement by
Lessor for free or abated rent or other charges applicable to the Premises, or
for the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the Term. Upon the occurrence of a Breach of this Lease by Lessee,
any such Inducement Provision shall automatically be deemed deleted from this
Lease and of no further force or effect, and any rent,other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee to
Lessor, and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
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PARAGRAPH 14.3 shall not be deemed a waiver by Lessor of the provisions of this
PARAGRAPH unless specifically so stated in writing by Lessor at the time of such
acceptance.
14.4 Late Charges. Lessee hereby acknowledges that late payment
by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Industrial Center or any interest therein. Accordingly, if any installment of
rent or other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without any
requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal
to three percent (3%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall neither constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding PARAGRAPH 4.2 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
14.5 Breach by Lessor. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this PARAGRAPH, a reasonable
time shall in no event be less than thirty (30) days after receipt of notice to
Lessor from Lessee; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion. In the event of any act or omission by Lessor
which would give Lessee the right to terminate this Lease or to claim a partial
or total eviction, Lessee shall not exercise any such right (a) until it shall
have given written notice of such act or omission to the holder of any mortgage,
deed of trust or other security instrument encumbering the Industrial Center, or
any interest therein, as herein provided, but only to the extent Lessor has
given Lessee the name and notice address of the holder and (b) until a
reasonable period of time for remedying such act or omission shall have elapsed
following the giving of such notice, provided that following the giving of such
notice, Lessor or said holder shall, with reasonable due diligence, have
commenced and continued to remedy such act or omission or to cause same to be
remedied.
15. Security Deposit. In the event of a change in control of Lessee, Lessee
shall deposit with Lessor upon demand by Lessor the sum of $65,875 (the
"Security Deposit") as security for Lessee's faithful performance of Lessee's
obligations under this Lease. If Lessee fails to pay Base Rent or other rent or
charges due hereunder, or otherwise defaults under this Lease, Lessor may use,
apply or retain all or any portion of the Security Deposit for the payment of
any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees and expenses) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of the Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit monies with Lessor sufficient to restore the
Security Deposit to the full amount required by this Lease. Any time the Base
Rent increases during the Term, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor as an addition to the Security Deposit so
that the total amount of the Security Deposit shall at all times bear the same
proportion to the then current total Base Rent as the initial Security Deposit
bears to the initial total Base Rent. Lessor shall not be required to keep all
or any of the Security Deposit separate from its general accounts. Lessor shall,
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<PAGE>
at the expiration on earlier termination of the Term, full performance by Lessee
of all of its obligations under this Lease and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any monies to
be paid by Lessee under this Lease.
16. Brokers' Fees.
(a) The brokers involved in this transaction are NONE,
as "listing broker", and NONE, as "cooperating broker". A "cooperating broker"
is any broker other than the listing broker entitled to a share of any
commission arising as a result of this Lease. Upon execution of this Lease by
both parties, Lessor shall pay to said broker(s) jointly, or in such separate
shares as they may mutually designate in writing, a fee as set forth in a
separate agreement between Lessor and said broker(s).
(b) Lessee and Lessor each represent and warrant to
the other that neither has had any dealings with any person, firm, broker or
finder (other than the person(s), if any, whose names are set forth in this
PARAGRAPH) in connection with the negotiation of this Lease and/or the
consummation of the transaction contemplated hereby, and that no other broker or
other person, firm or entity is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby indemnify,
defend and hold the other harmless from and against any costs, expenses,
reasonable attorneys' fees and expenses or liability for compensation or charges
which may be claimed by any such unnamed broker, finder or other similar party
by reason of any dealings or actions of the indemnifying party.
17. Estoppel Certificates and Financial Statements.
17.1 Estoppel Certificates. Each party (a "Responding Party")
shall within ten (10) days after written notice from the other party (the
"Requesting Party") execute, acknowledge and deliver to the Requesting Party a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid and (ii) acknowledging that
there are not, to the Responding Party's knowledge, any uncured defaults on the
part of the Requesting Party, or specifying such defaults if any are known. Any
such statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Industrial Center or of the business of Lessee, but Lessor's
delivery of any such certificate shall not be considered as Lessor's consent to
any transaction otherwise prohibited by this Lease.
At the Lessor's option, the failure of Lessee to deliver such
statement within such time shall be a Breach of this Lease, without further
notice to such party, or it shall be conclusive upon Lessee that (i) this Lease
is in full force and effect without modification, except as may be represented
by Lessor, (ii) there are no uncured defaults in Lessor's performance, and (iii)
not more than one month's rent has been paid in advance.
17.2 Financial Statement. If Lessor desires to finance,
refinance, or sell the Industrial Center or any interest therein, or any part
thereof, Lessee and all Guarantors shall deliver to any potential lender or
purchaser designated by Lessor such financial statements of Lessee and such
Guarantors as may be reasonably required by such lender or purchaser, including
but not limited to Lessee's financial statements for the past three (3) years.
All such financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
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18. Lessor's Liability.
(a) For purposes of this Lease, "Lessor" shall mean the owner
or owners at the time in question of the fee title or a lessee's interest in a
ground lease of the Industrial Center. In the event of a transfer of Lessor's
title or interest in the Industrial Center or in this Lease, Lessor shall
deliver to the transferee or assignee (in cash or by credit) any unused Security
Deposit held by Lessor at the time of such transfer or assignment. Upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.
(b) Lessee shall look solely to Lessor's estate and interest
in the Industrial Center for the satisfaction of any right of Lessee for the
collection of a judgment or other judicial process or arbitration award
requiring the payment of money by Lessor and no other property or assets of
Lessor, Lessor's agents, incorporators, shareholders, officers, directors,
partners, principals (disclosed or undisclosed) or affiliates shall be subject
to levy, lien, execution, attachment or other enforcement procedure for the
satisfaction of Lessee's rights and remedies under or with respect to this
Lease, the relationship of Lessor and Lessee hereunder or under law, or Lessee's
use and occupancy of the Premises or any other liability of Lessor to Lessee.
19. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
20. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the
annual rate of 10% or, if less, the maximum rate then allowed by law, in
addition to the potential late charge provided for in PARAGRAPH 14.4.
21. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Lessee under this Lease.
22. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent, whether or not the provision of this Lease
creating such monetary obligation shall denominate such obligation as rent. If
this Lease shall not specify when any monetary obligation must be paid, the same
shall be deemed due on demand.
23. Incorporation of other Agreements; Broker Disclaimer. Except for any other
written agreements between Lessor and Lessee this Lease contains all agreements
between the parties with respect to any matter mentioned herein, and no other
prior or contemporaneous agreement or understanding shall be effective. Lessee
represents and warrants that it has made, and is relying solely upon, its own
investigation as to the nature, quality, character and financial responsibility
of Lessor and as to the nature, quality and character of the Premises.
24. Notices.
24.1 Notice Requirements. All notices required or permitted by
this Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by certified or registered mail,
return receipt requested, or U.S. Postal Service Express Mail, with postage
prepaid, or other overnight courier or by facsimile transmission during normal
business hours, and shall be deemed sufficiently given if served in a manner
specified in this PARAGRAPH. Either party may by written notice to the other
specify a different address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by written notice to Lessee.
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24.2 Date of Notice. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. Notices delivered by United States Express Mail or overnight courier
that guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier. If
any notice is transmitted by facsimile transmission or similar means, the same
shall be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a day other than a business day, it
shall be deemed received on the next business day. A "business day" means any
day other than a Saturday, Sunday or other day on which banks are legally
authorized to be closed in the State of New York.
24.3 A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to the following parties:
=========================
=========================
and
=========================
=========================
25. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this PARAGRAPH
then the total Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the total Base Rent applicable during the month immediately preceding
such expiration or earlier termination; and such occupancy shall not be a
tenancy from month to month, but shall be upon all the other provisions of the
Lease pertaining to the obligations of Lessee, and all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect. Nothing contained herein shall be construed as a consent by Lessor to
any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
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29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation by Lessee
concerning this Lease shall be initiated in the county in which the Premises are
located.
30. Subordination; Attornment
30.1 Subordination. This Lease and any Option or right of first
refusal granted hereby is subordinate to any ground lease, mortgage, deed of
trust, or other hypothecation or security device (collectively, "Security
Device"), now or hereafter placed by Lessor upon the Industrial Center, or any
interest therein, to any and all advances made on the security thereof, and to
all renewals, modifications, consolidations, replacements and extensions
thereof. Lessee agrees that the Lender(s) holding any such Security Device shall
have no duty, liability or obligation to perform any of the obligations of
Lessor under this Lease. If any Lender shall elect to have this Lease and/or any
Option or right of first refusal granted hereby superior to the lien of its
Security Device and shall give written notice thereof to Lessee, this Lease and
such Options or right of first refusal shall be deemed prior to such Security
Device, notwithstanding the relative dates of the documentation or recordation
thereof.
30.2 Attornment. Lessee agrees to attorn to a Lender or any
other party who acquires ownership of the Premises by reason of a foreclosure of
a Security Device, and that in the event of such foreclosure, such new owner
shall not: (i) be liable for any act or omission of any prior lessor or with
respect to events occurring prior to acquisition of ownership, (ii) be subject
to any offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one month's rent.
30.3 Self-Executing. The agreements contained in this PARAGRAPH
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Industrial Center or any part thereof,
Lessee and Lessor shall execute such further writings as may be reasonably
required to separately document any such subordination or non-subordination,
and/or attornment agreement as is provided for herein.
30.4 Non-Disturbance Agreement. Notwithstanding the provisions of
this PARAGRAPH 30, this Lease shall not be subordinate to the lien of any
Security Device, unless the party secured by the Security Device delivers to
Lessee a non-disturbance agreement in the form customarily used by the party.
31. Attorneys' Fees.
(a) Without limiting the other provisions of this
Lease, Lessor shall be entitled to recover from Lessee reasonable attorneys'
fees and all other costs and expenses incurred in the preparation and service of
notice of default, consultations in connection herewith (whether or not an
action or proceeding is subsequently commenced in connection with such default)
and/or prosecution of any action, suit or other proceeding to enforce Lessor's
rights and remedies.
(b) The attorneys' fee award shall not be computed in
accordance with any court fee schedule, but shall be such as to fully reimburse
all attorneys' fees and costs reasonably incurred in good faith.
(c) In the event that an action or proceeding is
instituted by either party to this Lease based upon the alleged failure of the
other party to observe or perform any term or covenant under or by virtue the
terms or provisions of this Lease, the non-prevailing party shall reimburse the
prevailing party for any and all costs and expenses incurred by the prevailing
party in connection with such action or proceeding, including but not limited to
reasonable attorneys' fees, disbursements and court costs. In the event Lessor
shall be the prevailing party, such sum shall be deemed additional rent
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hereunder and shall be paid by Lessee to Lessor within ten (10) days of
rendition of any bill or statement to Lessee therefor. In the event Lessee shall
be the prevailing party, such sum shall be credited (a) first, against Lessee's
then current present rental obligations under this Lease and (b) then, against
Lessee's future rental obligations under this Lease as such shall thereafter
accrue. In the event that (i) sums due to Lessee by Lessor pursuant to this
PARAGRAPH exceed Lessee's remaining rental obligations accruing under this Lease
or (ii) the Term, as extended or otherwise, shall have expired at the time the
prevailing party incurred such costs and expenses, such sums shall be
recoverable as damages. The provisions of this PARAGRAPH shall survive the
expiration or earlier termination of this Lease.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent. The holding of
any auction within the Industrial Center shall constitute a Breach of this
Lease.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Industrial Center, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
PARAGRAPH 8 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves all
rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not unreasonably
interfere with the conduct of Lessee's business; Lessor shall be entitled to all
revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for PARAGRAPH 33 (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a party is required to an
act by or for the other party, such consent shall not be unreasonably withheld
or delayed; this provision shall apply only to those consents expressly referred
to in this Lease and do not apply to any request for a waiver of rights
hereunder or an amendment hereof. If the determination of any arbitration or
court proceeding as to the reasonableness of any decision by Lessor to refuse
such
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consent is adverse to Lessor, Lessor nevertheless shall not be liable to Lessee
for a breach of Lessor's covenant not to unreasonably withhold such consent, and
the sole remedy of Lessee in such event shall be to proceed as if such consent
of Lessor had been granted (and no money damages shall be allowed), unless
Lessor shall have acted in bad faith. Notwithstanding anything in this PARAGRAPH
or any other provision of this Lease to the contrary, Lessor need not give its
consent, and Lessor shall not be held to a reasonableness standard, where as a
condition to granting its consent Lessor needs to obtain the consent of the
holder of any superior interest in the Industrial Center or any interest
therein, and such other party does not give its consent.
