<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1996
REGISTRATION NO. 333-15257
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAFCO CONSOLIDATED GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2121 02-0424104
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 572-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BARRY F. SCHWARTZ, ESQ.
MAFCO CONSOLIDATED GROUP INC.
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 572-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies of all communications to:
STACY J. KANTER, ESQ.
ALAN C. MYERS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER VSR(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Value Support Rights ('VSRs')...................... 23,156,502 $ 3.25 $75,258,631.50 $22,805.65(2)
VSR Notes.......................................... $75,258,631.50(3) -- -- None(4)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. The
registration fee applicable to the VSRs has been computed using the maximum
aggregate amount of consideration payable pursuant to the terms of the VSRs.
(2) The fee was previously paid.
(3) The maximum amount of VSR Notes to be registered has been determined based
on the number of VSRs to be registered and the $3.25 maximum payment
obligation per VSR.
(4) Pursuant to Rule 457(i) no additional fee is required for the VSR Notes
issuable upon maturity of the VSRs.
------------------------
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 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1996
PRELIMINARY PROSPECTUS
23,156,502 VALUE SUPPORT RIGHTS
MAFCO CONSOLIDATED GROUP INC.
------------------------
This Prospectus is being furnished in connection with the distribution (the
'Distribution') by Power Control Technologies Inc., a Delaware corporation
('PCT'), to the holders of record of PCT common stock (the 'PCT Common Stock')
and PCT convertible preferred stock (the 'PCT Preferred Stock,' and, together
with the PCT Common Stock, the 'PCT Stock'), of one Value Support Right (each a
'VSR,' and collectively, the 'VSRs') of Mafco Consolidated Group Inc., a
Delaware corporation (the 'Company'), for each share of PCT Common Stock and 125
VSRs for each share of PCT Preferred Stock (all of which are owned by the
Company) in each case owned at the close of business on December , 1996 (the
'Record Date'). The Distribution will occur, and certificates evidencing the
VSRs will be mailed to holders of PCT Stock, on or about December , 1996 (the
'Distribution Date').
The VSRs were originally issued to PCT International Holdings Inc., a
Delaware corporation and a wholly owned subsidiary of PCT ('PCT International'),
in connection with the sale (the 'Disposition') by the Company to PCT
International of all the outstanding shares of common stock (the 'Flavors Common
Stock') of Flavors Holdings Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ('Flavors Holdings'), pursuant to a Stock and VSR
Purchase Agreement, dated as of October 23, 1996 (the 'Purchase Agreement'), by
and among the Company, PCT and PCT International. The Disposition was
consummated and the VSRs were issued to PCT International on November 25, 1996.
The VSRs were subsequently distributed to PCT.
The terms of the VSRs are governed by the Value Support Rights Agreement
(the 'VSR Agreement'), dated as of November 25, 1996, between the Company and
American Stock Transfer & Trust Company, as trustee (the 'Trustee'). Each VSR
entitles the holder thereof to a payment from the Company equal to the
difference between $11.00, subject to adjustment, and the 30-Day Average Market
Price (as determined under the VSR Agreement) of a share of PCT Common Stock on
January 1, 1999, if lower, up to a maximum of $3.25 per VSR, payable, at the
option of the Company, in either cash or, under certain circumstances, senior
notes (the 'VSR Notes') issued by the Company (subject to qualification under
the Trust Indenture Act of 1939, as amended (the 'TIA')). Pursuant to the VSR
Agreement, the Company has the right to call the VSRs on each April 1, July 1,
October 1 and January 1 from and including April 1, 1997 to and including
October 1, 1998 (each, an 'Optional Call Date'). If the Company calls the VSRs
on or before January 1, 1998, holders thereof will be entitled to receive a cash
payment equal to the greater of (i) $0.50 and (ii) the difference between
$10.25, subject to adjustment, and the 30-Day Average Market Price of a share of
PCT Common Stock, if lower, on such Optional Call Date, up to a maximum of $3.25
per VSR. If the Company calls the VSRs after January 1, 1998, holders thereof
will be entitled to receive a cash payment, if any, equal to the difference
between $11.00, subject to adjustment, and the 30-Day Average Market Price of a
share of PCT Common Stock, if lower, on such Optional Call Date, up to a maximum
of $3.25 per VSR. The Company may also be required to make payments in respect
of the VSRs upon the occurrence of certain extraordinary transactions (each a
'Total Disposition,' as more fully described in 'Description of the Value
Support Rights and VSR Notes--Certain Definitions used in the VSR Agreement')
involving PCT or upon a good-faith determination by the Company's Board of
Directors that (i) as a result of an event beyond the reasonable control of the
Company, the existence of the VSRs would cause the Company to cease to be a
member of the consolidated group with respect to which the Company files
consolidated federal income tax returns and such situation would be avoided or
cured by the redemption of the VSRs or (ii) the VSRs would create any material
financial or legal impediment to the consummation of any bona fide significant
corporate event or transaction involving the Company, which transaction would,
if consummated, result in a change of control of the Company, and in connection
with which transaction the Company has entered into definitive documentation
which creates a binding obligation upon the Company to consummate such
transaction (subject to customary conditions to closing and fiduciary
obligations), each of the events described in clauses (i) and (ii) being a
Redemption Event upon which the Company may make any Optional Redemption. If the
30-Day Average Market Price were to be below $7.00 on or prior to January 1,
1998 or below $7.75 thereafter, the VSRs would not provide a holder thereof with
the full amount of the difference between such market price and $10.25 or
$11.00, as the case may be, in the event a payment were to be made thereon.
The Company's obligations under the VSRs and, if issued, the VSR Notes are
structurally subordinated to the indebtedness and other liabilities of the
Company's subsidiaries. On a pro forma basis, after giving effect to the
Disposition, the Distribution and the other Transactions (as defined herein), at
June 30, 1996, approximately $147.1 million of indebtedness and other
liabilities of the Company's subsidiaries would have been structurally senior to
the VSRs and, if issued, the VSR Notes.
No consideration or surrender of PCT Stock will be required of PCT's
stockholders in return for the VSRs issued pursuant to the Distribution.
Application has been made to list the VSRs on the New York Stock Exchange
under the symbol ' .' Prior to the Distribution, no public market has existed
for the VSRs, and no public market currently exists for any VSR Notes that may
be issued.
SEE 'RISK FACTORS' BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF THE VSRS AND, IF ISSUED, THE VSR NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER , 1996.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and the notes thereto contained elsewhere in this
Prospectus. Unless otherwise indicated or unless the context otherwise requires,
the information contained in this Prospectus gives effect to (i) the payment to
the Company by Flavors Holdings of a $5.4 million cash dividend prior to the
Disposition (the 'Flavors Dividend'), (ii) the Disposition and (iii) the
Distribution. The Flavors Dividend, the Disposition and the Distribution are
collectively referred to herein as the 'Transactions.' Unless the context
otherwise requires, all references in this Prospectus to the 'Company' mean
Mafco Consolidated Group Inc. and its subsidiaries, including its operating
subsidiary Consolidated Cigar Corporation ('Consolidated Cigar').
THE COMPANY
GENERAL
The Company is a holding company with no business operations of its own.
After the Disposition, the Company's only material assets are (i) its ownership
of 80.2% of the outstanding shares of capital stock of Consolidated Cigar
Holdings Inc. ('Cigar Holdings') (representing approximately 97.6% of the
combined voting power), which owns 100% of the outstanding shares of capital
stock of Consolidated Cigar, (ii) its ownership of 100% of the outstanding
shares of PCT Preferred Stock and approximately 29% of the outstanding shares of
PCT Common Stock (together, representing approximately 36% of the outstanding
shares of PCT Common Stock on a fully diluted basis), (iii) approximately $412.8
million in cash and marketable securities at September 29, 1996, on a pro forma
basis after giving effect to the Transactions, $172.7 million of which
represents the net proceeds received by the Company in connection with the
Disposition and the sale of the VSRs to PCT International, (iv) the Promissory
Note and (v) a pension plan asset with a book value of approximately $62.5
million at September 29, 1996. Through Consolidated Cigar, the Company
manufactures and distributes cigars and pipe tobacco products. In addition, in
connection with the Abex Transactions (as defined under '--Background and the
Disposition--Background'), the Company assumed and agreed to indemnify PCT
against, or to manage on PCT's behalf, various contingent and other liabilities.
See 'Background and the Disposition' and 'Business.'
CONSOLIDATED CIGAR
Through Consolidated Cigar, the Company is the largest manufacturer and
marketer of cigars sold in the United States in terms of dollar sales, with a
1995 market share of approximately 23% according to the Company's estimates. The
Company markets its cigar products under a number of well-known brand names at
all price levels and in all segments of the growing cigar market, including
premium large cigars, mass market large cigars and mass market little cigars.
The Company attributes its leading market position to the following competitive
strengths: (i) well-known brand names, many of which are the leading brands in
their category; (ii) broad range of product offerings within both the premium
and mass market segments of the United States cigar market; (iii) commitment to
and reputation for manufacturing quality cigars; (iv) marketing expertise and
close attention to customer service; (v) efficient manufacturing operations; and
(vi) an experienced management team. The Company is also a leading producer of
pipe tobacco and is the largest supplier of private label and branded generic
pipe tobacco to mass market retailers. In addition, the Company distributes a
variety of pipe and cigar smokers' accessories.
The Company's cigars and pipe tobacco products are marketed under a number
of well-known brand names. The Company's premium cigars include the H. UPMANN,
MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY and
MONTECRUZ brands. The Company's mass market large cigars include the ANTONIO Y
CLEOPATRA (also known as AYC), DUTCH MASTERS, EL PRODUCTO, MURIEL, BACKWOODS,
SUPER VALUE and SUPRE SWEETS brands. The Company's mass market little cigars
include the DUTCH TREATS, SUPER VALUE and SUPRE SWEETS brands. The Company's
pipe tobacco products include the MIXTURE NO. 79 and CHINA BLACK brands.
2
<PAGE>
OWNERSHIP OF THE COMPANY
The following chart sets forth in simplified form the ownership structure
of the Company.
Ronald O. Perelman
100%
Mafco Holdings Inc.
('Mafco Holdings')
85%
MAFCO CONSOLIDATED GROUP INC.
(THE 'COMPANY')
80.2%
Consolidated Cigar Holdings Inc.