(b) All conditions to Lessor's consent authorized by
this Lease are acknowledged by Lessee as being reasonable. The failure to
specify herein any particular condition to Lessor's consent shall not preclude
the impositions by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter for
which consent is being given.
37. INTENTIONALLY OMITTED
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the Term subject to all
of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has
the following meaning: (a) the right to extend the Term or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 Options Personal to Original Lessee. Each Option, if any,
granted to Lessee in this Lease is personal to the original Lessee, and cannot
be voluntarily or involuntarily assigned or exercised by any person or entity
other than said original Lessee while the original Lessee is in full and actual
possession of the Premises and without the intention of thereafter assigning or
subletting. The Options, if any, herein granted to Lessee are not assignable,
either as a part of an assignment of this Lease or separately or apart
therefrom, and no Option may be separated from this Lease in any manner, by
reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any
multiple Options to extend or renew this Lease, a later option cannot be
exercised unless the prior Options to extend or renew this Lease have been
validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under PARAGRAPH
14.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
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Lessee three (3) or more notices of separate Defaults under PARAGRAPH 14.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured, or (v) in the event that, prior
to such attempted exercise, there was a Breach resulting in an unlawful detainer
proceeding and satisfaction of the judgment therein, with restoration of
possession.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of PARAGRAPH 39.4(a).
(c) All rights of Lessee under the provisions of an
Option shall terminate and be of no further force or effect, notwithstanding
Lessee's due and timely exercise of the Option, if, after such exercise and
during the Term, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
PARAGRAPH 14.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) Lessee commits a Breach of this Lease.
40. Security Measures. Lessor shall have no obligation whatsoever to provide
guard service or other security measures for the Premises. Lessee assumes all
responsibility for the protection of the Premises, Lessee, its agents and
invitees and their property from the acts of third parties.
41. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, dedications and transfers of air-rights that Lessor deems necessary,
and to cause the recordation of parcel maps and restrictions, so long as such
easements, rights of way, utility raceways, dedications, transfers of
air-rights, maps and restrictions do not unreasonably interfere with the use of
the Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any of the foregoing.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said party to pay such sum or
any part thereof, said party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
43. Authority. If either party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
44. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all parties hereto.
45. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's rights or obligations hereunder, Lessee agrees to
make such reasonable non-monetary modifications to this Lease as may be
reasonably required by an institutional, insurance company or pension plan
Lender in connection with the obtaining of normal financing or refinancing of
the property of which the Premises are a part.
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46. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
47. Paragraphs. All references herein to "this PARAGRAPH" refer to the complete
paragraph and not only to the subparagraph in which such reference appears.
48. Waiver of Trial By Jury. LESSOR AND LESSEE DO HEREBY WAIVE TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO
AGAINST THE OTHER AS TO ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE
OR OCCUPANCY OF THE PREMISES, OR ANY OTHER CLAIMS OR ANY OTHER STATUTORY REMEDY.
IT IS FURTHER MUTUALLY AGREED THAT IN THE EVENT LESSOR COMMENCES ANY SUMMARY
PROCEEDING FOR NON-PAYMENT OF RENT, LESSEE WILL NOT INTERPOSE AND DOES HEREBY
WAIVE THE RIGHT TO INTERPOSE ANY COUNTERCLAIM OF WHATEVER NATURE OR DESCRIPTION
IN ANY SUCH PROCEEDING.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
49. Lessor's Representations. Lessor represents to Lessee that Lessor owns the
Building, free and clear of any encumbrances which would have a material and
adverse affect on Lessee's use of the Premises.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
------------------------ ------------------------
on: on:
--------------------------------- ---------------------------------
By LESSOR: By LESSEE:
REVLON CONSUMER PRODUCTS CORPORATION THE COSMETIC CENTER, INC.
By: By:
--------------------------------- ---------------------------------
Name Printed: Name Printed:
----------------------- -----------------------
Title: Title:
------------------------------ ------------------------------
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this day of ________ in the year 199__ before me personally appeared
______________________, to me known to be the ___________________ of Revlon
Consumer Products Corporation, the Delaware corporation that executed the within
and foregoing instrument, and acknowledged the said instrument to be the free
and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned, and on oath stated that (s)he was authorized to execute the
said instrument and that the seal affixed is the corporate seal of said
corporation.
---------------------------------
Signature of Corporate Officer
Name:
Title:
Notary Public in and for the
State of New York residing at
-----------------------------
Expiration of Commission: _________
STATE OF ___________)
) ss.:
COUNTY OF __________)
On this day of ________ in the year 199__ before me personally appeared
______________________, to me known to be the ___________________ of The
Cosmetic Center, Inc., the Delaware corporation that executed the within and
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned, and on oath stated that (s)he was authorized to execute the said
instrument and that the seal affixed is the corporate seal of said corporation.
--------------------------------
Signature of Corporate Officer
Name:
Title:
Notary Public in and for the
State of New York residing at
-----------------------------
Expiration of Commission: _________
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EXHIBIT A
DESCRIPTION OF PREMISES
EXHIBIT A
1 OF ___ PAGES
<PAGE>
EXHIBIT B
INITIAL PARKING PLAN
EXHIBIT B
1 OF 1 PAGES
Exhibit 10(S)
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THE COSMETIC CENTER, INC.
STOCKHOLDERS' AGREEMENT
BY AND AMONG
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ANITA J. WEINSTEIN,
MARK S. WEINSTEIN,
SUSAN K. MAGENHEIM,
WEINSTEIN FAMILY LIMITED PARTNERSHIP
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AND
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REVLON CONSUMER PRODUCTS CORPORATION
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DATED AS OF NOVEMBER 27, 1996
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STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (this "Agreement") is entered into as of
November 27, 1996 by and among Anita J. Weinstein, Mark S. Weinstein, Susan K.
Magenheim, Weinstein Family Limited Partnership, a Maryland limited partnership
("Weinstein Family Limited Partnership" and, together with Susan K. Magenheim,
Anita J. Weinstein and Mark S. Weinstein, the "Principal Stockholders") and
Revlon Consumer Products Corporation, a Delaware corporation ("Revlon"). Unless
otherwise defined herein, capitalized terms shall have the meanings set forth in
Section 9 hereof or in the Merger Agreement (as defined).
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), by and among the Company, Revlon and Prestige
Fragrance & Cosmetics, Inc., a Delaware corporation and a wholly owned
subsidiary of Revlon ("PFC"), PFC will be merged with and into the Company and
the Company will continue as the surviving corporation (the "Surviving
Corporation") (the transactions contemplated by the Merger Agreement are
referred to herein as the "Merger"); and
WHEREAS, the parties agree, as a condition to entering into the Merger
Agreement, to enter into this Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, Revlon and the Principal
Stockholders hereby agree as follows:
SECTION 1. CASH ELECTION. Each of the Principal Stockholders hereby agrees
(a) to make a Cash Election, as contemplated by Section 2.03 of the Merger
Agreement, with respect to each share of Class A common stock, par value $.01
per share, of the Company (the "Class A Common Stock"), held by such Principal
Stockholder, and each share of Class B common stock, par value $.01 per share,
of the Company (the "Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock"), held by such Principal Stockholder, and (b) to make
an Option Cash Election, as contemplated by Section 2.06 of the Merger
Agreement, with respect to each stock option held by such Principal Stockholder
that is exercisable for any class of securities of the Company at an exercise
price of less than $7.63 per share.
SECTION 2. CANCELLATION OF OPTIONS. The Principal Stockholders hereby agree
to cancel, at or prior to the Effective Time, all outstanding stock options held
by the Principal Stockholders having an expiration date of January 15, 1997 and
exercisable for an aggregate of 20,000 shares of Common Stock.
SECTION 3. EXCLUSIVITY AND BREAK-UP EXPENSES AND FEES. Until the Merger is
consummated in accordance with the terms of the Merger Agreement, or such
earlier time as the Merger Agreement is terminated in accordance with its terms:
(a)(i) None of the Principal Stockholders shall, and each of the Principal
Stockholders shall ensure that none of its respective representatives or agents
shall, after the date hereof, directly or indirectly, solicit or engage in
negotiations with or provide any information to, or otherwise cooperate with,
any person or entity that seeks to acquire or expresses an interest in acquiring
all or any substantial part of any class of the securities, business or assets
of the Company or any subsidiary thereof, or for the purpose of otherwise
effecting any transaction or business combination inconsistent with the Merger,
and none of the Principal Stockholders shall, and each of the Principal
Stockholders shall ensure that none of its respective representatives or agents
shall, enter into any agreement with or grant any proxy, option or other similar
right to any third person or entity in connection with any transaction or
business combination inconsistent with the Merger; PROVIDED, HOWEVER, that
nothing contained in this Section 3(a) or elsewhere herein shall prohibit the
Board of Directors of the Company from furnishing information to, or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited bona fide proposal in writing to acquire the Company, whether by
merger, consolidation, or stock acquisition, or substantially all of the assets
of the Company on terms which, in the exercise of their fiduciary duty after the
consideration of advice from the Company's legal and financial advisors, a
majority of the Company's directors determines is likely to be more beneficial
to each of the holders of the Company's Common Stock than the Merger, and
PROVIDED FURTHER, that the Company's legal and financial advisors may engage in
discussions regarding such written offer to clarify the terms of such offer for
the purpose of rendering the advice referred to above to the Board of Directors
of the Company, in each case, PROVIDED that, the Company and its advisors, prior
to furnishing such information to, or entering into discussions or negotiations
with, such a person or entity, shall provide written notice to Revlon to the
effect that the Company is furnishing information to, or entering into
discussions with, such a person or entity, and shall keep Revlon informed of the
status (including the identity of such person or entity and the terms of any
proposal) of such discussions or negotiations. Nothing in this Section 3(a)
shall (A) permit the Principal Stockholders to terminate this Agreement, (B)
permit the Principal Stockholders to enter into any agreement with respect to a
Stockholder Alternate Transaction prior to the termination of the Merger
Agreement in accordance with its terms or (C) affect any other obligation of any
party under this Agreement.
(ii) None of the Principal Stockholders shall sell, pledge, agree to sell
or pledge or otherwise dispose of any of its shares of any class of securities
of the Company to any third person and, with respect to any Stockholder
Alternate Transaction or
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any Cosmetic Center Alternate Transaction, each of the Principal Stockholders
shall vote all of its shares against any such Stockholder Alternate Transaction
or Cosmetic Center Alternate Transaction, as the case may be, and, if available,
exercise appraisal rights with respect to its shares.
(iii) Each of the Principal Stockholders shall cause a legend to be stamped
or printed on each certificate representing shares of any class of securities of
the Company owned by such Principal Stockholder indicating that such shares are
subject to the terms of this Agreement.
(b) If (i) any Stockholder Triggering Event or Cosmetic Center Triggering
Event occurs prior to the termination of the Merger Agreement in accordance with
its terms or (ii) any Stockholder Alternate Transaction or Cosmetic Center
Alternate Transaction is consummated during the 90-day period immediately
following the later of (A) the Drop Dead Date and (B) the termination of the
Merger Agreement in accordance with its terms, unless the Merger Agreement is
terminated by Revlon (other than due to a material breach by the Company of its
obligations under the Merger Agreement or due to a material breach of this
Agreement by the Principal Stockholders) or as a result of the failure of a
condition to either party's obligation to close under the Merger Agreement
(other than due to a material breach by the Company of its obligations under the
Merger Agreement or due to a material breach of this Agreement by the Principal
Stockholders) (the later of (A) and (B) being the "Company Termination Date"),
the Principal Stockholders jointly and severally agree to pay to Revlon within
two business days after such event the Revlon Expense Reimbursement Fee (without
duplication of any amounts paid to Revlon by the Company pursuant to Section
8.02(b) of the Merger Agreement).
(c) The Principal Stockholders shall advise Revlon of the receipt of any
proposal for a Stockholder Alternate Transaction and the details thereof within
48 hours of the receipt thereof, and none of the Principal Stockholders shall
act with respect to such proposal for three business days after the delivery of
such notice to Revlon. Nothing in this Section 3 shall be deemed to limit in any
way the claims Revlon may have at law or equity with respect to any breach by
the Principal Stockholders of their obligations under this Agreement.
(d) If the Company shall consummate any Cosmetic Center Alternate
Transaction or any Principal Stockholder shall consummate any Stockholder
Alternate Transaction at any time prior to the Company Termination Date or
during the 90-day period immediately following the Company Termination Date, the
Principal Stockholders jointly and severally agree to pay to Revlon upon the
date of consummation of such Cosmetic Center Alternate Transaction or such
Stockholder Alternate Transaction, as the case may be, the Principal
Stockholders Break-Up Fee.
(e) If (i) at a meeting of the stockholders of the Company held for the
purpose of voting on the Merger, the Principal Stockholders do not vote in favor
of the Merger or (ii) the Principal Stockholders vote in favor of any
Stockholder Alternate Transaction or any Cosmetic Center Alternate Transaction
at any time prior to the Company Termination Date, the Principal Stockholders
jointly and severally agree to pay to Revlon within two days after the date of
such vote of the stockholders of the Company a fee of $1 million; PROVIDED,
HOWEVER, that if the Principal Stockholders Break-Up Fee is payable
subsequently, the $1 million fee payable pursuant to this Section 3(e) shall be
credited against such Principal Stockholders Break-Up Fee.
SECTION 4. PRINCIPAL STOCKHOLDERS' REPRESENTATIONS. The Principal
Stockholders, jointly and severally, represent and warrant to Revlon as follows:
(a) ORGANIZATION AND AUTHORIZATION OF WEINSTEIN FAMILY LIMITED PARTNERSHIP.
Weinstein Family Limited Partnership is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Maryland
and has all requisite partnership power and authority and all necessary
government approvals to own, lease and operate its properties and to carry on
its business as now being conducted. Weinstein Family Limited Partnership has
full partnership power and authority to execute and deliver this Agreement and
to consummate the transaction contemplated hereby.
(b) VALIDITY OF AGREEMENT. This Agreement has been duly executed and
delivered by each of the Principal Stockholders and, assuming due and valid
authorization, execution and delivery by Revlon, is a valid and binding
obligation of each of the Principal Stockholders enforceable against each of
them in accordance with its terms.
(c) CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the execution, delivery
or performance of this Agreement and the agreements referred to herein or
contemplated hereby by the Principal Stockholders, nor the consummation by the
Principal Stockholders of the transactions contemplated hereby or thereby
(including the Merger), nor compliance by the Principal Stockholders with any of
the provisions hereof or thereof, will (i) require any filing, notice,
declaration or registration to or with, or any permit, authorization, consent or
approval of, any federal, state, local or foreign court, arbitral, tribunal,
administrative agency or commission or other governmental or other regulatory
authority, body or agency (collectively "Approvals"),
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except as set forth in the Merger Agreement or in the Company Disclosure
Schedule, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument, obligation or commitment to
which any of the Principal Stockholders is a party or by which any of them or
any of their respective properties or assets may be bound (including, in the
case of Weinstein Family Limited Partnership, the partnership agreement thereof)
or (iii) violate any order, writ, injunction, judgment, decree, settlement, law,
statute, rule, regulation or requirement or other governmental approval or
authorization (whether federal, state, local or foreign) applicable to any of
the Principal Stockholders or any of their respective businesses, properties or
assets, except, in the case of clauses (i), (ii) and (iii), where such failure
to obtain Approvals or such violations, breaches or defaults would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on the Company or the ability of the Principal Stockholders to
perform their obligations under this Agreement and the agreements referred to
herein or contemplated hereby.
(d) OWNERSHIP OF SHARES. Anita J. Weinstein, Mark S. Weinstein, Susan K.
Magenheim and Weinstein Family Limited Partnership own 49,544, 88,223, 21,573
and 473,728 Class A Shares, respectively, and 1,020,539, 238,489, 133,695 and 0
Class B Shares, respectively. All of such Shares are owned of record and
beneficially by such respective Principal Stockholder, free and clear of all
Liens. Other than this Agreement, none of the Principal Stockholders is a party
to any voting trust, proxy or other agreement, understanding or restriction with
respect to such Shares or the voting thereof.
SECTION 5. REVLON REPRESENTATIONS. Revlon represents and warrants to the
Principal Stockholders as follows:
(a) VALIDITY OF AGREEMENT. This Agreement has been duly executed and
delivered by Revlon and, assuming due and valid authorization, execution and
delivery by each of the Principal Stockholders, is a valid and binding
obligation of Revlon enforceable against Revlon in accordance with its terms.
(b) CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the execution, delivery
or performance of this Agreement and the agreements referred to herein or
contemplated hereby by Revlon, nor the consummation by Revlon of the
transactions contemplated hereby or thereby (including the Merger), nor
compliance by Revlon with any of the provisions hereof or thereof, will (i)
require any Approvals, except as set forth in the Merger Agreement or in the PFC
Disclosure Schedule, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument, obligation or
commitment to which Revlon or PFC is a party or by which either of them or any
of their respective properties or assets may be bound or (iii) violate any
order, writ, injunction, judgment, decree, settlement, law, statute, rule,
regulation or requirement or other governmental approval or authorization
(whether federal, state, local or foreign) applicable to Revlon or PFC or any of
their respective businesses, properties or assets, except, in the case of
clauses (i), (ii) and (iii), where such failure to obtain Approvals or such
violations, breaches or defaults would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect on PFC or the ability of
Revlon to perform its obligations under this Agreement and the agreements
referred to herein or contemplated hereby.
SECTION 6. REGISTRATION RIGHTS. Revlon hereby agrees to cause the Surviving
Corporation to enter in a registration rights agreement with the Principal
Stockholders (the "Principal Stockholder Registration Rights Agreement") which
registration rights agreement shall include provisions to the following effect
and registration procedures substantially similar to those set forth in the
Parent Registration Rights Agreement.
(a) PIGGYBACK REGISTRATION RIGHTS. Whenever the Surviving Corporation
proposes to register any Subject Securities under the Securities Act of 1933, as
amended (the "Act"), and the registration form to be used may be used for the
registration of the Registrable Securities (other than a registration statement
on Form S-8 or any similar successor form) (a "Piggyback Registration"), the
Surviving Corporation shall give written notice to the Principal Stockholders,
at least 20 days prior to the anticipated filing date, of its intention to
effect such a registration, which notice will specify the proposed offering
price, the kind and number of securities proposed to be registered, the
distribution arrangements and such other information that at the time would be
appropriate to include in such notice, and will, subject to Section 6(c),
include in such Piggyback Registration all Registrable Securities held by the
Principal Stockholders with respect to which the Surviving Corporation has
received written requests for inclusion therein within 20 days after the
delivery of such notice; PROVIDED, HOWEVER, that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the Registration Statement filed in connection with such
registration, the Surviving Corporation shall determine for any reason not to
register
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or to delay registration of such securities, the Surviving Corporation may, at
its election, give written notice of such determination to each Principal
Stockholder and, thereupon, (A) in the case of a determination not to register,
the Surviving Corporation shall be relieved of its obligation to register any
Registrable Securities under this Section 6(a) in connection with such
registration (but not from its obligation to pay the registration expenses
incurred in connection therewith) and (B) in the case of a determination to
delay registering, the Surviving Corporation shall be permitted to delay
registering any Registrable Securities under this Section 6(a) during the period
that the registration of such other securities is delayed. The Surviving
Corporation further agrees to supplement or amend a Registration Statement if
required by applicable laws, rules or regulations or by the instructions
applicable to the registration form used by the Surviving Corporation for such
Registration Statement. Each Principal Stockholder shall be permitted to
withdraw all or any part of such Principal Stockholder's Registrable Securities
from a registration at any time prior to the effective date of the Registration
Statement by notifying the Surviving Corporation of such withdrawal not later
than five business days prior to such effective date, PROVIDED that the
Surviving Corporation has given the Principal Stockholders sufficient prior
notice of the anticipated effective date to enable the Principal Stockholders to
exercise such withdrawal rights. Any Principal Stockholder who withdraws any
such securities from a registration pursuant to the preceding sentence shall pay
to the Surviving Corporation any incremental expenses of such registration
specifically attributable to the withdrawal of such Principal Stockholder's
Registrable Securities. Registrable Securities with respect to which such
request for registration has been received will be registered by the Surviving
Corporation and offered to the public in a Piggyback Registration pursuant to
this Section 6 on the terms and conditions at least as favorable as those
applicable to the registration of Subject Securities to be sold by the Surviving
Corporation and by any other person selling under such Piggyback Registration.
(b) DEMAND REGISTRATION RIGHTS.
(i) RIGHT TO DEMAND BY THE INVESTORS. On any one occasion after the date
hereof, Principal Stockholders holding at least 25% of all Shares held by the
Principal Stockholders (a "Demanding Group") may make a written request of the
Surviving Corporation for registration with the Commission, under and in
accordance with the provisions of the Act, of all or part of the Registrable
Securities held by the Principal Stockholders (a "Demand Registration");
PROVIDED, HOWEVER, that (1) the Surviving Corporation shall not be required to
effect such Demand Registration unless the aggregate fair market value of
securities requested to be included in such Demand Registration pursuant to this
subsection (b)(i) and any similar registration rights granted to any person or
entity after the date hereof exceeds $5 million, (2) the Surviving Corporation
may, if its Board of Directors determines in the exercise of its reasonable good
faith judgment that to effect such Demand Registration at such time would have a
material adverse effect on the Surviving Corporation or would require the
disclosure in such Demand Registration of an action (including an acquisition,
disposition, merger, recapitalization, consolidation, reorganization or similar
transaction relating to or involving the Surviving Corporation or any of its
subsidiaries) or an event and such disclosure would be materially detrimental to
the Surviving Corporation, defer such Demand Registration for a single period
not to exceed 90 days; PROVIDED, FURTHER, that the Surviving Corporation may
exercise such deferral right only once during any 12-month period. If the
Surviving Corporation elects to defer any Demand Registration pursuant to the
terms of the proviso to the immediately preceding sentence, the request made by
the Demanding Group shall be automatically withdrawn without further action on
the part of the Demanding Group and no Demand Registration shall be deemed to
have occurred for purposes hereof. Within 20 business days after receipt of the
request for a Demand Registration, the Surviving Corporation shall send written
notice of such registration request and its intention to comply therewith to
each of the other Principal Stockholders and, subject to Section 6(c), the
Surviving Corporation shall include in such registration all Registrable
Securities of such Principal Stockholders with respect to which the Surviving
Corporation has received written requests for inclusion therein within 10
business days after the delivery of such notice. All requests made pursuant to
this subsection (b)(i) will specify the aggregate number of Registrable
Securities requested to be registered and will also specify the intended methods
of disposition thereof.