('Cigar Holdings')
100%
Consolidated Cigar Corporation
('Consolidated Cigar')
The Company was incorporated on June 1, 1988 under the laws of the state of
Delaware. The Company's principal executive office is located at 35 East 62nd
Street, New York, New York 10021 and its telephone number is (212) 572-8600.
THE DISTRIBUTION
<TABLE>
<S> <C>
DISTRIBUTING CORPORATION Power Control Technologies Inc.
DISTRIBUTED CORPORATION Mafco Consolidated Group Inc.
SECURITIES TO BE DISTRIBUTED Up to 23,156,502 VSRs
DISTRIBUTION RATIO Each holder of PCT Common Stock will receive one VSR for each share of PCT Common
Stock held on the Record Date and each holder of PCT Preferred Stock will receive
125 VSRs for each share of PCT Preferred Stock held on the Record Date. See 'The
Distribution.'
RECORD DATE Close of business on December , 1996.
DISTRIBUTION DATE On or about December , 1996.
MAILING DATE Certificates representing the VSRs will be mailed to PCT's stockholders on or
about the Distribution Date.
TAX CONSEQUENCES See 'Certain United States Federal Income Tax Consequences.'
NYSE SYMBOL
</TABLE>
3
<PAGE>
THE VALUE SUPPORT RIGHTS AND VSR NOTES
The terms of the VSRs are governed by the VSR Agreement. Each VSR entitles
the holder thereof to a payment from the Company equal to the difference
between $11.00, subject to adjustment, and the 30-Day Average Market
Price of a share of PCT Common Stock on January 1, 1999, if lower, up to
a maximum of $3.25 per VSR, payable, at the option of the Company, in
either cash or, under certain circumstances, the VSR Notes issued by the
Company (subject to qualification under the TIA). Pursuant to the VSR
Agreement, the Company has the right to call the VSRs on each April 1,
July 1, October 1 and January 1 from and including April 1, 1997 to and
including October 1, 1998. If the Company calls the VSRs on or before
January 1, 1998, holders thereof will be entitled to receive a cash
payment equal to the greater of (i) $0.50 and (ii) the difference
between $10.25, subject to adjustment, and the 30-Day Average Market
Price of a share of PCT Common Stock, if lower, on such Optional Call
Date, up to a maximum of $3.25 per VSR. If the Company calls the VSRs
after January 1, 1998, holders thereof will be entitled to receive a
cash payment, if any, equal to the difference between $11.00, subject to
adjustment, and the 30-Day Average Market Price of a share of PCT Common
Stock, if lower, on such Optional Call Date, up to a maximum of $3.25
per VSR. The Company may also be required to make payments in respect of
the VSRs upon the occurrence of certain extraordinary transactions (each
a 'Total Disposition,' as more fully described in 'Description of the
Value Support Rights and VSR Notes--Certain Definitions used in the VSR
Agreement') involving PCT or upon a good-faith determination by the
Company's Board of Directors that (i) as a result of an event beyond the
reasonable control of the Company, the existence of the VSRs would cause
the Company to cease to be a member of the consolidated group with
respect to which the Company files consolidated federal income tax
returns and such situation would be avoided or cured by the redemption
of the VSRs or (ii) the VSRs would create any material financial or
legal impediment to the consummation of any bona fide significant
corporate event or transaction involving the Company, which transaction
would, if consummated, result in a change of control of the Company, and
in connection with which transaction the Company has entered into
definitive documentation which creates a binding obligation upon the
Company to consummate such transaction (subject to customary conditions
to closing and fiduciary obligations), each of the events described in
clauses (i) and (ii) being a Redemption Event upon which the Company may
make any Optional Redemption. If the 30-Day Average Market Price were to
be below $7.00 on or prior to January 1, 1998 or below $7.75 thereafter,
the VSRs would not provide a holder thereof complete price protection in
the event a payment is required to be made thereon. See 'Description of
the Value Support Rights and VSR Notes.'
RISK FACTORS
See 'Risk Factors' for a discussion of certain factors that should be
considered by holders of the VSRs and, if issued, the VSR Notes.
BACKGROUND AND THE DISPOSITION
BACKGROUND
On June 15, 1995, as part of a series of transactions (collectively, the
'Abex Transactions'), C&F Merger Inc. ('C&F Merger'), a wholly owned subsidiary
of Mafco Holdings Inc. ('Mafco Holdings'), which then owned 100% of the
outstanding capital stock of Cigar Holdings and Flavors Holdings, merged (the
'Merger') with and into Abex Inc. ('Abex'), with Abex being the surviving
corporation in the Merger and being renamed Mafco Consolidated Group Inc. Prior
to the Abex Transactions, Abex was engaged in an aerospace business through its
then wholly owned subsidiary, PCT. In connection with the Abex Transactions, (i)
holders of Abex's common stock ('Abex Common Stock') and related rights to
acquire Abex Common Stock received in exchange therefor, among other
consideration, 20% of the common stock (the 'Company Common Stock') of the
Company and all of the outstanding shares of PCT Common Stock; (ii) Mafco
Holdings, through its wholly owned subsidiary Mafco Consolidated Holdings Inc.
('Mafco Consolidated Holdings'), received 80% of the Company Common Stock; and
(iii) the Company retained PCT Preferred Stock convertible into approximately
11% of the PCT Common Stock on a fully diluted basis (in each case, such
percentages reflect the outstanding capital stock immediately following
consummation of the Abex Transactions). In addition, as part of the Abex
Transactions, the Company retained substantially all of Abex's consolidated
assets and liabilities other than those
4
<PAGE>
principally related to PCT's aerospace business. Accordingly, as a result of the
Abex Transactions, the Company acquired certain non-aerospace assets and assumed
certain liabilities of Abex as well as acquired an interest in the PCT Preferred
Stock. PCT, which became a separate publicly-traded company, continued to
operate the aerospace business.
Subsequently, and in a separate transaction, on July 17, 1995, the Company
purchased 5,939,400 shares of PCT Common Stock (thereby increasing its
investment in PCT to approximately 36% of the shares of PCT Common Stock then
outstanding on a fully diluted basis) and 1,484,850 shares of Company Common
Stock from Libra Invest & Trade Ltd. ('Libra') for approximately $63.9 million
in cash. In connection with such purchase, the Company entered into an agreement
with PCT which, subject to certain exceptions, limits the Company's ability to
dispose of its shares of PCT Stock for a period of three years.
On April 15, 1996, PCT sold its entire operations, including substantially
all of its assets, to Parker-Hannifin Corporation ('Parker-Hannifin') for an
aggregate cash consideration of approximately $201.1 million before transaction
costs.
On August 21, 1996, Cigar Holdings completed an initial public offering of
6,075,000 shares of its Class A Common Stock. The net proceeds to Cigar Holdings
from the Cigar IPO of approximately $127.8 million were paid as a dividend to
the Company. As a result of the Cigar IPO, the Company beneficially owns 80.2%
of the outstanding shares of capital stock of Cigar Holdings (representing
approximately 97.6% of the combined voting power), which owns 100% of the
outstanding shares of capital stock of Consolidated Cigar. In connection with
the Cigar IPO, Cigar Holdings issued the Promissory Note in an original
principal amount of $70 million to the Company. See 'Description of Certain
Indebtedness--Promissory Note.'
For a discussion of the events leading up to the Disposition, see
'Background and the Disposition--Background.'
THE DISPOSITION
On November 25, 1996, pursuant to the Purchase Agreement, the Company sold
to PCT International (i) all of the outstanding shares of Flavors Common Stock
and (ii) 23,156,502 VSRs for an aggregate consideration of $180 million. The
VSRs were subsequently distributed to PCT. In addition, pursuant to the Purchase
Agreement, PCT will be required to make deferred cash payments to the Company of
$3.7 million on June 30, 1997 and $3.5 million on December 31, 1997. Immediately
following the Disposition, Mafco Worldwide Corporation, a wholly owned
subsidiary of Flavors Holdings ('Mafco Worldwide'), was, through a series of
transactions, merged into Premium Abex Corporation ('Pneumo Abex'), an indirect
wholly owned subsidiary of PCT. See 'Background and the Disposition--The
Disposition.'
The Company expects to use its cash, including the net proceeds from the
Disposition and the sale of the VSRs, for general corporate purposes, including
acquisitions, although no specific acquisition is currently contemplated by the
Company. Accordingly, there can be no assurance that such proceeds will be
available to pay any of the Company's obligations under the VSRs or, if issued,
the VSR Notes. See 'Risk Factors' and 'Business.'
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial data set forth below reflect the results
of operations and financial position of the Company, including its operating
subsidiary Consolidated Cigar, its former operating subsidiary Mafco Worldwide
and the assets acquired and liabilities assumed from Abex, for the periods
indicated. On June 15, 1995, as part of the Abex Transactions, C&F Merger, a
wholly owned subsidiary of Mafco Holdings, which then owned 100% of the
outstanding capital stock of Cigar Holdings and Flavors Holdings, merged with
and into Abex, with Abex being the surviving corporation in the Merger and being
renamed Mafco Consolidated Group Inc. The Merger was accounted for as a purchase
of certain assets and the assumption of certain liabilities of Abex, with C&F
Merger treated as the acquiror for accounting purposes. On March 3, 1993, Mafco
Holdings completed the acquisition of Consolidated Cigar (the 'Consolidated
Cigar Acquisition'). Accordingly, the summary historical financial data reflect
for the periods (i) from June 15, 1995, the consolidated results of Cigar
Holdings and Flavors Holdings and the assets acquired and liabilities assumed
from Abex in the Merger, (ii) from March 3, 1993 to June 15, 1995, the combined
results of Cigar Holdings and Flavors Holdings and (iii) prior to March 3, 1993,
the results of Flavors Holdings or its predecessors.
The summary unaudited pro forma statements of operations data for the year
ended December 31, 1995 and the nine month period ended September 29, 1996 give
pro forma effect to the Transactions, assuming that the Transactions had been
consummated on January 1, 1995, and the unaudited pro forma balance sheet as of
September 29, 1996, gives pro forma effect to the Transactions, assuming that
the Transactions had been consummated on September 29, 1996. The pro forma
adjustments are based upon available information and certain assumptions that
the management of the Company believes are reasonable. The summary pro forma
financial data do not purport to represent the results of operations or the
financial position of the Company that actually would have occurred had the
Transactions been consummated on the aforesaid dates, or project the results of
operations or financial position of the Company and its subsidiaries for any
future date or period.