(ii) NUMBER OF DEMAND REGISTRATIONS. The Principal Stockholders shall be
entitled to one Demand Registration, and the expenses thereof (except fees and
expenses of counsel for the Principal Stockholders and underwriting discounts
and commissions, if any) shall be borne by the Surviving Corporation. A Demand
Registration shall not be counted as a Demand Registration hereunder until such
Demand Registration has been declared effective by the Commission and maintained
continuously effective for a period of at least six months or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such Demand Registration (the "Effectiveness Period").
Notwithstanding the foregoing, if at any time the Board of Directors of the
Surviving Corporation determines in the exercise of its reasonable good faith
judgment that maintaining the effectiveness of the Demand Registration at such
time would have a material adverse effect on the Surviving Corporation or would
require the disclosure in such Demand Registration of an action (including an
acquisition, disposition, merger, recapitalization, consolidation,
reorganization or similar transaction relating to or involving the
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Surviving Corporation or any of its subsidiaries) or an event and such
disclosure would be materially detrimental to the Surviving Corporation, the
Surviving Corporation may allow the Demand Registration to fail to be effective
and usable as a result of such nondisclosure for up to 30 days during the
Effectiveness Period, but in no event for any period in excess of 15 consecutive
days, provided that the Effectiveness Period shall be extended by the number of
days during the Effectiveness Period that the Demand Registration shall have
failed to be effective by reason of this subsection (b)(ii).
(c) PRIORITY ON REGISTRATIONS. If in any Registration, the managing
underwriter or underwriters thereof advise the Surviving Corporation in writing
that, in its or their reasonable opinion, or, in the case of Registration not
being underwritten, the Surviving Corporation shall reasonably determine that,
after consultation with an investment banking firm of nationally recognized
standing, the total number of securities proposed to be sold in such
Registration exceeds the number that can be sold in such offering without having
a material adverse effect on the success of the offering (including any impact
on the selling price or the number of shares that any participant may sell), the
Surviving Corporation will include in such Registration only the number of
securities that, in the reasonable opinion of such underwriter or underwriters
or investment banking firm, as the case may be, can be sold without having a
material adverse effect on the success of the offering, in the following order
of priority:
(i) if the Surviving Corporation is registering securities pursuant to a
demand made by any person having demand registration rights (pursuant to the
Principal Stockholder Registration Rights Agreement, the Parent Registration
Rights Agreement or otherwise),
(A) FIRST, the securities the person making such demand proposes to
sell in such registration,
(B) SECOND, the securities requested to be included in such
Registration by the Surviving Corporation or by any other person or entity
granted piggyback registration rights (pursuant to the Principal
Stockholder Registration Rights Agreement, the Parent Registration Rights
Agreement or otherwise), except to the extent that the piggyback
registration rights granted to such person provide that securities to be
included by the Company or by any other holder of piggyback registration
rights shall have priority over the securities to be included by such
person, and
(C) THIRD, the securities requested to be included in such
Registration by any person granted piggyback registration rights, the terms
of which provide that securities to be included by the Company or by any
other holder of piggyback registration rights shall have priority over the
securities to be included by such person;
(ii) in any other event,
(A) FIRST, the securities the Surviving Corporation proposes to sell
in such registration,
(B) SECOND, the securities requested to be included in such
registration by any person or entity granted piggyback registration rights
(pursuant to the Principal Stockholder Registration Rights Agreement, the
Parent Registration Rights Agreement or otherwise), except to the extent
that the piggyback registration rights granted to such person provide that
securities to be included by the Company or by any other holder of
piggyback registration rights shall have priority over the securities to be
included by such person, and
(C) THIRD, the securities requested to be included in such
Registration by any person granted piggyback registration rights, the terms
of which provide that securities to be included by the Company or by any
other holder of piggyback registration rights shall have priority over the
securities to be included by such person.
To the extent that the privilege of including securities in any
Registration must be allocated among the parties pursuant to clauses (i)(B),
(i)(C), (ii)(B) or (ii)(C) above, the allocation shall be made pro rata based on
the number of securities that each such participant shall have requested to
include therein.
(d) NO INCONSISTENT AGREEMENTS. The Surviving Corporation will not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted in, or otherwise conflicts with the provisions of, this Section
6.
SECTION 7. GOVERNANCE. (a) The Principal Stockholders hereby agree for
three years from the date of the consummation of the Merger to vote all of their
shares of Class C Common Stock in favor of Revlon's nominees for director
(including any "independent" directors required by the Nasdaq Stock Market) for
a number of seats on the Board of Directors so that Revlon shall at all times
maintain representation on the Board of Directors equal to Revlon's percentage
of ownership of Class C Common Stock (but in no event shall such number be less
than seven, which shall include two independent directors); and (b) Revlon
hereby agrees, for three years from the date of the consummation of the Merger,
to vote its shares of Class C Common Stock in favor of the Principal
Stockholders' nominees for director for a number of seats on the Board of
Directors so that the Principal Stockholders shall at all times maintain
representation on the Board of Directors equal to their aggregate
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percentage of ownership of Class C Common Stock after giving effect to the Cash
Election (but in no event shall such number be less than one nor more than two).
SECTION 8. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (i) constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings, both
written and oral, between the parties or any of them with respect to the subject
matter hereof, other than the Confidentiality Agreement and the Merger
Agreement, and (ii) shall not be assigned by operation of law or otherwise,
except that (A) this Agreement may be assigned by Revlon to the extent
assignment of the Merger Agreement by Revlon is permitted by the terms thereof
and (B) to the extent any Registrable Securities held by any Principal
Stockholder are assigned to any Permitted Transferee, such Permitted Transferee
shall be entitled to the benefits granted to the Principal Stockholders in
Section 6 and in the Principal Stockholder Registration Rights Agreement,
PROVIDED that such Permitted Transferee agrees in writing, in form and substance
reasonably satisfactory to Revlon, to be bound by the provisions of this
Agreement as if it were a Principal Stockholder.
(b) 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.
(c) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon receipt by the respective parties at the following addresses (or
such other address for a party as shall be specified by like notice):
(i) If to the Principal Stockholders at:
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Attention: Mark S. Weinstein
with copies to:
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attention: Carter Strong
and to:
Swidler & Berlin
3000 K Street, N.W., Suite 300
Washington, D.C. 20007-5116
Attention: Morris F. DeFeo, Jr.
(ii) If to Revlon at:
Revlon Consumer Products Corporation
625 Madison Avenue
New York, New York 10022
Attention: Vice President and Secretary
with copies to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Steven Della Rocca
(d) CAPACITY OF PRINCIPAL STOCKHOLDERS. The parties hereto acknowledge and
agree that each of Anita J. Weinstein, Mark S. Weinstein and Susan K. Magenheim
is entering into this Agreement solely in such Principal Stockholder's capacity
as a stockholder of the Company and not in his or her capacity as a director,
officer or other employee of the Company. The
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execution and delivery of this Agreement by each of such Principal Stockholders
shall in no way alter or impair such Principal Stockholder's duties or
obligations to the Company as a director, officer or other employee of the
Company.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
(f) DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
(g) PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
(i) OBLIGATIONS JOINT AND SEVERAL. All obligations and agreements of each
Principal Stockholder set forth herein shall be the joint and several
obligations and agreements of all of the Principal Stockholders.
(j) INTERPRETATION.
(i) The words "hereof," "herein" and "hereunder" and words of similar
import, unless otherwise specifically provided, shall refer to this Agreement as
a whole and not to any particular provision of this Agreement.
(ii) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
(iii) References to "Sections" are to Sections of this Agreement unless
otherwise specifically provided.
(iv) Unless the context clearly requires otherwise, the term "including" is
not limiting.
SECTION 9. DEFINITIONS.
The following terms, as used herein, have the following respective
meanings:
CLASS C COMMON STOCK means the Class C common stock, par value $.01 per
share, of the Company.
COMMISSION means the Securities and Exchange Commission.
COMPANY means The Cosmetic Center, Inc., a Delaware corporation.
PERMITTED TRANSFEREE means, with respect to any Principal Stockholder, any
other Principal Stockholder, any immediate family member of such Principal
Stockholder and any trust for the sole benefit of such Principal Stockholder or
any Permitted Transferee.
PRINCIPAL STOCKHOLDERS BREAK-UP FEE means, with respect to any Cosmetic
Center Alternate Transaction or any Stockholder Alternate Transaction, 25% of
the difference between (a) the value of all consideration paid to the Principal
Stockholders in such Cosmetic Center Alternate Transaction or such Stockholder
Alternate Transaction, as the case may be, with respect to all of their shares
and (b) the product of (i) the number of shares of Common Stock held by the
Principal Stockholders and (ii) $7.63. For purposes of this definition, any
non-cash consideration paid to the Principal Stockholders in such Cosmetic
Center Alternate Transaction or such Stockholder Alternate Transaction, as the
case may be, shall be valued (as of the date of the consummation of such
Cosmetic Center Alternate Transaction or such Stockholder Alternate Transaction,
as the case may be) at (a) if such consideration is in the form of securities
listed on a national stock exchange or qualified for trading on NASDAQ, the
closing price of such securities on such date on the principal national stock
exchange on which such securities are listed or the last trade on NASDAQ on such
date, as the case may be, and (b) with respect to all other consideration, at
the fair market value thereof (as determined by a nationally recognized
investment banking firm selected by the Principal Stockholders and reasonably
acceptable to Revlon).
REGISTRABLE SECURITIES means the Shares, but with respect to any Share,
only until such time as such Share (a) has been effectively registered under the
Act and disposed of in accordance with the Registration Statement covering it or
(b) has been sold to the public pursuant to Rule 144 (or any similar provision
then in force) under the Act or may be sold to the public pursuant to Rule
144(k) under the Act.
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<PAGE>
REGISTRATION means a Piggyback Registration or a Demand Registration.
REGISTRATION STATEMENT means any registration statement of the Surviving
Corporation filed pursuant to the Securities Act and which covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including a
prospectus and any amendments and supplements to such Registration Statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in such Registration Statement.
REVLON EXPENSE REIMBURSEMENT FEE means an amount in immediately available
funds equal to the documented fees and expenses (up to a maximum of $1 million)
incurred since June 1, 1996 (including after the date hereof) by Revlon and its
representatives and agents in connection with the due diligence, preparation and
negotiation of legal documents, and preparation of financial statements of PFC
related to the Merger (including legal, tax and accounting fees (other than
accounting fees to the extent attributable to the audit of PFC's financial
statements) and disbursements).
SHARES means the shares of Class C Common Stock held by the Principal
Stockholders after giving effect to the Merger and the Cash Election.
STOCKHOLDER ALTERNATE TRANSACTION shall have occurred if any of the
Principal Stockholders sells or agrees to sell any shares of any class of the
outstanding equity securities or securities convertible into equity securities
of the Company to any person or group other than Revlon or its affiliates.
STOCKHOLDER TRIGGERING EVENT shall have occurred if any of the Principal
Stockholders shall breach in any material respect any of its obligations under
this Agreement or the Company shall breach in any material respects any of its
obligations under the Merger Agreement.
SUBJECT SECURITIES means Class C Common Stock, or securities convertible
into, or exercisable or exchangeable for, Class C Common Stock.
IN WITNESS WHEREOF, the parties have executed this Stockholders' Agreement
as of the date first above written.
/s/ ANITA J. WEINSTEIN
------------------------------
ANITA J. WEINSTEIN
/s/ MARK S. WEINSTEIN
------------------------------
MARK S. WEINSTEIN
/s/ SUSAN K. MAGENHEIM
------------------------------
SUSAN K. MAGENHEIM
WEINSTEIN FAMILY LIMITED PARTNERSHIP
By: /s/ MARK S. WEINSTEIN
------------------------------
Name: Mark S. Weinstein
Title: General Partner
REVLON CONSUMER PRODUCTS CORPORATION
By: /s/ JERRY W. LEVIN
------------------------------
Name: Jerry W. Levin
Title: Chief Executive Officer
8
Exhibit 10(T)
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- ------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of ____________, 1997
by and between
THE COSMETIC CENTER, INC.
and
REVLON CONSUMER PRODUCTS CORPORATION
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of _____________, 1997 by and between THE COSMETIC CENTER, INC.,
a Delaware corporation (the "Company"), and REVLON CONSUMER PRODUCTS
CORPORATION, a Delaware Corporation ("Revlon").
WHEREAS, the Company, Revlon and Prestige Fragrance & Cosmetics, Inc.,
a Delaware corporation ("PFC"), are parties to an Agreement and Plan of Merger
dated as of November ___, 1996 (the "Merger Agreement") pursuant to which, on
the date hereof, PFC has merged with and into the Company (the "Merger"); and
WHEREAS, the Merger Agreement provides that, in connection with the
Merger, the Company and Revlon shall enter into this Agreement;
NOW, THEREFORE, on consideration of the foregoing, the parties hereby
agree as follows:
SECTION 1. DEFINITIONS
The following terms, as used herein, have the following respective
meanings:
(a) Act means the Securities Act of 1933, as amended.
(b) Advice shall have the meaning set forth in Section 3.
(c) Common Stock means the Class C common stock, par value $.01 per
share, of the Company.
(d) Commission means the Securities and Exchange Commission.
(e) Demand Registration shall have the meaning set forth in Section
2(b).
(f) Exchange Act means the Securities Exchange Act of 1934, as
amended.
(g) NASD means the National Association of Securities Dealers, Inc.
(h) Piggyback Registration shall have the meaning set forth in Section
2(a).
(i) Prospectus means any prospectus in the form included in any
Registration Statement at the time such Registration Statement is filed with the
Commission, or any Prospectus filed with the Commission pursuant to Rule 424
under the Act.
(j) Registrable Securities means shares of Common Stock, but with
respect to any share, only until such time as such share (a) has been
effectively registered under the Act and disposed of in accordance with the
Registration Statement covering it or (b) has been sold to the public pursuant
to Rule 144 (or any similar provision then in force) under the Act or may be
sold to the public pursuant to Rule 144(k) under the Act.
(k) Registration means a Piggyback Registration or a Demand
Registration.
(l) Registration Statement means any registration statement of the
Company filed pursuant to the Act and which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including a prospectus
and any amendments and supplements to such Registration Statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such Registration Statement.
<PAGE>
(m) Subject Securities means the Common Stock, and any security
convertible into or exercisable or exchangeable for Common Stock.
SECTION 2. REGISTRATION RIGHTS
(a) Piggyback Registration Rights. Whenever the Company proposes to
register any Subject Securities under the Act, and the registration form to be
used may be used for the registration of the Registrable Securities (other than
a registration statement on Form S-4 or Form S-8 or any similar successor forms)
(a "Piggyback Registration"), the Company shall give written notice to Revlon,
at least 20 days prior to the anticipated filing date, of its intention to
effect such a registration, which notice shall specify the proposed offering
price, the kind and number of securities proposed to be registered, the
distribution arrangements and such other information that at the time would be
appropriate to include in such notice, and shall, subject to Section 2(c),
include in such Piggyback Registration all Registrable Securities with respect
to which the Company has received a written request for inclusion therein within
20 days after the delivery of such notice; provided, however, that if, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the Registration Statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to Revlon and, thereupon,
(i) in the case of a determination not to register, the Company shall be
relieved of its obligation to register any Registrable Securities under this
Section 2(a) in connection with such registration (but not from its obligation
to pay the registration expenses incurred in connection therewith) and (ii) in
the case of a determination to delay registering, the Company shall be permitted
to delay registering any Registrable Securities under this Section 2(a) during
the period that the registration of such other securities is delayed. The
Company further agrees to supplement or amend a Registration Statement if
required by applicable laws, rules or regulations or by the instructions
applicable to the registration form used by the Company for such Registration
Statement. Revlon shall be permitted to withdraw all or any part of its
Registrable Securities from a registration at any time prior to the effective
date of the Registration Statement by notifying the Company of such withdrawal
not later than five business days prior to such effective date; provided that
the Company has given Revlon sufficient prior notice of the anticipated
effective date to enable Revlon to exercise such withdrawal rights. If Revlon
withdraws any such securities from a registration pursuant to the preceding
sentence, Revlon shall pay to the Company any incremental expenses of such
registration specifically attributable to the withdrawal of such Registrable
Securities. Registrable Securities with respect to which such request for
registration has been received shall be registered by the Company and offered to
the public in a Piggyback Registration pursuant to this Section 2 on the terms
and conditions at least as favorable as those applicable to the registration of
Subject Securities to be sold by the Company and by any other person selling
under such Piggyback Registration.
(b) Demand Registration Rights
(i) Right to Demand by Revlon. On any three occasions after the date
hereof (as set forth in subsection (b)(ii), Revlon may make a written request of
the Company for registration with the Commission, under and in accordance with
the provisions of the Act, of all or part of the Registrable Securities (a
"Demand Registration"), which request shall identify the name or names of the
selling holders, the type and amount of Registrable Securities to be sold by
each such selling holder and the intended method or methods of distribution
thereof and, in the case of an underwritten Registration, the name or names of
the managing underwriters thereof, which managing underwriters shall be subject
to the reasonable approval of the Company; provided that (A) the Company shall
not be required to effect
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<PAGE>
such Demand Registration unless the aggregate fair market value of securities
requested to be included in such Demand Registration pursuant to this subsection
(b)(i) and any similar registration rights granted to any person or entity after
the date hereof exceeds $_____ million and (B) the Company may, if its Board of
Directors determines in the exercise of its reasonable good faith judgment that
to effect such Demand Registration at such time would have a material adverse
effect on the Company or would require the disclosure in such Demand
Registration of an action (including an acquisition, disposition, merger,
recapitalization, consolidation, reorganization or similar transaction relating
to or involving the Company or any of its subsidiaries) or an event and such
disclosure would be materially detrimental to the Company, defer such Demand
Registration for a single period not to exceed 90 days; provided, further, that
the Company may exercise such deferral right only once during any 12-month
period. If the Company elects to defer any Demand Registration pursuant to the
terms of the first proviso to the immediately preceding sentence, the request
made by Revlon shall be automatically withdrawn without further action on the
part of Revlon and no Demand Registration shall be deemed to have occurred for
purposes hereof. All requests made pursuant to this subsection (b)(i) shall
specify the aggregate number of Registrable Securities requested to be
registered and shall also specify the intended methods of disposition thereof.
(ii) Number of Demand Registrations. Revlon shall be entitled to three
Demand Registrations. A Demand Registration shall not be counted as a Demand
Registration hereunder until such Demand Registration has been declared
effective by the Commission and maintained continuously effective for a period
of at least six months or such shorter period when all Registrable Securities
included therein have been sold in accordance with such Demand Registration (the
"Effectiveness Period"). Notwithstanding the foregoing, if at any time the Board
of Directors of the Company determines in the exercise of its reasonable good
faith judgment that maintaining the effectiveness of the Demand Registration at
such time would have a material adverse effect on the Company or would require
the disclosure in such Demand Registration of an action (including an
acquisition, disposition, merger, recapitalization, consolidation,
reorganization or similar transaction relating to or involving the Company or
any of its subsidiaries) or an event and such disclosure would be materially
detrimental to the Company, the Company may allow the Demand Registration to
fail to be effective and usable as a result of such nondisclosure for up to 30
days during the Effectiveness Period, but in no event for any period in excess
of 15 consecutive days, provided that the Effectiveness Period shall be extended
by the number of days during the Effectiveness Period that the Demand
Registration shall have failed to be effective by reason of this subsection
(b)(ii).
(c) Priority on Registrations. If in any Registration, the managing
underwriter or underwriters thereof advise the Company in writing that, in its
or their reasonable opinion, or, in the case of Registration not being
underwritten, the Company shall reasonably determine that, after consultation
with an investment banking firm of nationally recognized standing, the total
number of securities proposed to be sold in such Registration exceeds the number
that can be sold in such offering without having a material adverse effect on
the success of the offering (including any impact on the selling price or the
number of shares that any participant may sell), the Company shall include in
such Registration only the number of securities that, in the reasonable opinion
of such underwriter or underwriters or investment banking firm, as the case may
be, can be sold without having a material adverse effect on the success of the
offering, in the following order of priority:
(i) if the Company is registering securities pursuant to a demand made
by any person having demand registration rights (pursuant to this Agreement or
otherwise),
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<PAGE>
(A) first, the securities the person or persons making such
demand proposes to sell in such registration,
(B) second, the securities requested to be included in such
Registration by the Company or by any other person or entity granted
piggyback registration rights (pursuant to this Agreement or
otherwise), except to the extent that the piggyback registration rights
granted to such person provide that securities to be included by the
Company or by any other holder of piggyback registration rights shall
have priority over the securities to be included by such person, and
(C) third, the securities requested to be included in such
Registration by any person granted piggyback registration rights, the
terms of which provide that securities to be included by the Company or
by any other holder of piggyback registration rights shall have
priority over the securities to be included by such person;
(ii) in any other event,
(A) first, the securities the Company proposes to sell in
such registration,
(B) second, the securities requested to be included in such
registration by any person or entity granted piggyback registration
rights (pursuant to this Agreement or otherwise), except to the extent
that the piggyback registration rights granted to such person provide
that securities to be included by the Company or by any other holder of
piggyback registration rights shall have priority over the securities
to be included by such person, and
(C) third, the securities requested to be included in such
Registration by any person granted piggyback registration rights, the
terms of which provide that securities to be included by the Company or
by any other holder of piggyback registration rights shall have
priority over the securities to be included by such person.
To the extent that the privilege of including securities in any
Registration must be allocated among the parties pursuant to clauses (i)(B),
(i)(C), (ii)(B) or (ii)(C) above, the allocation shall be made pro rata based on
the number of securities that each such participant shall have requested to
include therein.