The following summary historical and unaudited pro forma financial data
should be read in conjunction with 'Selected Historical Financial Data,' 'Pro
Forma Financial Data,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Prospectus. The
summary historical financial data as of and for the six month periods are
unaudited but, in the opinion of the Company, include all adjustments
(consisting of normal recurring accruals) necessary for the fair presentation of
the financial data for such periods. The results for such interim periods are
not necessarily indicative of the results for the full fiscal year.
6
<PAGE>
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, ------------------------------------------
-------------------------------------- PRO FORMA
PRO FORMA OCTOBER 1, SEPTEMBER 29, SEPTEMBER 29,
1993(a) 1994 1995(b) 1995(c) 1995(b) 1996 1996(c)
------- ------ ------- --------- ---------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $202.6 $226.9 $261.1 $ 157.9 $195.3 $ 230.4 $ 152.7
Cost of sales............................. 125.0 136.0 154.0 94.0 115.3 131.9 88.3
------- ------ ------- --------- ---------- ------ ------
Gross profit.............................. 77.6 90.9 107.1 63.9 80.0 98.5 64.4
Selling, general and administrative
expenses................................ 33.9 37.9 51.4 42.2 37.2 40.0 33.5
------- ------ ------- --------- ---------- ------ ------
Operating income.......................... 43.7 53.0 55.7 21.7 42.8 58.5 30.9
Interest expense.......................... 26.5 27.5 27.2 13.7 20.4 19.3 9.9
Interest, investment and dividend
income.................................. (0.1) (0.2) (6.0) (5.5) (2.8) (7.1) (6.8)
Amortization of deferred charges and bank
fees.................................... 2.0 2.0 2.1 1.0 1.5 1.5 0.6
Equity in earnings from continuing
operations and preferred dividends of
PCT..................................... -- -- (0.7) (5.0) (0.4) (2.8) (5.5)
Gain on Cigar IPO......................... -- -- -- -- -- (127.8)(d) (127.8)(d)
Other (income) expense, net............... (0.2) (0.2) 0.3 0.2 0.2 0.8 0.9
------- ------ ------- --------- ---------- ------ ------
Income from continuing operations before
income taxes............................ 15.5 23.9 32.8 17.3 23.9 174.6 159.6
Provision for income taxes................ 5.5 7.5 9.7 2.3 7.5 59.1 52.4
------- ------ ------- --------- ---------- ------ ------
Income from continuing operations......... 10.0 16.4 23.1 $ 15.0 16.4 115.5 $ 107.2
--------- ------
--------- ------
Discontinued operations
Equity in discontinued operations of
PCT,
net of income taxes..................... -- -- 1.3 0.6 15.1(e)
------- ------ ------- ---------- ------
Income before extraordinary item.......... 10.0 16.4 24.4 17.0 130.6
Extraordinary item, net of tax benefit.... -- 2.7(f) -- -- --
------- ------ ------- ---------- ------
Net Income................................ $ 10.0 $ 13.7 $ 24.4 $ 17.0 $ 130.6
------- ------ ------- ---------- ------
------- ------ ------- ---------- ------
Income per share
Continuing operations................... $ 0.50 $ 0.82 $ 1.06 $ 0.69 $ 0.77 $ 4.97 $ 4.61
--------- ------
--------- ------
Discontinued operations................. -- -- 0.06 0.03 0.65
Extraordinary item...................... -- (0.13) -- -- --
------- ------ ------- ---------- ------
Net income per share.................... $ 0.50 $ 0.69 $ 1.12 $ 0.80 $ 5.62
------- ------ ------- ---------- ------
------- ------ ------- ---------- ------
Weighted average common shares outstanding
(in thousands).......................... 19,778 19,778 21,794 21,794 21,315 23,237 23,237
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29,
DECEMBER 31, ---------------------
-------------------------- PRO FORMA
1993 1994 1995 1996 1996(g)
------ ------ ------ -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................................... $293.6 $282.9 $560.6 $729.7 $786.2
Long-term debt (including current portion)....................... 276.4 250.2 229.6 221.1 110.0
Total stockholders' equity (deficit)............................. (25.4) (10.8) 103.7 233.7 345.7
</TABLE>
- ------------------
(a) Includes results of operations of Consolidated Cigar from March 3, 1993, the
date of the Consolidated Cigar Acquisition.
(b) Reflects the restatement of 1995 results to reflect the Company's equity in
the discontinued operations of PCT.
(c) Gives effect to the transactions and events described in the Notes to the
Pro Forma Statement of Operations of the Company as if the transactions and
events referred to therein had occurred at January 1, 1995. See 'Pro Forma
Financial Data.'
(d) Reflects the initial public offering (the 'Cigar IPO') by Cigar Holdings of
6,075,000 shares of its Class A Common Stock on August 21, 1996, which
resulted in a pre-tax gain of $127.8, and the related payment of the net
proceeds thereof as a dividend to the Company.
(e) Includes the Company's equity in the gain on the sale by PCT of its entire
operations to Parker-Hannifin in 1996.
(f) Represents prepayment premiums, fees and expenses, unamortized deferred debt
issuance costs and original issue discount related to the refinancing of
indebtedness at Mafco Worldwide.
(g) Gives effect to the transactions and events described in the Notes to the
Pro Forma Balance Sheet of the Company as if the transactions and events
referred to therein had occurred at September 29, 1996. See 'Pro Forma
Financial Data.'
7
<PAGE>
RISK FACTORS
Holders of the VSRs should consider carefully all of the information set
forth in this Prospectus and, in particular, should evaluate the following risks
in connection with holding the VSRs and, if issued, the VSR Notes.
HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations of its own.
Although the Company currently holds a significant amount of cash and marketable
securities, including as a result of the Disposition and the related sale of the
VSRs to PCT International, the Company intends regularly to review possible
acquisitions in connection with which such cash and marketable securities could
be substantially utilized as part of the financing for such acquisitions. The
Company's only other material assets are (i) its ownership of 80.2% of the
outstanding shares of capital stock of Cigar Holdings (representing
approximately 97.6% of the combined voting power), which owns 100% of the
outstanding shares of capital stock of Consolidated Cigar, through which the
Company conducts its business operations, (ii) its ownership of 100% of the
outstanding shares of PCT Preferred Stock and approximately 29% of the
outstanding shares of PCT Common Stock (together, representing approximately 36%
of the outstanding shares of PCT Common Stock on a fully diluted basis), (iii)
the Promissory Note and (iv) a pension plan asset with a book value of
approximately $62.5 million at September 29, 1996. Accordingly, the Company will
be dependent upon the earnings and cash flow of, and dividends and distributions
from, Consolidated Cigar or other companies in which it may make investments to
pay its expenses and to pay any amounts owing on the VSRs, or, if issued, the
VSR Notes. There can be no assurance that Consolidated Cigar or such other
companies will generate sufficient cash flow to pay dividends or distribute
funds to the Company or that applicable state law and contractual restrictions,
including negative covenants contained in the debt instruments of the Company's
subsidiaries then in effect, will permit such dividends or distributions. The
terms of Consolidated Cigar's credit agreement (the 'Credit Agreement') and
10 1/2% Senior Subordinated Notes due 2003 (the 'Senior Subordinated Notes')
currently restrict Consolidated Cigar from paying dividends or making
distributions, each subject to certain limited exceptions. The Company's
obligations under the VSRs and, if issued, the VSR Notes are structurally
subordinated to the indebtedness and other liabilities of the Company's
subsidiaries. See '--Indebtedness' and '--Restrictions Imposed by the Terms of
the Company's Indebtedness; Consequences of Failure to Comply.'
INDEBTEDNESS
As of September 29, 1996, after giving effect to the Disposition, the
outstanding consolidated indebtedness of the Company would have been $110.0
million. The Company and, subject to certain limitations contained in their
outstanding debt instruments, the subsidiaries of the Company may incur
additional indebtedness to finance working capital needs, capital expenditures,
acquisitions or for other purposes. See 'Description of Certain Indebtedness.'
The Company's level of consolidated indebtedness could have important
consequences to the holders of VSRs and, if issued, the VSR Notes, including the
following: (i) a portion of the Company's consolidated cash flows from
operations must be dedicated to the payment of the interest on and principal of
its outstanding indebtedness and will not be available for other purposes,
including payment of amounts owing under the VSRs or, if issued, the VSR Notes;
(ii) the ability of the Company to obtain financing in the future for working
capital needs, capital expenditures, acquisitions or other purposes may be
limited or impaired; (iii) the Company's level of indebtedness may reduce the
Company's flexibility to respond to changing business and economic conditions;
and (iv) certain of the Company's borrowings are and will continue to be at
variable rates of interest, which could result in higher interest expense in the
event of increases in interest rates.
The Company intends to satisfy anticipated cash requirements on a
consolidated basis, including for debt service, through cash flows from
operations and funds from borrowings under credit facilities. There can be no
assurance, however, that cash flows from operations and funds from available
borrowings under the Company's existing credit facilities will be sufficient to
meet the Company's cash requirements on a consolidated basis. If the Company is
unable to satisfy such cash requirements, the Company could be required to adopt
one or more alternatives, such as reducing or delaying capital expenditures,
refinancing or restructuring its indebtedness,
8
<PAGE>
selling assets (including additional shares of capital stock of its
subsidiaries) or operations, seeking capital contributions or loans from
affiliates of the Company or issuing additional shares of capital stock. There
can be no assurance that any of such actions could be effected, that they would
enable the Company to continue to satisfy its capital requirements or that they
would be permitted under the terms of the Company's various debt instruments
then in effect. See '--Holding Company Structure.'
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS;
CONSEQUENCES OF FAILURE TO COMPLY
The terms and conditions of the debt instruments of Consolidated Cigar,
including the Credit Agreement and the Senior Subordinated Notes, impose
restrictions on Consolidated Cigar and its subsidiaries that affect, among other
things, their ability to incur debt, pay dividends or make distributions, make
acquisitions, create liens, sell assets, create restrictions on the payment of
dividends and other payments and make certain investments. The terms of the
Credit Agreement also require Consolidated Cigar to maintain specified financial
ratios and satisfy certain tests, including maximum leverage ratios and minimum
interest coverage ratios. In addition to limiting the overall operating and
financial flexibility of the Company and its subsidiaries, the restrictions
imposed by these debt instruments restrict the ability of Consolidated Cigar to
pay dividends and distribute funds to the Company. As a result, the Company's
ability to satisfy its obligations under the VSRs and, if issued, the VSR Notes,
as well as the Company's sources of funds for other purposes, will be limited by
such provision. As of September 28, 1996, there was approximately $20.0 million
outstanding and $16.4 million available under the Credit Agreement and $90.0
million aggregate principal amount of Senior Subordinated Notes outstanding.