SECTION 3. REGISTRATION PROCEDURES
With respect to any Registration, the Company shall as expeditiously as
practicable:
(a) prepare and file with the Commission a Registration Statement or
Registration Statements relating to the applicable Registration on any
appropriate form under the Act, which form shall be available for the sale of
the Registrable Securities in accordance with the intended method or methods of
distribution thereof (provided that the Company shall include in any
Registration Statement on a form other than Form S-1 all information that Revlon
shall reasonably request and shall include all financial statements required by
the Commission to be filed therewith), cooperate and assist in any filings
required to be made with the NASD, and use its best efforts to cause such
Registration Statement to become effective; provided that, in the case of a
Demand Registration, the Company shall use its best efforts to file such
Registration Statement with the Commission no later than 45 days after receiving
a written request from Revlon pursuant to Section 2(b)(i) and to cause such
Registration Statement to become effective no later than 120 days after
receiving such request; and provided, further, that before filing a
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<PAGE>
Registration Statement or Prospectus related thereto or any amendments or
supplements thereto, the Company shall furnish to Revlon and to the
underwriters, if any, copies of all such documents proposed to be filed, which
documents shall be subject to the reasonable review of Revlon and such
underwriters and their respective counsel, and the Company shall not file any
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto to which Revlon or such underwriters shall reasonably object;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep each Registration Statement effective for the applicable period, or such
shorter period which will terminate when all Registrable Securities covered by
such Registration Statement have been sold; cause each Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Act; and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in Revlon not being able to sell such Registrable Securities during
that period unless such action is required under applicable law; provided that
the foregoing shall not apply to actions taken by the Company in accordance with
the second sentence of Section 2(b)(ii) so long as the Company complies with the
requirements of Section 3(k);
(c) notify Revlon and the managing underwriters, if any, promptly, and
(if requested by any such person) confirm such advice in writing, (i) when the
Registration Statement, any Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose, (iv) if at any time the representations and warranties of the Company
contemplated by Section 3(n) cease to be true and correct, (v) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and (vi) of the
happening of any event which makes any statement made in the Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by Revlon or the managing underwriter or underwriters,
if any, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as Revlon or the managing underwriters agree should
be included therein relating to the plan of distribution with respect to such
Registrable Securities, including information with respect to the number of
Registrable Securities being sold to such underwriters, the purchase price being
paid therefor by such underwriters and with respect to any other terms of the
underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or
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<PAGE>
post-effective amendment promptly after being notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(f) furnish to Revlon and each underwriter, if any, without charge,
such number of copies of the Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those incorporated by reference), as
Revlon and such underwriters may reasonably request;
(g) deliver to Revlon and the underwriters, if any, without charge, as
many copies of the Prospectus (including each preliminary prospectus) and each
amendment or supplement thereto as Revlon and such underwriters may reasonably
request; the Company consents to the use of each Prospectus or any amendment or
supplement thereto by Revlon and each of the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, register or
qualify or cooperate with Revlon, the underwriters, if any, and their respective
counsel in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or "blue sky" laws of such
jurisdictions as Revlon or any underwriter reasonably requests in writing,
considering the amount of Registrable Securities proposed to be sold in each
such jurisdiction, and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement; provided that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject;
(i) cooperate with Revlon and the managing underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends and to
be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
Registrable Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by Section 3(c),
prepare a supplement or post-effective amendment to the Registration Statement
or the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(l) cause all Registrable Securities covered by any Registration
Statement to be listed on each securities exchange, the Nasdaq Stock Market or
over-the-counter market on which similar securities issued by the Company are
then listed;
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<PAGE>
(m) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the applicable Registration Statement;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the Registration is an underwritten Registration, (i) make such
representations and warranties to Revlon and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings; (ii) use its reasonable best efforts to obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions, in form, scope and substance, shall be reasonably satisfactory to the
managing underwriters, if any, and Revlon) addressed to Revlon and the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by Revlon and such underwriters; (iii) use its reasonable best efforts
to obtain "comfort" letters and updates thereof from the Company's independent
certified public accountants addressed to Revlon and the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in comfort letters to underwriters in connection with
primary underwritten offerings; provided that if such offering is not an
underwritten offering and the customary comfort letter referred to above cannot
be delivered, the Company shall use its reasonable best efforts to cause its
independent accountants to deliver the highest level of comfort permitted to be
given by such accountants under the then applicable standards of the American
Institute of Certified Public Accountants with respect to such registration
statement; (iv) if an underwriting agreement is entered into, the same shall set
forth in full indemnification provisions and procedures substantially similar to
those set forth in Section 6 with respect to the underwriters and all parties to
be indemnified pursuant to such Section; and (v) the Company shall deliver such
documents and certificates as may be requested by Revlon and the managing
underwriters, if any, to evidence compliance with this Agreement and with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company. The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(o) make available for inspection by Revlon, any underwriter
participating in any disposition pursuant to such Registration, and any attorney
or accountant retained by Revlon or such underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information,
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such Registration Statement; provided that all
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such Persons unless disclosure of
such records, information or documents is required by court or administrative
order or any regulatory body having jurisdiction;
(p) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders, earnings statements satisfying the provisions of
Section 11(a) of the Act, no later than 45 days after the end of any 12-month
period (or 90 days, if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to underwriters
in a firm or best efforts underwritten offering, or (ii) if not sold to
underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said 12-month periods; and
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<PAGE>
(q) promptly prior to the filing of any document that is to be
incorporated by reference into any Registration Statement or Prospectus (after
initial filing of the Registration Statement), provide copies of such document
to counsel to Revlon and counsel to the managing underwriters, if any, make the
Company's representatives available for discussion of such document and make
such changes in such document prior to the filing thereof as counsel for Revlon
or such underwriters may reasonably request.
The Company may require Revlon to furnish to the Company such
information regarding the proposed distribution of such securities as the
Company may from time to time reasonably request in writing.
Revlon agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(c), Revlon shall
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement until receipt of copies of the supplemented or amended
Prospectus as contemplated by Section 3(k), or until it is advised in writing
(the "Advice") by the Company that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus, and, if so directed by the Company,
Revlon shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in Revlon's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
referred to in Section 2(b)(ii) shall be extended by the number of days during
the period from and including the date of the giving of such notice to and
including the date when Revlon shall have received the copies of the
supplemented or amended prospectus contemplated by Section 3(k) or the Advice.
SECTION 4. RESTRICTIONS ON PUBLIC SALE
(a) If requested by the managing underwriter or underwriters for any
underwritten Registration, or by Revlon in the case of a Registration that is
not being underwritten, the Company hereby agrees not to offer to sell, or
effect any public or private issuance, sale, distribution or purchase, of any
Common Stock (or securities convertible into, or exercisable or exchangeable
for, Common Stock) for its own account during the 15 business days prior to, and
during the 90-day period beginning on, the effective date of such Registration,
other than issuances of Common Stock and options to purchase Common Stock in the
ordinary course of business pursuant to employee benefit plans.
(b) The Company shall use its best efforts to cause each purchaser of
Common Stock (or securities convertible into, or exercisable or exchangeable
for, Common Stock) from the Company after the date hereof (other than any such
purchaser in an underwritten public offering by the Company and other than
non-executive employees to whom the Company issues Common Stock or options to
purchase Common Stock in the ordinary course of business pursuant to employee
benefit plans) to agree, if requested by the managing underwriter or
underwriters for any underwritten Registration, or by Revlon in the case of a
Registration that is not being underwritten, pursuant to a customary lockup
agreement in form and substance satisfactory to counsel to such managing
underwriters or Revlon, as the case may be, not to offer to sell, or effect any
public or private sale, distribution or purchase, of any Common Stock (or
securities convertible into, or exercisable or exchangeable for, Common Stock)
for its own account during the 15 business days prior to, and during the 90-day
period beginning on, the effective date of such Registration.
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<PAGE>
SECTION 5. REGISTRATION EXPENSES
All expenses incident to the Company's performance of or compliance
with this Agreement shall be borne by the Company, including all registration
and filing fees, the fees and expenses of the counsel and accountants for the
Company (including the expenses of any "comfort" letters and special audits
required by or incident to the performance of such persons), all other costs and
expenses of the Company incident to the preparation, printing and filing under
the Act of the Registration Statement (and all amendments and supplements
thereto) and furnishing copies thereof and of the Prospectus included therein,
the costs and expenses incurred by the Company in connection with the
qualification of the Registrable Securities under the state securities or "blue
sky" laws of various jurisdictions, the costs and expenses associated with
filings required to be made with the NASD (including, if applicable, the fees
and expenses of any "qualified independent underwriter" and its counsel as may
be required by the rules and regulations of the NASD), the costs and expenses of
listing the Registrable Securities for trading on a national securities exchange
and all other costs and expenses incurred by the Company in connection with any
Registration hereunder; provided that the Company shall not bear the costs and
expenses of Revlon for underwriters' commissions, brokerage fees, transfer taxes
or the fees and expenses of any counsel, accountants or other representative
retained by Revlon.
SECTION 6. INDEMNIFICATION AND CONTRIBUTION
(a) The Company agrees to indemnify and hold harmless Revlon, each
person, if any, who controls Revlon within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act and the respective officers, directors,
stockholders, partners, employees, representatives and agents of Revlon or any
controlling person, to the fullest extent lawful, from and against any and all
losses, liabilities, obligations, claims, actions, suits, damages, costs and
expenses whatsoever (including but not limited to reasonable attorneys' fees and
any and all expenses whatsoever incurred in investigating, preparing or
defending against any investigation or litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, obligations, claims, actions, suits, damages, costs or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus, or in any supplement thereto or amendment thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that the Company shall not be liable in any such
case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with information relating to Revlon
or its proposed plan of distribution furnished to the Company in writing by or
on behalf of Revlon expressly for use therein. This indemnity agreement shall be
in addition to any liability which the Company may otherwise have, including
under this Agreement.
(b) Revlon agrees to indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and the respective officers, directors,
stockholders, partners, employees, representatives and agents of the Company or
any controlling person, to the fullest extent lawful, from and against any and
all losses, liabilities, obligations, claims, actions, suits, damages, costs and
expenses whatsoever (including but not limited to reasonable attorneys' fees and
any and all expenses whatsoever incurred in investigating,
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preparing or defending against any investigation or litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, obligations, claims, actions, suits, damages, costs or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with information
relating to Revlon or its proposed plan of distribution furnished to the Company
in writing by or on behalf of Revlon expressly for use therein; provided,
however, that in no case shall Revlon be liable or responsible, under this
indemnity or otherwise, for any amount in excess of the net proceeds received by
Revlon in connection with its sale of Registrable Securities.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the party against whom indemnification is to
be sought in writing of the commencement thereof (but the failure so to notify
the indemnifying party shall not relieve it from any liability which it may have
under this Section 6 or from any liability which it may otherwise have except to
the extent that it has been prejudiced in any material respect by such failure).
In case any such action is brought against an indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have employed counsel to take charge of the defense
of such action within a reasonable time after notice of commencement of the
action or (iii) such indemnified party or parties shall have reasonably
concluded, based upon advice of counsel, that there may be defenses available to
it or them which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party or parties shall not
have the right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such fees and expenses of counsel
shall be borne by the indemnifying party; provided that the indemnifying party
shall only be liable for the expenses of one counsel (in addition to any local
counsel) for all indemnified parties in each jurisdiction in which any claim or
action is brought. Notwithstanding anything herein to the contrary, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its prior written consent; provided, further, that such consent
was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which the
indemnification provided for in this Section 6 is for any reason held to be
unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company, on the one hand, and Revlon, on the other
hand, shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the nature contemplated by such indemnification provision (including
any investigation, legal and other expenses
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incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deducting in the case of
losses, claims, damages, liabilities and expenses suffered by the Company, any
contribution received by the Company from persons, other than Revlon, who may
also be liable for contribution, including persons who control the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) to which the Company and Revlon may be subject, in such proportion as is
appropriate to reflect the relative fault of the Company, on one hand, and
Revlon, on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of the Company,
on one hand, and of Revlon, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or Revlon and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and Revlon agree that it would
not be just and equitable if contribution pursuant to this Section 6(d) were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above.
Notwithstanding the provisions of this Section 6(d), (i) in no case shall Revlon
be required to contribute any amount in excess of the amount by which the net
proceeds received Revlon from the sale of Registrable Securities exceeds the
amount of any damages which Revlon has otherwise been required to pay by reason
of any untrue or alleged untrue statement or omission or alleged omission and
(ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section 6(d), (A) each person, if any, who controls Revlon within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (B) the
respective officers, directors, stockholders, partners, employees,
representatives and agents of Revlon or any controlling person shall have the
same rights to contribution as Revlon, and (A) each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and (B) the respective officers, directors, partners, employees,
representatives and agents of the Company shall have the same rights to
contribution as the Company. Any party entitled to contribution shall, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section 6(d), notify such party or
parties from whom contribution may be sought, but the failure to so notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have under this Section 6(d) or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its prior written consent; provided that such written
consent was not unreasonably withheld.
SECTION 7. RULE 144
The Company agrees that it shall file in a timely manner all reports
required to be filed by it pursuant to the Act and the Exchange Act and shall
take such further action as Revlon may reasonably request in order that Revlon
may effect sales of Registrable Securities pursuant to Rule 144 under the Act.
Upon the request of Revlon, the Company shall furnish Revlon with such
information as may be reasonably necessary to enable Revlon to effect sales of
Common Stock pursuant to Rule 144 under the Act and shall deliver to Revlon a
written statement as to whether the Company has complied with such requirements.