Consolidated Cigar's obligations under the Credit Agreement are guaranteed
by Cigar Holdings and by all of the domestic subsidiaries of Consolidated Cigar.
Such guarantees and borrowings under the Credit Agreement are secured by first
priority liens on all of the material assets of Consolidated Cigar and its
domestic subsidiaries and pledges of the capital stock of all of Consolidated
Cigar's subsidiaries (with certain exceptions for the capital stock of foreign
subsidiaries) and a pledge of all of the shares of common stock of Consolidated
Cigar owned by Cigar Holdings (collectively, the 'Collateral'). The occurrence
of a change of control of Cigar Holdings would be an event of default under the
Credit Agreement and would permit the lenders under the Credit Agreement to
accelerate the debt outstanding thereunder and, if the debt is not paid, to
proceed to realize on the Collateral. Moreover, such event would permit the
holders of outstanding Senior Subordinated Notes to require the repurchase of
their notes. The events that would constitute a change of control are described
under 'Description of Certain Indebtedness.'
The ability of the Company and its subsidiaries to comply with the terms of
their respective debt instruments can be affected by events beyond their
control, including events such as changes in prevailing economic conditions,
changes in consumer preferences and changes in the competitive environment,
which could have the effect of impairing the Company's operating performance,
and there can be no assurance that the Company and its subsidiaries will be able
to comply with the provisions of their respective debt instruments, including
compliance by Consolidated Cigar with the financial ratios and tests contained
in the Credit Agreement. Breach of any of these covenants or the failure to
fulfill the obligations thereunder and the lapse of any applicable grace periods
would result in an event of default under the applicable debt instruments, and
the holders of such indebtedness could declare all amounts outstanding under
their debt instruments to be due and payable immediately. Any such declaration
under a debt instrument is likely to result in an event of default under one of
the other debt instruments of the Company and its subsidiaries. There can be no
assurance that the assets or cash flows of the Company or its subsidiaries would
be sufficient to repay in full borrowings under their respective outstanding
debt instruments, whether upon maturity or if such indebtedness were to be
accelerated upon an event of default, or upon a required repurchase in the event
of a change of control, or that the Company would be able to refinance or
restructure the payments on such indebtedness. In the case of the Credit
Agreement, if such indebtedness were not so repaid, refinanced or restructured,
the lenders could proceed to realize on the Collateral. See '--Indebtedness,'
'--Holding Company Structure' and 'Description of Certain Indebtedness.'
9
<PAGE>
DECLINING MARKET FOR CIGARS THROUGH 1993
According to industry sources, the cigar industry experienced declining
consumption between 1964 and 1993 at a compound annual rate of 3.6% (and, with
respect to large cigar consumption, at a compound annual rate of 5.0%). The
Company experienced similar trends in the unit volume of its cigars during such
period. While the cigar industry has experienced significantly better trends in
unit consumption since 1993 compared to this historical trend, there can be no
assurance that the recent positive trends will continue or that the Company
would be able to offset any future decline in consumption. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business--Market Overview.'
EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation in the United States at the federal, state and local levels.
Federal law has required health warnings on cigarettes since 1965 and has
recently required states, in order to receive full funding for federal substance
abuse block grants, to establish a minimum age of 18 years for the sale of
tobacco products, together with an appropriate enforcement program. The recent
trend is toward increasing regulation of the tobacco industry. A variety of
bills relating to tobacco issues have been recently introduced in the Congress
of the United States, including bills that would have (i) prohibited the
advertising and promotion of all tobacco products and/or restricted or
eliminated the deductibility of such advertising expenses; (ii) increased
labeling requirements on tobacco products to include, among other things,
addiction warnings and lists of additives and toxins; (iii) modified federal
preemption of state laws to allow state courts to hold tobacco manufacturers
liable under common law or state statutes; (iv) shifted regulatory control of
tobacco products and advertisements from the U.S. Federal Trade Commission (the
'FTC') to the U.S. Food and Drug Administration (the 'FDA'); (v) increased
tobacco excise taxes; and (vi) required tobacco companies to pay for health care
costs incurred by the federal government in connection with tobacco related
diseases. Hearings have been held on certain of these proposals; however, to
date, none of such proposals have been passed by Congress. In addition, various
federal agencies have recently proposed to regulate the tobacco industry. The
FDA recently adopted final regulations relating to the marketing, promotion and
advertisement of smokeless tobacco and cigarettes. These regulations are
currently being challenged in the United States District Court for the Eastern
District of North Carolina and the United States District Court for the Southern
District of New York. While the Company is unable to predict the effect of these
regulations on its business, these and other regulations promulgated by the FDA
in the future could have a material adverse effect on the operations of the
Company. Numerous proposals have also been considered at the state and local
legislative level and by regulatory bodies, including restricting smoking in
certain public areas, requiring cigar or pipe tobacco to carry health warnings
and requiring little cigars to be 'fire-safe' (i.e., cigars that extinguish
themselves if not continuously smoked). Passage of legislation requiring little
cigars to be 'fire-safe' could have a material adverse effect on the Company's
little cigar sales because of the technological difficulties in complying with
such legislation. There can be no assurance as to the ultimate content, timing
or effect of any additional regulation of tobacco products by any federal,
state, local or regulatory body, and there can be no assurance that any such
legislation or regulation would not have a material adverse affect on the
Company's business. See 'Business--The Tobacco Industry--Regulation.'
TOBACCO INDUSTRY LITIGATION
The cigarette industry has experienced and is experiencing significant
health-related litigation involving tobacco and health issues. Plaintiffs in
such litigation have and are seeking compensation and, in some cases, punitive
damages, for various injuries resulting from the use of tobacco products or
exposure to tobacco smoke, including health care costs. In one such recent case
against a cigarette manufacturer, the plaintiffs were awarded compensatory
damages totalling $750,000. Although, to date, the Company has not been the
subject of any such material health-related litigation and the cigar industry
has not experienced material health-related litigation, there can be no
assurance that there will not be an increase in health-related litigation
against the cigarette industry or similar litigation in the future against cigar
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on the
Company's business. See 'Business--The Tobacco Industry--Litigation.'
10
<PAGE>
EFFECTS OF INCREASES IN EXCISE TAXES
Cigars and pipe tobacco have long been subject to federal, state and local
excise taxes, and such taxes have frequently been increased or proposed to be
increased, in some cases significantly, to fund various legislative initiatives.
In particular, there have been proposals by the federal government in the past
to reform health care through a national program to be funded principally
through increases in federal excise taxes on tobacco products. Enactment of new
or significant increases in existing federal, state or local excise taxes would
result in decreased unit sales of cigars and pipe tobacco, which could have a
material adverse effect on the Company's business. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--Taxation and
Regulation--Excise Taxes' and 'Business--The Tobacco Industry--Excise Taxes.'
SUBSTANTIAL EFFECTS OF FAILURE TO RECEIVE POSSESSIONS TAX CREDIT
The Company derives a significant amount of its income from its Puerto Rico
operations. Prior to December 31, 1993, income earned by the Company from its
Puerto Rico operations was generally exempt from United States federal income
tax. Section 936 of the Internal Revenue Code of 1986, as amended (the 'Code'),
allows a 'possessions tax credit' against United States federal income tax for
the amount of United States federal income tax attributable to the Puerto Rico
taxable earnings. As part of the Omnibus Budget Reconciliation Act of 1993
('OBRA 93'), the possessions tax credit has been limited based upon a percentage
of qualified wages in Puerto Rico, plus certain amounts of depreciation (the
'Current Limitation'). While the Company believes that it qualified for the
possessions tax credit during 1995, 1994 and 1993, and expects that it will
continue to qualify for the possessions tax credit for every year that such
credit is available in amounts to offset the majority of any United States
federal income tax related thereto, the future eligibility and the amounts of
the credit will depend on the facts and circumstances of the Company's Puerto
Rico operations during each of the taxable years subsequent to 1995. Failure to
receive the Section 936 possessions tax credit attributable to the Company's
Puerto Rico operations would have a material adverse effect on the Company.
On August 20, 1996, the Small Business Job Protection Act of 1996 (the
'SBJPA') was enacted into law. Under the SBJPA, Section 936 of the Code, the
'possessions tax credit,' was repealed, subject to special grandfather rules for
which the Company would be eligible, provided that the Company does not add a
'substantial new line of business.' Under the grandfather rules, for the
Company's taxable years beginning after December 31, 2001 and before January 1,
2006, the Company's business income from its Puerto Rico operations eligible for
the possessions tax credit would, in addition to the Current Limitation,
generally be limited to its average annual income from its Puerto Rico
operations, adjusted for inflation, computed during the Company's five most
recent taxable years ending before October 14, 1995 and excluding the highest
and lowest years. For taxable years after December 31, 2005, the possessions tax
credit would be eliminated. The repeal of the possessions tax credit could have
a material adverse effect on the Company for taxable years beginning after
December 31, 2001 and before January 1, 2006 to the extent that the Company's
annual income from its Puerto Rico operations exceeds its average annual income
from its Puerto Rico operations (as computed in the manner described in the
preceding sentence), and for taxable years after December 31, 2005. Although it
does not currently have any definitive plans with respect thereto, the Company
expects to evaluate alternatives that may be available to it in order to
mitigate the effects of the SBJPA. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Taxation and
Regulation--Possessions Tax Credit.'
SUBSTANTIAL EFFECTS OF ELIMINATION OF PUERTO RICO TAX EXEMPTION
Pursuant to a grant of industrial tax exemption which expires in 2002,
income earned by Congar International Corporation, an indirect wholly owned
subsidiary of the Company ('CIC'), from the manufacture of cigars in Puerto Rico
enjoys a 90% income tax exemption from Puerto Rican income taxes. The remaining
10% of such income is taxed at a maximum surtax rate of 45%, resulting in an
effective income tax rate for such income of approximately 4.5% under current
tax rates. Funds repatriated to the Company are subject to a maximum Puerto
Rican tollgate tax of 10%. Legislation enacted in Puerto Rico in 1993 included a
provision for prepaying a portion of these tollgate taxes effective for the 1993
fiscal year and subsequent periods. There can be no assurance that the Puerto
Rico tax exemption will not be limited or eliminated in the future. Any
significant limitation on or elimination of the Puerto Rico tax exemption would
have a material adverse effect on the
11
<PAGE>
Company. See Note 9 of the Notes to the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus.
CONSTRAINTS ON ABILITY TO SATISFY DEMAND
As a result of the increased demand for its hand made premium cigars, the
Company had backorders at the end of 1994 and 1995 of 3.2 million and 4.3
million cigars, respectively, and 12.0 million cigars at June 29, 1996. The
Company's ability to increase its production of premium cigars and decrease its
backorders is constrained by a shortage of experienced skilled laborers.
Although the Company is hiring and training new skilled laborers, the training
process averages up to one year and not all trainees are able to successfully
complete the Company's training program. While the Company is pursuing measures
to increase its production of premium cigars, there can be no assurance that
these measures will be successful or that they will enable the Company to meet
any future level of demand for its premium cigars. Any material inability of the
Company to fill its premium cigar backorders in a timely manner could have a
material adverse effect on the Company's business, including the loss of sales
by the Company.
The Company's ability to manufacture premium and mass market cigars may
also be constrained by the ability of tobacco growers and suppliers to meet the
Company's demands for its raw materials in a timely manner. Tobacco, as a crop
that is harvested annually, restricts the ability of tobacco growers to adjust
acreage grown in any given year to meet changes in market demands. In addition,
increases in acreage of tobacco grown requires significant capital, which
growers may be unable or unwilling to invest. If the rate of escalation in
consumption of cigars and other tobacco products continues, but the supply of
tobacco remains constant or increases at a lower rate than demand, the Company's
ability to increase its production of cigars, and thereby reduce its backorders,
could be inhibited. Although the Company has recently experienced shortages in
certain types of its natural wrapper and premium cigar tobaccos due to the
increase in demand for high quality natural wrapped cigars, to date, these
shortages have not adversely affected cigar manufacturing or the Company's
profitability. See '--Social, Political and Economic Risks Associated with
Foreign Operations and International Trade,' 'Business--Backorders' and
'Business--Raw Materials.'
SOCIAL, POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH FOREIGN OPERATIONS AND
INTERNATIONAL TRADE
A substantial portion of the manufacturing operations of the Company are
located in territories and countries outside of the United States, including
Puerto Rico, the Dominican Republic, Jamaica and Honduras, and the manufacturer
and supplier of the Company's TE-AMO cigars is located in Mexico. In addition,
the Company buys tobacco directly from a large number of suppliers located in
territories and countries outside the United States, including Brazil, Cameroon,
the Central African Republic, Costa Rica, Germany, Italy, the Dominican
Republic, Paraguay, the Philippines, Indonesia, Honduras and Mexico. The Company
is exposed to the risk of changes in social, political and economic conditions
inherent in foreign operations and international trade, including changes in the
laws and policies that govern foreign investment and international trade in
territories and countries where it currently has operations and conducts
international trade, as well as, to a lesser extent, changes in United States
laws and regulations relating to foreign investment and trade. Any such social,
political or economic changes could pose, among other things, the risk of
finished product and raw material supply interruption or significant increases
in finished product and raw material prices. Accordingly, there can be no
assurance that any such changes in social, political or economic conditions will
not have a material adverse effect on the Company's business.
CERTAIN CONTINGENT LIABILITIES; INDEMNITY INSURANCE AND INDEMNIFICATION
ARRANGEMENTS
In connection with the Abex Transactions, the Company assumed, or assumed
management of, substantially all of Abex's consolidated assets and liabilities,
other than those relating to PCT's aerospace business. These non-aerospace
liabilities, which primarily relate to businesses previously owned by Abex and
its former affiliates or their predecessors, include contingent liabilities,
retiree health obligations, insurance matters, litigation matters, environmental
matters and tax matters. Based upon the Company's experience to date (including
the existence of what the Company believes are adequate reserves for these
matters and the availability of insurance and/or indemnification arrangements
from various third parties covering certain of these liabilities), the Company
does not expect such liabilities to have a material adverse effect on the
Company's financial condition or results
12
<PAGE>
of operations. However, the amount and timing of payments required for these
matters are not entirely predictable, and there can be no assurance that the
existing reserves or available insurance will be adequate or that the insurers
and indemnitors will remain in a financial position to pay and otherwise be
willing to pay under such insurance or indemnification arrangements. See
'Business--Contingent and Other Liabilities Assumed in Connection with the Abex
Transactions.'
CONTROL BY MAFCO HOLDINGS
Mafco Holdings currently indirectly owns approximately 85% of the
outstanding shares of the Company Common Stock. Mafco Holdings is wholly owned
by Ronald O. Perelman. As a result of Mafco Holdings' stock ownership, the
Company's Board of Directors is, and is expected to continue to be, comprised
entirely of designees of Mafco Holdings, and Mafco Holdings is, and is expected
to continue to be, able to direct and control the policies of the Company and
its subsidiaries, including with respect to mergers, sales of assets and similar
transactions. The Company's Certificate of Incorporation and By-laws provide for
certain procedural and other requirements that govern, among other things, an
acquisition of control of the Company and transactions between the Company and
Mafco Holdings. All of the shares of Company Common Stock owned by Mafco
Holdings are, and shares of intermediate holding companies may from time to time
be, pledged by Mafco Holdings to secure the obligations of certain of its
affiliates under outstanding indebtedness. Subject to applicable law and the
terms of such indebtedness, Mafco Holdings could sell any or all of the shares
of Company Common Stock owned by it from time to time for any reason. In
addition, such shares may be sold in the event that Mafco Holdings or its
affiliates fail to comply with their obligations under the indebtedness which is
secured by the pledge of such shares and the lenders thereunder proceed to
realize on such security. A sale of a sufficient number of shares of Company
Common Stock or of intermediate holding companies owned by Mafco Holdings may
result in a change of control of the Company. The occurrence of a change of
control of the Company would be an event of default under the Credit Agreement
and would give the holders of the Senior Subordinated Notes the right to require
the repurchase of their Notes, which could require a potential acquiror to
either repay or refinance such indebtedness. See '--Restrictions Imposed by the
Terms of the Company's Indebtedness; Consequences of Failure to Comply,'
'Security Ownership of Certain Beneficial Owners and Management,' 'Certain
Relationships and Related Transactions--Relationship with Mafco Holdings' and
'Description of Certain Indebtedness.'
NO PRIOR MARKET FOR THE VSRS
Prior to the Distribution, no public market for the VSRs has existed, and
no public market currently exists for any VSR Notes that may be issued.
Application has been made to list the VSRs on the New York Stock Exchange
('NYSE'). There can be no assurance, however, as to the development or liquidity
of any trading market for the VSRs following the Distribution or, if issued, the
VSR Notes.
13
<PAGE>
BACKGROUND AND THE DISPOSITION
BACKGROUND
On June 15, 1995, as part of the Abex Transactions, C&F Merger, a wholly
owned subsidiary of Mafco Holdings, which then owned 100% of the outstanding
capital stock of Cigar Holdings and Flavors Holdings, merged with and into Abex,
with Abex being the surviving corporation in the Merger and being renamed Mafco
Consolidated Group Inc. Prior to the Abex Transactions, Abex was engaged in an
aerospace business through its then wholly owned subsidiary, PCT. In connection
with the Abex Transactions, (i) holders of Abex Common Stock and related rights
to acquire Abex Common Stock received in exchange therefor, among other
consideration, 20% of the Company Common Stock and all of the outstanding shares
of PCT Common Stock; (ii) Mafco Holdings, through its wholly owned subsidiary
Mafco Consolidated Holdings, received 80% of the Company Common Stock; and (iii)
the Company retained PCT Preferred Stock convertible into approximately 11% of
the PCT Common Stock on a fully diluted basis (in each case, such percentages
reflect the outstanding capital stock immediately following consummation of the
Abex Transactions). In addition, as part of the Abex Transactions, the Company
retained substantially all of Abex's consolidated assets and liabilities other
than those principally related to PCT's aerospace business. Accordingly, as a
result of the Abex Transactions, the Company acquired certain non-aerospace
assets and assumed certain liabilities of Abex as well as acquired an interest
in the PCT Preferred Stock. PCT, which became a separate publicly-traded
company, continued to operate the aerospace business.
Subsequently, and in a separate transaction, on July 17, 1995, the Company
purchased 5,939,400 shares of PCT Common Stock (thereby increasing its
investment in PCT to approximately 36% of the shares of PCT Common Stock then
outstanding on a fully diluted basis) and 1,484,850 shares of Company Common
Stock from Libra for approximately $63.9 million in cash. In connection with
such purchase, the Company entered into an agreement with PCT which, subject to
certain exceptions, limits the Company's ability to dispose of its shares of PCT
Stock for a period of three years.
On April 15, 1996, PCT sold its entire operations, including substantially
all of its assets, to Parker-Hannifin for an aggregate cash consideration of
approximately $201.1 million before transaction costs.
On August 21, 1996, Cigar Holdings completed an initial public offering of
6,075,000 shares of its Class A Common Stock. The net proceeds to Cigar Holdings
from the Cigar IPO of approximately $127.8 million were paid as a dividend to
the Company. As a result of the Cigar IPO, the Company beneficially owns 80.2%
of the outstanding shares of capital stock of Cigar Holdings (representing
approximately 97.6% of the combined voting power), which owns 100% of the
outstanding shares of capital stock of Consolidated Cigar. In connection with
the Cigar IPO, Cigar Holdings issued the Promissory Note in an original
principal amount of $70 million to the Company. See 'Description of Certain
Indebtedness--Promissory Note.'
On July 8, 1996, the Board of Directors of the Company authorized its
management to commence discussions with PCT in order to determine whether PCT
would be interested in pursuing a possible transaction between PCT and the
Company, pursuant to which PCT would acquire the Company's licorice extract and
other flavoring agents manufacturing and distributing business, which was
conducted through Mafco Worldwide.