Notwithstanding the foregoing, the Company may deregister any class of its
equity securities under Section 12 of the Exchange Act or suspend its duty to
file reports with respect to any class of its securities pursuant to Section
15(d) of the Exchange Act if it is then permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
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SECTION 8. NO INCONSISTENT AGREEMENTS
The Company has not previously entered into and shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted in, or otherwise conflicts with the provisions of, this
Agreement.
SECTION 9. MISCELLANEOUS
(a) Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopy, overnight courier or
registered or certified mail (return receipt requested) postage prepaid to the
parties at the following addresses (or such other address for any party as shall
be specified by like notice, provided, however, that notices of a change of
address shall be effective only upon receipt thereof).
Notice sent by mail shall be effective five days after mailing.
(i) If to the Company:
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Attention: Vice President and Chief Financial Officer
Telecopy : (301)
(ii) If to Revlon:
Revlon Consumer Products Corporation
625 Madison Avenue
New York, NY 10022
Attention: Vice President and Secretary
Telecopy: (212) 527-5693
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may only be amended, modified or supplemented,
and waivers of or consents to departures from the provisions hereof may only be
given if approved by the Company and Revlon in writing. No action taken pursuant
to this Agreement, including, without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective successors and assigns,
including any subsequent holder of Registrable Securities.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
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(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.
(G) GOVERNING LAW. THE VALIDITY, PERFORMANCE, CONSTRUCTION AND EFFECT
OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
THEREIN. THE PARTIES HERETO AGREE TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE COSMETIC CENTER, INC.
By:
Name:
Title:
REVLON CONSUMER PRODUCTS CORPORATION
By:
Name:
Title:
14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of October 1996 by and between The Cosmetic Center, Inc. a
Delaware corporation qualified to do business in Maryland with its principal
place of business located at 8839 Greenwood Place, Savage, Maryland 20763
("COMPANY"), and Allan Goldman, now residing at 2383 Mckenzie Road, Ellicott,
Maryland ("EMPLOYEE").
RECITALS
1. The COMPANY is engaged in the specialty retail sale and wholesale
distribution of a wide range of brand name cosmetic, fragrance, beauty aides and
related items.
2. EMPLOYEE is Senior Vice President - Merchandising of the
COMPANY.
3. The COMPANY desires to employ and retain the unique experience,
ability and services of EMPLOYEE and EMPLOYEE desires and is willing to
undertake and continue such employment with the COMPANY, all upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the recitals, and of the mutual
covenants and agreements herein contained, and of other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
COMPANY hereby employs EMPLOYEE, and EMPLOYEE hereby accepts employment with the
COMPANY, upon the terms and conditions set forth in this Agreement:
<PAGE>
1. EMPLOYMENT AND DUTIES
During the term of this Agreement, EMPLOYEE shall continue in
the employ of the COMPANY and shall devote his entire time and attention to the
business and affairs of the COMPANY. During such period EMPLOYEE shall serve as
Senior Vice President of Merchandising and shall serve in such other capacities
and perform such duties as the COMPANY shall require from time to time.
Further, with respect to any sole proprietorship, firm,
company, corporation, joint venture, general or limited partnership, trust or
other entity (collectively a "Business Entity") which is a subsidiary or
otherwise affiliated with the COMPANY, whether or not controlled by the COMPANY
(collectively, an "Affiliate"), EMPLOYEE hereby agrees, at the request of the
President of the COMPANY made at any time and from time to time, to serve in
such other offices, positions and/or capacities with an Affiliate as to which he
may be elected or appointed, and to perform the duties required of him as such.
2. TERM OF EMPLOYMENT
A. Term. The term of EMPLOYEE'S employment hereunder shall
commence on October 1, 1996 and continue until September 30, 1997 (the "Original
Term"). The term of EMPLOYEE's employment hereunder shall be automatically
extended for successive additional twelve (12) month periods ("Additional
Terms") unless a notice to terminate this Agreement is given by the COMPANY to
EMPLOYEE, or by EMPLOYEE to the COMPANY, at least ninety (90) days prior to the
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expiration of the Original Term or of the then-applicable Additional Term (if
any). The Original Term and any Additional Terms are together referred to herein
as the "Entire Term" of this Agreement. On or before the last day of EMPLOYEE's
employment hereunder, EMPLOYEE shall execute and deliver to the COMPANY a letter
of resignation from all offices then held by EMPLOYEE with the COMPANY and with
any Affiliates effective upon said last day of employment hereunder.
B. Earlier Termination. Notwithstanding the aforesaid
provisions of this Section 2, this Agreement may be terminated
pursuant to the terms and conditions of Section 6 prior to what
would otherwise be the expiration of this Agreement's Term.
3. COMPENSATION OF EMPLOYEE
A. Salary. The COMPANY hereby agrees to pay to EMPLOYEE
for all services to be rendered by EMPLOYEE in any capacity
hereunder (including, but not limited to, services as an officer of
the COMPANY and/or of any Affiliate, and with respect to any other
offices, positions and/or capacities to which he is elected, or
which are assigned to him by the President of the COMPANY and/or by
the President of any Affiliate) an annual base salary ("Base
Salary") of One Hundred Fifty Thousand Dollars ($150,000.00) which
shall be paid in accordance with the COMPANY's normal payroll
schedule, as maybe increased from time to time by the President.
B. Withholding. There shall be deducted from each
installment of EMPLOYEE's Salary, and from any other payments to or
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for the benefit of EMPLOYEE pursuant to this Agreement, all amounts which are at
any time and from time to time by applicable laws, (federal, state, county or
municipal) required to be deducted by reason of withholding taxes, Social
Security contributions and other requisite governmental imposed deductions from
the income of employees.
4. EMPLOYEE BENEFITS
During the Term of this Agreement, the COMPANY shall provide
EMPLOYEE with the following benefits, which may be adjusted from time to time:
A. Insurance Plans. The COMPANY shall provide EMPLOYEE with
benefits, including major medical health insurance for EMPLOYEE and his
immediate family, group life and accident insurance, disability income
insurance, or similar group insurance plans which the Company may from time to
time make available to other employees, all in accordance with the COMPANY's
Employee Handbook as then in effect. All matters of eligibility for benefits
under any plan or plans of group health, life, accident, disability, medical
expense or similar group insurance plans which the COMPANY may at any time and
from time to time make available shall be determined in accordance with the
provisions of the insurance policies.
B. Vacation and Sick Leave. EMPLOYEE shall be
entitled to paid vacation and paid sick leave in the manner
provided for in the COMPANY's Employee Handbook as then in
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effect. Upon termination of EMPLOYEE'S employment hereunder, Company shall pay
EMPLOYEE for all unused vacation days at the then prevailing salary rate.
C. Profit-Sharing and Pension Plans. To the same extent and on
the same basis as the COMPANY makes available to all other employees, EMPLOYEE
shall have the right to participate in any profit-sharing or pension plan
established by COMPANY under the terms and conditions therein contained in such
plans and as many be governed by rules established under ERISA.
D. Deferred Compensation Plan. To the same extent and on the
same basis as the COMPANY makes available to all other employees holding
comparable management positions to that of the EMPLOYEE, EMPLOYEE shall have the
right to participate in any deferred compensation plan established by COMPANY
under the terms and conditions therein contained.
5. PROPRIETARY DATA.
A. Trade Secrets and Other Confidential Information. During
the term of this Agreement and for three (3) years thereafter, EMPLOYEE shall
keep confidential any data, documents, or financial or other information of a
trade secret or confidential nature relating to the COMPANY's past, present or
future operations (the "Proprietary Data"), shall not disclose the Proprietary
Data to any third parties other than officers, employees or agents of the
COMPANY on a "need to know" basis, shall take all necessary steps to ensure that
such officers, employees or agents keep such Proprietary Data confidential, and
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<PAGE>
shall use the Proprietary Data only in connection with rendering services to the
COMPANY. Upon the end EMPLOYEE's employment with the COMPANY, EMPLOYEE shall
promptly return to the COMPANY the originals and all copies of the Proprietary
Data in the possession of EMPLOYEE, and shall not use any of the Proprietary
Data for his own benefit or for the benefit of any third parties. The covenants
contained in this Section 5(a) shall not apply to Proprietary Data which is or
becomes a matter of general knowledge in the industry otherwise than by a breach
of the provisions of this Section 5(a).
B. Injunctive Relief. EMPLOYEE acknowledges that the covenants
contained in Sections 5(a) are necessary for the protection of the legitimate
business interests of the COMPANY and are reasonable limitations of activities,
that the rights of the COMPANY are of a specialized and unique character, and
that immediate and irreparable damage will result to the COMPANY if EMPLOYEE
fails to or refuses to perform or comply with such covenants. Therefore,
notwithstanding any election by the COMPANY to claim damages from EMPLOYEE as a
result of any such failure or refusal, the COMPANY may, in addition to any other
remedies and damages available, seek an injunction in a court of competent
jurisdiction to restrain any such failure or refusal (and no bond or other
security shall be required in connection therewith) as applicable to companies
that compete with the COMPANY or any of its subsidiaries and which operate
within the same geographic area as the COMPANY or any of its subsidiaries.
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6. TERMINATION
A. Death. The term of this Agreement shall forthwith
terminate upon the death of EMPLOYEE, whereupon the COMPANY shall
not have any further obligations or liability hereunder except to
pay the EMPLOYEE's estate the unpaid portion, if any, of
EMPLOYEE's compensation accrued for the period up to the date of
EMPLOYEE's death, plus any other employee benefits due the
EMPLOYEE under Section 4 of this Agreement, in such manner as may
be prescribed in the applicable plan.
B. Total Disability. In the event of the Total Disability (as
that term is hereafter defined) of EMPLOYEE for a period of four (4) consecutive
calendar months, or for eighty percent (80%) or more of the normal working days
during a period of six (6) consecutive full calendar months, the COMPANY shall
have the right to end the term of this Agreement by giving EMPLOYEE ten (10)
days' written notice. Upon the expiration of such ten (10) days period, the term
of this Agreement shall end and the COMPANY shall not have any further
obligations hereunder except to pay EMPLOYEE the unpaid portion, if any, of
EMPLOYEE's compensation accrued for the period up to the date of termination of
EMPLOYEE's employment, plus any other employee benefits due the EMPLOYEE under
Section 4 of this Agreement, in such manner as may be prescribed in the
applicable plan. As used in this Agreement, the term "Total Disability" shall
mean a mental or physical condition which, in the opinion of the COMPANY and in
the opinion of two consulting physicians, renders EMPLOYEE unable
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<PAGE>
or incompetent to carry out his obligations hereunder.
C. With Cause. The COMPANY shall have the right to
terminate the employment of EMPLOYEE at any time for cause (as hereinafter
defined) upon at least five (5) days' written notice setting forth the specific
details of the action or inaction of EMPLOYEE which constitutes cause. For
purposes of the foregoing, "cause" shall mean (i) conviction of a felony or
other crime involving moral turpitude or pursuant to which EMPLOYEE is
imprisoned, (ii) the use of narcotics or alcohol by EMPLOYEE to an extent which
materially interferes with his performance of his duties under this Agreement,
(iii) dishonesty of EMPLOYEE in a material matter, (iv) repeated failure by
EMPLOYEE to devote proper time and attention to the business of the COMPANY
and/or of an Affiliate employing EMPLOYEE in accordance with this Agreement, (v)
failure by EMPLOYEE to carry out the directions, policies, instructions and/or
decisions of the President of the COMPANY, (vi) repeated and unexcused
absenteeism by EMPLOYEE, or (vii) the material breach by EMPLOYEE of any of his
obligations or agreements contained herein. Upon such termination, the COMPANY
shall have no further obligations or liability hereunder except to pay EMPLOYEE
the unpaid portion, if any, of EMPLOYEE's compensation accrued for the period up
to the date of termination of EMPLOYEE's employment, plus any other employee
benefits due the EMPLOYEE under Section 4 of this Agreement, in such manner as
may be prescribed in the applicable plan.