In early July, PCT informed the Company that it had formed a special
committee (the 'Special Committee'), which consisted of those directors of PCT
who were not officers or employees of PCT or any of its affiliates (including
the Company), to consider the terms of any potential transaction. The Special
Committee retained Lazard Freres & Co. LLC ('Lazard Freres'), as its financial
advisor, in connection with its review of any potential transaction with the
Company, and the Company retained Morgan Stanley & Co. Incorporated ('Morgan
Stanley') to provide a financial opinion in connection with any potential
transaction with PCT.
From early July until late October, Lazard Freres and legal counsel to the
Special Committee conducted financial and legal due diligence in respect of
Mafco Worldwide and its businesses. In this regard, PCT's advisors met with
members of the management of Mafco Worldwide on several occasions to discuss
numerous aspects of its businesses. Concurrently therewith, Lazard Freres and
Morgan Stanley held discussions and negotiations regarding the terms of any
potential transaction. In addition, legal counsel to the Company and legal
counsel to the Special Committee exchanged drafts of, and held negotiations
regarding, definitive agreements that would govern PCT's acquisition of the
Flavors Common Stock.
During September and early October, the parties negotiated the terms of a
security that would be issued by the Company to PCT and then subsequently
distributed to PCT's stockholders designed to provide them certain price
protections in the event that the market price of PCT Common Stock did not
achieve certain levels after consummation of the transaction.
14
<PAGE>
PCT has informed the Company that on October 23, 1996, Lazard Freres
delivered to the Special Committee of the Board of Directors of PCT an oral
opinion, which was subsequently confirmed in writing in an opinion dated October
23, 1996, to the effect that, as of such date and based upon the factors and
assumptions set forth in such opinion, the consideration to be paid by PCT
pursuant to the Purchase Agreement was fair from a financial point of view to
PCT. In addition, on October 23, 1996, Morgan Stanley delivered to the Board of
Directors of the Company an oral opinion, which was subsequently confirmed in
writing in an opinion dated October 23, 1996, to the effect that, as of such
date and based upon the factors and assumptions set forth in such opinion, the
consideration to be received by the Company pursuant to the Purchase Agreement
was fair from a financial point of view to the Company. No limitations were
placed on Lazard Freres or Morgan Stanley by the Company or PCT with respect to
the investigations made or the procedures followed in preparing and rendering
their opinions. On October 23, 1996, at meetings of the Boards of Directors of
each company, the Purchase Agreement was unanimously approved by the Boards of
Directors of the Company and PCT and, in the case of PCT, by the Special
Committee, and the Purchase Agreement was executed.
In connection with the October settlement (subject to the approval of the
Delaware Court of Chancery) of stockholder litigation brought subsequent to the
July 8, 1996 announcement that the Company had authorized its management to
commence discussions with PCT regarding a potential transaction, the terms of
the transaction were reviewed and approved by the independent financial advisors
for the plaintiffs.
THE DISPOSITION
On November 25, 1996, pursuant to the Purchase Agreement, the Company sold
to PCT International (i) all of the outstanding shares of Flavors Common Stock
and (ii) the 23,156,502 VSRs for an aggregate consideration of $180 million. The
VSRs were subsequently distributed to PCT. The net proceeds to the Company from
the Disposition and the sale of the VSRs to PCT International were approximately
$172.7 million. This amount reflects estimated transaction costs related to the
Disposition of approximately $7.3 million, including a payment of approximately
$3.0 million pursuant to the Company's Transaction Bonus Plan. See 'Management--
Transaction Bonus Plan.' In addition, pursuant to the Purchase Agreement, PCT
will be required to make deferred cash payments to the Company of $3.7 million
on June 30, 1997 and $3.5 million on December 31, 1997.
After the Disposition, the Company's only material assets are (i) its
ownership of 80.2% of the outstanding shares of capital stock of Cigar Holdings
(representing approximately 97.6% of the combined voting power), which owns 100%
of the outstanding shares of capital stock of Consolidated Cigar, through which
the Company conducts its business operations, (ii) its ownership of 100% of the
outstanding shares of PCT Preferred Stock and approximately 29% of the
outstanding shares of PCT Common Stock (together, representing approximately 36%
of the outstanding shares of PCT Common Stock on a fully diluted basis), (iii)
approximately $412.8 million in cash and marketable securities, at September 29,
1996, on a pro forma basis after giving effect to the Transactions, $172.7
million of which represents the net proceeds received by the Company in
connection with the Disposition and the sale of the VSRs to PCT International,
(iv) the Promissory Note and (v) a pension plan asset with a book value of
approximately $62.5 million at September 29, 1996. The Company expects to use
its cash, including the net proceeds from the Disposition and the sale of the
VSRs, for general corporate purposes, including acquisitions, although no
specific acquisition is currently contemplated by the Company, and pursuant to
the Company's share repurchase program. Accordingly, there can be no assurance
that such proceeds will be available to pay any of the Company's obligations
under the VSRs or, if issued, the VSR Notes. See 'Risk Factors' and 'Business.'
For a discussion of the Company's material liabilities, see
'Business--Contingent and Other Liabilities Assumed in Connection with the Abex
Transactions' and 'Description of Certain Indebtedness.'
Immediately following the Disposition, PCT International contributed all
the outstanding shares of common stock of Pneumo Abex, a wholly
owned subsidiary of PCT International, to Flavors Holdings and
Flavors Holdings contributed such shares to Mafco Worldwide, which resulted in
Pneumo Abex becoming a wholly owned subsidiary of Mafco Worldwide. Thereafter,
Mafco Worldwide merged (the 'Mafco Worldwide Merger') with and into Pneumo Abex
with Pneumo Abex being the surviving corporation, the directors of Mafco
Worldwide becoming the directors of Pneumo Abex and Pneumo Abex becoming a
wholly owned subsidiary of Flavors Holdings. After giving effect to the
Disposition and the Mafco Worldwide Merger, the business formerly conducted by
Mafco Worldwide is now conducted by Pneumo Abex as the
15
<PAGE>
successor in the Mafco Worldwide Merger. The following chart sets forth in
simplified form the ownership structure of PCT following the Disposition and the
Mafco Worldwide Merger:
Power Control Technologies Inc.
('PCT')
100%
PCT International Holdings Inc.
('PCT International')
100%
Flavors Holdings Inc.
('Flavors Holdings')
100%
Pneumo Abex Corporation
('Pneumo Abex,' as successor to
Mafco Worldwide Corporation)
THE DISTRIBUTION
On December , 1996, the Board of Directors of PCT declared a
distribution, payable to the holders of record of PCT Stock of one VSR of the
Company for each share of PCT Common Stock and 125 VSRs of the Company for each
share of PCT Preferred Stock, in each case owned at the close of business on the
Record Date. The distribution ratio of the VSRs was determined by the Company
and PCT in order to achieve a pro rata distribution based upon the conversion
ratio of the PCT Preferred Stock into PCT Common Stock (1:125). The Distribution
will occur, and certificates representing the VSRs will be mailed to PCT's
stockholders, on or about December , 1996. PCT will effect the Distribution by
providing for the delivery of the VSRs to PCT's Registrar for distribution to
the holders of record of PCT Common Stock and PCT Preferred Stock on the Record
Date. A total of up to 23,156,502 VSRs will be distributed to PCT's
stockholders, including 8,439,400 VSRs to be distributed to the Company with
respect to its shares of PCT Stock. PCT will bear the costs related to the
Distribution.
The VSRs were originally issued to PCT International in connection with the
Disposition and were subsequently distributed to PCT.
No PCT stockholder will be required to pay any cash or other consideration
for the VSRs received in the Distribution, and the Company will not receive any
proceeds from the Distribution. In addition, no PCT stockholder will be required
to surrender or exchange shares of PCT Common Stock or PCT Preferred Stock in
order to receive the VSRs, nor will the Distribution affect the number of, or
the rights attaching to, outstanding shares of PCT Common Stock or PCT Preferred
Stock.
Each VSR entitles the holder thereof to a payment from the Company equal to
the difference between $11.00, subject to adjustment, and the 30-Day
Average Market Price of a share of PCT Common Stock on January 1, 1999,
if lower, up to a maximum of $3.25 per VSR, payable, at the option of
the Company, in either cash or, under certain circumstances, the VSR
Notes issued by the Company (subject to qualification under the TIA).
Pursuant to the VSR Agreement, the Company has the right to call the
VSRs on each April 1, July 1, October 1 and January 1 from and including
April 1, 1997 to and including October 1, 1998. If the Company calls the
VSRs on or before January 1, 1998, holders thereof will be entitled to
receive a cash payment equal to the greater of (i) $0.50 and (ii) the
difference between $10.25, subject to adjustment, and the 30-Day Average
Market Price of a share of PCT Common Stock, if lower, on such Optional
Call Date, up to a maximum of $3.25 per VSR. If the Company calls the
VSRs after January 1, 1998, holders thereof will be entitled to receive
a cash payment, if any, equal to the difference between $11.00, subject
to adjustment, and the 30-Day Average Market Price of a share of PCT
Common Stock, if lower, on such Optional Call Date, up to a maximum of
$3.25 per VSR. The Company's obligations under the VSRs and, if issued,
the VSR Notes are structurally subordinated to the indebtedness and
other liabilities of the Company's subsidiaries. On a pro forma basis,
after giving effect to the Disposition, the Distribution and the other
Transactions at
16
<PAGE>
June 30, 1996, approximately $147.1 million of indebtedness and other
liabilities of the Company's subsidiaries would have been structurally senior to
the VSRs and, if issued, the VSR Notes.
An application has been made to list the VSRs on the NYSE under the symbol
' .' The VSRs will be freely transferable, except for VSRs received by persons
who may be deemed to be 'affiliates' of the Company under the Securities Act.
Persons who may be deemed to be affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with, the Company and may include the directors and
principal executive officers of the Company as well as any principal stockholder
of the Company. Persons who are affiliates of the Company will be permitted to
sell their VSRs only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, including an exemption contained in Rule 144 thereunder.
CERTAIN INFORMATION RELATING TO PCT
BUSINESS OF PCT
PCT is a holding company with no business operations of its own. PCT
conducts its business operations through its indirect, wholly owned subsidiary,
Pneumo Abex. From the consummation of the Disposition and the Mafco Worldwide
Merger, Pneumo Abex, doing business under the name 'Mafco Worldwide
Corporation,' has conducted the business formerly operated by Mafco Worldwide.
Mafco Worldwide is the only manufacturer of licorice extract in the United
States, and Mafco Worldwide believes that it manufactures more than 70% of all
licorice extract sold to end-users worldwide. Mafco Worldwide is the leading
supplier of licorice extract to the major U.S. and international cigarette
manufacturers and also sells licorice extract to U.S. manufacturers of pipe and
smokeless tobacco (chewing tobacco and snuff) and worldwide confectioners, food
processors and pharmaceutical manufacturers for use as flavoring or masking
agents. In addition, Mafco Worldwide sells licorice root residue as a garden
mulch under the name RIGHT DRESS. Mafco Worldwide's other products include
non-licorice natural flavors, spices and botanicals that are used as flavoring
ingredients in food and tobacco products.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of PCT prior to the Disposition
remained as the directors and executive officers of PCT following the
Disposition, except that Theo W. Folz, who is also the President and Chief
Executive Officer of Mafco Consolidated Group's Tobacco Products Group, was
named President and Chief Executive Officer and J. Eric Hanson was named
Executive Vice President of Finance and Administration of PCT. Mr. Folz is also
expected to become a director of PCT.
MARKET PRICE DATA
The PCT Common Stock is listed on the NYSE and began trading on June 16,
1995, immediately following consummation of the Abex Transactions. The following
table sets forth, for the calendar quarters indicated, the high and low closing
prices per share of the PCT Common Stock on the NYSE based on published
financial sources:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CALENDAR 1995
Second Quarter (since June 16, 1995).................................................. $6 3/4 $5
Third Quarter......................................................................... 8 1/8 6 3/8
Fourth Quarter........................................................................ 8 1/4 7 1/8
CALENDAR 1996
First Quarter......................................................................... 9 5/8 7 3/8
Second Quarter........................................................................ 9 3/4 8 1/2
Third Quarter......................................................................... 9 3/8 7 1/4
Fourth Quarter (through December 9)................................................... 8 1/2 7 3/8
</TABLE>
On December 9, 1996, the most recent practicable date prior to the date of
this Prospectus, the closing price per share of PCT Common Stock on the NYSE was
$7 3/4.
AVAILABLE INFORMATION
PCT is subject to the informational requirements of the Exchange Act. In
accordance with the Exchange Act, PCT files proxy statements, reports and other
information with the Commission. This filed material can be obtained through the
Commission or the NYSE. See 'Available Information.'
17
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below reflect the results
of operations and financial position of the Company, including its operating
subsidiary Consolidated Cigar, its former operating subsidiary Mafco Worldwide
and the assets and liabilities of Abex, for the periods indicated. On June 15,
1995, as part of the Abex Transactions, C&F Merger, a wholly owned subsidiary of
Mafco Holdings, which then owned 100% of the outstanding capital stock of Cigar
Holdings and Flavors Holdings, merged with and into Abex, with Abex being the
surviving corporation in the Merger and being renamed Mafco Consolidated Group
Inc. The Merger was accounted for as a purchase of certain assets and the
assumption of certain liabilities of Abex, with C&F Merger treated as the
acquiror for accounting purposes. On March 3, 1993, Mafco Holdings completed the
Consolidated Cigar Acquisition. Accordingly, the selected historical financial
data reflect for the periods (i) from June 15, 1995, the consolidated results of
Cigar Holdings and Flavors Holdings and the assets and liabilities of Abex
acquired in the Merger, (ii) from March 3, 1993 to June 15, 1995, the combined
results of Cigar Holdings and Flavors Holdings and (iii) prior to March 3, 1993,
the results of Flavors Holdings or its predecessors.
The following selected historical financial data should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus. The
selected historical financial data as of and for the nine month periods are
unaudited but, in the opinion of the Company, include all adjustments
(consisting of normal recurring accruals) necessary for the fair presentation of
the financial data for such periods. The results for such interim periods are
not necessarily indicative of the results for the full fiscal year.
<TABLE>
<CAPTION>
NINE MONTH
PERIOD
ENDED
YEAR ENDED DECEMBER 31, ----------
------------------------------------------------ OCTOBER 1,
1991 1992 1993(a) 1994 1995(b) 1995(b)
------ ------ ------- ------ ------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 95.5 $100.1 $202.6 $226.9 $261.1 $195.3
Cost of sales............................................... 58.4 60.4 125.0 136.0 154.0 115.3
------ ------ ------- ------ ------- ----------
Gross profit................................................ 37.1 39.7 77.6 90.9 107.1 80.0
Selling, general and administrative expenses................ 8.1 8.9 33.9 37.9 51.4 37.2
------ ------ ------- ------ ------- ----------
Operating income............................................ 29.0 30.8 43.7 53.0 55.7 42.8
Interest expense............................................ 13.9 16.5 26.5 27.5 27.2 20.4
Interest, investment and dividend income.................... (0.4) (0.5) (0.1) (0.2) (6.0) (2.8)
Amortization of deferred charges and bank fees.............. 1.1 1.6 2.0 2.0 2.1 1.5
Equity in earnings from continuing operations and preferred
dividends of PCT.......................................... -- -- -- -- (0.7) (0.4)
Gain on Cigar IPO........................................... -- -- -- -- -- --
Other (income) expenses, net................................ 1.1 0.2 (0.2) (0.2) 0.3 0.2
------ ------ ------- ------ ------- ----------
Income from continuing operations before income taxes....... 13.3 13.0 15.5 23.9 32.8 23.9
Provision for income taxes.................................. 5.0 4.8 5.5 7.5 9.7 7.5
------ ------ ------- ------ ------- ----------
Income from continuing operations........................... 8.3 8.2 10.0 16.4 23.1 16.4
Discontinued operations
Equity in discontinued operations of PCT, net of income
taxes................................................... -- -- -- -- 1.3 0.6
------ ------ ------- ------ ------- ----------
Income before extraordinary item............................ 8.3 8.2 10.0 16.4 24.4 17.0
Extraordinary item, net of tax benefit...................... -- 7.6(e) -- 2.7(e) -- --
------ ------ ------- ------ ------- ----------
Net income.................................................. $ 8.3 $ 0.6 $ 10.0 $ 13.7 $ 24.4 $ 17.0
------ ------ ------- ------ ------- ----------
------ ------ ------- ------ ------- ----------
Earnings per share
Continuing operations..................................... $ 0.42 $ 0.41 $ 0.50 $ 0.82 $ 1.06 $ 0.77
Discontinued operations................................... -- -- -- -- 0.06 0.03
Extraordinary item........................................ -- (0.38) -- (0.13) -- --
------ ------ ------- ------ ------- ----------
Net income per share...................................... $ 0.42 $ 0.03 $ 0.50 $ 0.69 $ 1.12 $ 0.80
------ ------ ------- ------ ------- ----------
------ ------ ------- ------ ------- ----------
Weighted average common shares outstanding (in thousands)... 19,778 19,778 19,778 19,778 21,794 21,315
OTHER DATA:
Ratio of earnings to fixed charges(f)....................... 1.9x 1.7x 1.5x 1.8x 2.1x 2.1x
<CAPTION>
DECEMBER 31,
------------------------------------------------
1991 1992 1993 1994 1995
------ ------ ------- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................................ $ 89.3 $ 82.6 $293.6 $282.9 $560.6
Long-term debt (including current portion).................. 136.8 134.2 276.4 250.2 229.6
Total stockholders' equity (deficit)........................ (66.1) (67.6) (25.4) (10.8) 103.7
<CAPTION>
SEPTEMBER 29,
1996
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 230.4
Cost of sales............................................... 131.9
------
Gross profit................................................ 98.5
Selling, general and administrative expenses................ 40.0
------
Operating income............................................ 58.5
Interest expense............................................ 19.3
Interest, investment and dividend income.................... (7.1)
Amortization of deferred charges and bank fees.............. 1.5
Equity in earnings from continuing operations and preferred
dividends of PCT.......................................... (2.8)
Gain on Cigar IPO........................................... (127.8)(c)
Other (income) expenses, net................................ 0.8
------
Income from continuing operations before income taxes....... 174.6
Provision for income taxes.................................. 59.1
------
Income from continuing operations........................... 115.5
Discontinued operations
Equity in discontinued operations of PCT, net of income
taxes................................................... 15.1(d)
------
Income before extraordinary item............................ 130.6
Extraordinary item, net of tax benefit...................... --
------
Net income.................................................. $ 130.6
------
------
Earnings per share
Continuing operations..................................... $ 4.97
Discontinued operations................................... 0.65
Extraordinary item........................................ --
------
Net income per share...................................... $ 5.62
------
------
Weighted average common shares outstanding (in thousands)... 23,237
OTHER DATA:
Ratio of earnings to fixed charges(f)....................... 9.2x
<CAPTION>
SEPTEMBER 29,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets................................................ $ 729.7
Long-term debt (including current portion).................. 221.1
Total stockholders' equity (deficit)........................ 233.7
</TABLE>
- ------------------
(a) Includes results of operations of Consolidated Cigar from March 3, 1993, the
date of the Consolidated Cigar Acquisition.
(b) Reflects the restatement of 1995 results to reflect the Company's equity in
the discontinued operations of PCT.
(c) Reflects the Cigar IPO, which resulted in a pre-tax gain of $127.8, and the
related payment of the net proceeds thereof as a dividend to the Company.
(d) Includes the Company's equity in the gain on the sale by PCT of its entire
operations to Parker-Hannifin.
(e) Represents prepayment premiums, fees and expenses, unamortized deferred debt
issuance costs and original issue discount related to the refinancing of
indebtedness at Mafco Worldwide.
(f) Ratio of earnings to fixed charges is expressed as the ratio of earnings
from continuing operations before income taxes, plus fixed charges to fixed
charges. Fixed charges consist principally of interest on debt, amortization
of deferred charges and interest component of rental expense.
18
<PAGE>
PRO FORMA FINANCIAL DATA
The unaudited pro forma statements of operations for the year ended
December 31, 1995 and the nine-month period ended September 29, 1996 give pro
forma effect to the Flavors Dividend, the Disposition and the Distribution (the
'Transactions'), assuming that the Transactions had been consummated on January
1, 1995, and the unaudited pro forma balance sheet as of September 29, 1996,
gives pro forma effect to the Transactions, assuming that the Transactions had
been consummated on September 29, 1996. The pro forma adjustments are based upon
available information and certain assumptions that the management of the Company
believes are reasonable. The pro forma financial data do not purport to
represent the results of operations or the financial position of the Company
that actually would have occurred had the Transactions been consummated on the
aforesaid dates, or project the results of operations or financial position of
the Company and its subsidiaries for any future date or period.