D. Without Cause. If the COMPANY at any time during
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<PAGE>
the term of this Agreement desires to terminate EMPLOYEE for any reason other
than for cause, the COMPANY shall have the right to terminate the employment of
EMPLOYEE at anytime. If the COMPANY shall terminate the employment of EMPLOYEE
pursuant to this Section 6D, the term of this Agreement shall end and the
COMPANY shall not have any further obligations or liability hereunder except to
pay EMPLOYEE the unpaid portion, if any, of EMPLOYEE's compensation accrued for
the period up to the date of termination of EMPLOYEE's employment, plus any
other employee benefits due the EMPLOYEE under Section 4 of this Agreement, in
such manner as may be prescribed in the applicable plan, together with an
additional amount of one year's Base Salary, said payment is to be payable in
accordance with the COMPANY's normal payroll schedule and is to commence
immediately following the effective date of the termination of EMPLOYEE's
employment hereunder.
E. By EMPLOYEE. If EMPLOYEE at any time is for any reason
dissatisfied with the terms and conditions of his employment hereunder, EMPLOYEE
shall have the right to terminate his employment upon no less than sixty days'
notice to the COMPANY; provided, however, the term of this Agreement shall
terminate upon the date set by EMPLOYER which shall in no event be greater than
sixty days' from the giving of EMPLOYEE's notice. If EMPLOYEE shall terminate
his employment pursuant to this Section 6E, the term of this Agreement shall end
at the expiration of the notice period and the COMPANY shall have no further
obligations or liability hereunder except to pay to
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EMPLOYEE the unpaid portion, if any, of EMPLOYEE's compensation accrued for the
period up to the date of termination, plus any other employee benefits due the
EMPLOYEE under Section 4 of this Agreement, in such manner as may be prescribed
in the applicable plan.
F. After the Expiration of the Term. In the event that,
following the expiration of the term of this Agreement, EMPLOYEE shall be
terminated by the COMPANY prior to his 65th birthday and the termination shall
be for other than "cause" , the COMPANY shall pay EMPLOYEE as a severance
allowance an amount equal to one year's annual compensation, plus any other
employee benefits due the EMPLOYEE under Section 4 of this Agreement, in such
manner as may be prescribed in the applicable plan. The EMPLOYEE's annual
compensation shall be the total of his base salary at the rate paid for the
month prior to such termination of employment.
7. ARBITRATION.
Any controversy or claim arising out of or in any way relating
to this Agreement, the performance of the parties thereunder, the termination
thereof, or the breach thereof, shall be settled by arbitration in Howard
County, Maryland, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court of the State of
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Maryland having jurisdiction thereof. The parties agree that any controversy or
claim subject to arbitration will be submitted to single arbitrator selected
from the panels of Arbitrators of the American Arbitration Rules unless some
other method is agreed to by the parties to this Agreement. Additionally, the
discovery provisions of the Federal Rules of Civil Procedure then in effect
shall apply in any such arbitration and the arbitrator is hereby directed to
enforce such Rules. The losing party in any such arbitration shall pay the
prevailing party's legal fees and costs as well as the costs of the arbitration.
The foregoing agreement to arbitrate shall be specifically enforceable.
8. NON-ASSIGNABILITY BY EMPLOYEE
EMPLOYEE shall have no right to assign this Agreement or any
of his rights or obligations hereunder to another party or parties.
9. ASSIGNABILITY BY THE COMPANY
the COMPANY shall have the right to assign this
Agreement or any of its rights or obligations hereunder, provided that such
assignment shall not alter the financial arrangements or basic duties of
EMPLOYEE as provided in this Agreement.
10. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland applicable to contracts made
and to be performed therein, without giving effect to the principles of
conflicts of law.
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11. NON-WAIVER OF BREACH
No failure of either party to exercise any power, right or
remedy given such party hereunder, or to insist upon the strict compliance by
the other party of any obligation, covenant, term, condition, warranty or
agreement hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of such party's rights to demand exact
compliance with the terms hereof.
12. NUMBER AND GENDER
Where text required, words in the singular shall be deemed to
include the plural and vice-versa, and words of any gender shall be deemed to
include all genders.
13. HEADINGS NOT PART OF AGREEMENT
Any headings preceding the text of the several Sections and
subparagraphs of this Agreement are inserted solely for convenience of reference
and shall not constitute a part of this Agreement nor shall they affect its
meaning, construction or effect.
14. NOTICES
No notice, request, consent, approval, waiver or other
communication which may be or is required or permitted to be given under this
Agreement shall be effective unless the same is in writing and is delivered in
person, or sent by registered or certified mail, return receipt requested,
first-class postage prepaid, (1) if to the COMPANY to the first grammatical
paragraph of this Agreement, Attention: President, with a copy to Ronald
12
<PAGE>
M. Hirschel, Esquire, 481 North Frederick Avenue, Suite 200, Gaithersburg,
Maryland 20877, and (2) if to EMPLOYEE to the address set forth in the first
grammatical paragraph of this Agreement, or (effective upon receipt) at any
other address that may be given by one party to the other by notice pursuant to
this Paragraph 14. Such notices, if sent by registered or certified mail, return
receipt requested, first-class postage prepaid, shall be deemed to have been
given at the time of mailing.
15. ENTIRE AGREEMENT
This Agreement contains all of the agreements and
understandings between the parties hereto with respect to the employment of
EMPLOYEE by the COMPANY, and no oral agreements or written correspondence shall
be held to affect the provisions hereof.
16. PARTIAL INVALIDITY
Should any part of this Agreement for any reason be declared
or held invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity and enforceability of any remaining portion, which remaining
portion shall remain in force and effect as of this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated.
17. AMENDMENTS
Neither this Agreement nor any provision hereof may be
amended, modified, changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
amendment, modification, change,
13
<PAGE>
waiver, discharge or termination is sought.
18. BURDEN AND BENEFIT
This Agreement is binding upon, and inures to the benefit of,
the parties hereto and their respective spouses, heirs, executors,
administrators, personal and legal representatives, successors and assigns.
19. COUNTERPARTS
This Agreement may be executed in one or more counterparts
and, in such event, all such counterparts shall constitute originals and all
such counterparts shall constitute a single agreement.
20. NO INFERENCE AGAINST AUTHOR
No provision of this Agreement shall be interpreted against
any party because such party or its legal representative drafted such provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year hereinabove first written.
COMPANY:
THE COSMETIC CENTER, INC.
/s/Ben Kovalsky (SEAL)
Ben Kovalsky,
President
WITNESS: EMPLOYEE:
/s/Bruce Strohl /s/Allan Goldman (SEAL)
Allan Goldman
14
EXHIBIT 21
SUBSIDIARIES OF COSMETIC
State of
Incorporation
-------------
The Cosmetic Center, Inc. Delaware
M. Steven Cosmetic Company, Inc. Delaware
Susan Kay Cosmetics, Inc. Maryland
Anita Jean Cosmetics, Inc. Maryland
Adam Michael Cosmetics, Inc. Illinois
Courtney Brooke, Inc. Maryland
Dumond Distribution, Inc. Maryland
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
December 16, 1996
EXHIBIT 23(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder Prestige Fragrance & Cosmetics, Inc.:
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
December 19, 1996
EXHIBIT 23(D)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
Ronald O. Perelman
EXHIBIT 23(E)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
Howard Gittis
EXHIBIT 23(F)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
Jerry W. Levin
EXHIBIT 23(G)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
Howard Diener
EXHIBIT 23(H)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
William J. Fox
EXHIBIT 23(I)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
Wade H. Nichols III
EXHIBIT 23(J)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
David N. Dinkins
EXHIBIT 23(K)
December 16, 1996
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, Maryland 20763
Dear Ladies and Gentlemen:
The undersigned hereby consents to be named as a nominee for director
of The Cosmetic Center, Inc. ("Cosmetic Center") in a proxy statement and
Registration Statement on Form S-4 and any amendments to either, each of which
is being filed with the Securities and Exchange Commission by or on behalf of
Cosmetic Center and further consents to including this authorization as an
exhibit to the Registration Statement on Form S-4.
Very truly yours,
Harvey Rosenthal
EXHIBIT 23(L)
December 19, 1996
The Board of Directors
The Cosmetic Center, Inc.
8839 Greenwood Place
Savage, MD 20763
Members of the Board:
We hereby consent to the references to our firm and the references to and
discussion of our opinion letter dated December 17, 1996 in the Proxy
Statement/Prospectus of the Company which forms a part of the Registration
Statement on form S-4 to be filed with the Securities and Exchange Commission on
December 19, 1996. In giving the foregoing consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, or the rules or regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ Arnold S. Hoffman
Name: Arnold S. Hoffman
Title: Senior Managing Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Cosmetic Center, Inc.'s financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-END> SEP-27-1996
<CASH> 979
<SECURITIES> 0
<RECEIVABLES> 1,860
<ALLOWANCES> 10
<INVENTORY> 56,479
<CURRENT-ASSETS> 63,126
<PP&E> 17,663
<DEPRECIATION> 9,256
<TOTAL-ASSETS> 72,522
<CURRENT-LIABILITIES> 21,399
<BONDS> 109
0
0
<COMMON> 43
<OTHER-SE> 37,138
<TOTAL-LIABILITY-AND-EQUITY> 72,522
<SALES> 133,795
<TOTAL-REVENUES> 133,795
<CGS> 105,761
<TOTAL-COSTS> 136,029
<OTHER-EXPENSES> 3,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,030
<INCOME-PRETAX> (7,193)
<INCOME-TAX> (2,433)
<INCOME-CONTINUING> (4,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,760)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
EXHIBIT 99(A)
PROXY
THE COSMETIC CENTER, INC.
Special Meeting of Stockholders to be held February , 1997
The undersigned, a Class B stockholder of The Cosmetic Center, Inc., a Delaware
corporation (the "Company"), hereby appoints Mark S. Weinstein and Bruce E.
Strohl or either of them, attorneys and proxies of the undersigned, with full
power of substitution to vote and act for the undersigned at the Company's
Special Meeting of Stockholders in lieu of the Annual Meeting to be held at
on , February , 1997 at
a.m., and at any postponement or adjournment thereof, in respect of all
shares of the Class B common stock registered in the name of the undersigned as
fully as the undersigned could vote and act if personally present, on the
following matters:
1. To (a) adopt the Agreement and Plan of Merger dated November 27, 1996
by and among the Company, Prestige Fragrance & Cosmetics, Inc. and
Revlon Consumer Products Corporation, (b) approve the amendment to the
Company's certificate of incorporation regarding the authorization of
Class C common stock and (c) appoint nine nominees to the board of
directors.
FOR __ AGAINST __ ABSTAIN __
2. To elect two Class II directors.
Nominees: Mark S. Weinstein and Donald R. Rogers. (Instructions: To
withhold authority to vote for any individual nominee, strike out that
nominee's name.)
FOR __ (except as WITHHELD __
Indicated above)
3. To approve the amendment to the Company's certificate of incorporation
to repeal the classification of the board of directors.
FOR __ AGAINST __ ABSTAIN __
4. To approve the Company's 1997 Stock Option Plan.
FOR __ AGAINST __ ABSTAIN __
5. In their discretion, on any other matter which may properly come before
the meeting or any postponement or adjournment thereof.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
This proxy, when properly executed, will be voted as directed herein by the
undersigned. However, if no direction is given, this proxy will be voted FOR
proposals 1, 2, 3 and 4.
Please date this proxy and sign your name exactly as your name appears herein.
If the shares are held jointly, all owners must sign. When signing as attorney,
executor, administrator, trustee, guardian or other representative capacity,
please give full title.
Dated ________________, 1997
----------------------------
Signature of Stockholder
----------------------------
Signature of Stockholder
PLEASE COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THIS PROXY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED
STATES.