The following unaudited pro forma financial data should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
19
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 29, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FLAVORS
COMPANY HOLDINGS PRO FORMA COMPANY
HISTORICAL HISTORICAL(a) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and trading securities.............. $244.6 $ (9.9) $ 5.4 (b) $ 412.8
172.7 (c)
Notes and trade receivables, net........................... 31.3 (12.1) 3.7 (c) 22.9
Inventories................................................ 91.0 (43.9) -- 47.1
Prepaid expenses and other................................. 23.8 (1.3) -- 22.5
---------- ------------- ----------- ---------
Total current assets..................................... 390.7 (67.2) 181.8 505.3
Property, plant and equipment, net........................... 48.0 (10.5) -- 37.5
Pension asset................................................ 62.5 -- -- 62.5
Investment in PCT preferred and common stock................. 73.5 -- (45.2)(d) 28.3
Trademarks, net.............................................. 31.4 -- -- 31.4
Intangible assets related to businesses acquired, net........ 61.4 (1.4) -- 60.0
Other assets................................................. 62.2 (4.5) 3.5 (c) 61.2
---------- ------------- ----------- ---------
$729.7 $ (83.6) $ 140.1 $ 786.2
---------- ------------- ----------- ---------
---------- ------------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt.......................... $ 11.2 $ (11.2) $ -- $ --
Accounts payable........................................... 14.7 (4.4) -- 10.3
Accrued expenses and other................................. 63.8 (9.1) 43.5 (e) 98.2
---------- ------------- ----------- ---------
Total current liabilities................................ 89.7 (24.7) 43.5 108.5
Long-term debt............................................... 209.9 (99.9) -- 110.0
VSRs......................................................... 47.8 (c) 47.8
Other liabilities............................................ 196.4 (3.1) (19.1)(e) 174.2
Stockholders' equity:
Common stock............................................... 0.2 -- 0.2
Additional paid-in-capital................................. 167.1 -- 167.1
Retained earnings.......................................... 95.0 45.4 5.4 (b)(c) 208.3
132.1 (c)
(45.2)(d)
(24.4)(e)
Currency translation adjustment............................ 1.3 (1.3) -- --
Treasury stock at cost..................................... (29.9) -- -- (29.9)
---------- ------------- ----------- ---------
Total stockholders' equity................................. 233.7 44.1 (c) 67.9 345.7
---------- ------------- ----------- ---------
$729.7 $ (83.6) $ 140.1 $ 786.2
---------- ------------- ----------- ---------
---------- ------------- ----------- ---------
</TABLE>
(Footnotes follow on next page)
20
<PAGE>
- ------------------
(a) Reflects the elimination of the historical balance sheet of Flavors Holdings
in connection with the Disposition.
(b) Reflects the Flavors Dividend paid by Flavors Holdings to the Company prior
to the Disposition of $5.4.
(c) Reflects (i) the Disposition and the issuance of the VSRs, net of the
distribution of the VSRs to PCT stockholders (14,717,102 VSRs issued to
stockholders of PCT other than the Company, at the maximum payment per VSR
of $3.25) for net cash proceeds of $172.7 ($180.0 less estimated transaction
expenses of $7.3) and deferred cash payments of $7.2; (ii) the distribution
of the VSRs to PCT's stockholders and (iii) the resulting pre-tax gain of
$181.6, prior to the deferral of a portion of gain (see Note (d)),
calculated as follows:
<TABLE>
<S> <C>
Net cash proceeds.................................................................... $172.7
Deferred cash payments............................................................... 7.2
Less: VSR obligation representing the contingent gain on the Disposition............... (47.8)
------
132.1
Flavors Holdings stockholder's deficit............................................... 44.1
Flavors Dividend..................................................................... 5.4
------
Pre-tax gain prior to deferral....................................................... $181.6
------
------
</TABLE>
(d) Reflects the deferral of a portion of the gain, net of taxes on the
Disposition, corresponding to the Company's continuing 29% equity interest
in PCT following the Disposition, which is shown as a reduction in the
investment in PCT Stock.
(e) Reflects the tax effect of the gain to the Company on the Disposition, prior
to the deferral of a portion of the gain (see Note (d)).
21
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FLAVORS
COMPANY HOLDINGS PRO FORMA COMPANY
HISTORICAL HISTORICAL(a) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 261.1 $ (103.2) $ -- $ 157.9
Cost of sales................................................. 154.0 (60.0) 94.0
---------- ------------- ----------- ---------
Gross profit.................................................. 107.1 (43.2) -- 63.9
Selling, general and administrative expenses.................. 51.4 (9.2) 42.2
---------- ------------- ----------- ---------
Operating income.............................................. 55.7 (34.0) -- 21.7
Interest expense.............................................. (27.2) 13.5 (13.7)
Interest, investment and dividend income...................... 6.0 (0.5) 5.5
Amortization of deferred charges and bank fees................ (2.1) 1.1 (1.0)
Equity in earnings from continuing operations and preferred
dividends of PCT............................................ 0.7 -- 4.3 (b) 5.0
Other income (expense), net................................... (0.3) 0.1 (0.2)
---------- ------------- ----------- ---------
Income from continuing operations before income taxes......... 32.8 (19.8) 4.3 17.3
Provision for income taxes.................................... (9.7) 7.7 (0.3)(c) (2.3)
---------- ------------- ----------- ---------
Income from continuing operations............................. $ 23.1 $ (12.1) $ 4.0 $ 15.0
---------- ------------- ----------- ---------
---------- ------------- ----------- ---------
Earnings per share from continuing operations................. $ 1.06 $ 0.69
Weighted average number of shares outstanding (in
thousands).................................................. 21,794 21,794
Ratio of earnings to fixed charges(d)......................... 2.1x 2.1x
</TABLE>
- ------------------
(a) Reflects the elimination of the historical statement of operations of
Flavors Holdings in connection with the Disposition.
(b) Reflects the increase in the Company's equity in earnings from continuing
operations of PCT attributable to the Disposition.
(c) Reflects the tax effect, based on the utilization of a dividend received
deduction, of the pro forma adjustments.
(d) Ratio of earnings to fixed charges is expressed as the ratio of earnings
from continuing operations before income taxes, plus fixed charges to fixed
charges. Fixed charges consist principally of interest on debt, amortization
of deferred charges and interest component of rental expense.
22
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 29, 1996
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FLAVORS
COMPANY HOLDINGS PRO FORMA COMPANY
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 230.4 $ (77.7) $ 152.7
Cost of sales................................................. 131.9 (43.6) 88.3
---------- ------------- ----------- ---------
Gross profit.................................................. 98.5 (34.1) -- 64.4
Selling, general and administrative expenses.................. 40.0 (6.5) 33.5
---------- ------------- ----------- ---------
Operating income.............................................. 58.5 (27.6) -- 30.9
Interest expense.............................................. (19.3) 9.4 (9.9)
Interest, investment and dividend income...................... 7.1 (0.3) 6.8
Amortization of deferred charges and bank fees................ (1.5) 0.9 (0.6)
Equity in earnings from continuing operations and preferred
dividends of PCT............................................ 2.8 -- 2.7(b) 5.5
Gain on Cigar IPO............................................. 127.8 127.8
Other income (expense), net................................... (0.8) (0.1) (0.9)
---------- ------------- ----------- ---------
Income from continuing operations before income taxes......... 174.6 (17.7) 2.7 159.6
Provision for income taxes.................................... (59.1) 6.9 (0.2)(c) (52.4)
---------- ------------- ----------- ---------
Income from continuing operations............................. $ 115.5 $ (10.8) $ 2.5 $ 107.2
---------- ------------- ----------- ---------
---------- ------------- ----------- ---------
Earnings per share from continuing operations................. $ 4.90 $ 4.61
Weighted average number of shares outstanding (in
thousands).................................................. 23,237 23,237
Ratio of earnings to fixed charges(d)......................... 9.2x 15.4x
</TABLE>
- ------------------
(a) Reflects the elimination of the historical statement of operations of
Flavors Holdings in connection with the Disposition.
(b) Reflects the increase in the Company's equity in earnings from continuing
operations of PCT attributable to the Disposition.
(c) Reflects the tax effect, based on the utilization of a dividend received
deduction, of the pro forma adjustments.
(d) Ratio of earnings to fixed charges is expressed as the ratio of earnings
from continuing operations before income taxes, plus fixed charges to fixed
charges. Fixed charges consist principally of interest on debt, amortization
of deferred charges and interest component of rental expense.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
GENERAL
On June 15, 1995, as part of the Abex Transactions, C&F Merger, a wholly
owned subsidiary of Mafco Holdings, which then owned 100% of the outstanding
capital stock of Cigar Holdings and Flavors Holdings, merged with and into Abex,
with Abex being the surviving corporation in the Merger and being renamed Mafco
Consolidated Group Inc. The Merger was accounted for as a purchase of certain
assets and the assumption of certain liabilities of Abex, with C&F Merger
treated as the acquiror for accounting purposes. On March 3, 1993, Mafco
Holdings completed the Consolidated Cigar Acquisition. The Company's results of
operations and financial condition discussed below reflect for the periods (i)
from June 15, 1995, the consolidated results of Cigar Holdings and Flavors
Holdings and the assets and liabilities of Abex acquired in the Merger, (ii)
from March 3, 1993 to June 15, 1995, the combined results of Cigar Holdings and
Flavors Holdings and (iii) prior to March 3, 1993, the results of Flavors
Holdings or its predecessors. On August 21, 1996, Cigar Holdings completed the
Cigar IPO, as a result of which the Company beneficially owns 80.2% of the
outstanding shares of capital stock of Cigar Holdings (representing
approximately 97.6% of the combined voting power), which owns 100% of the
outstanding shares of capital stock of Consolidated Cigar.
The Company's results of operations have been, and continue to be, affected
by certain trends in the tobacco products industry, including issues relating to
taxation and regulation, as well as by certain constraints on the Company's
ability to satisfy demand, particularly for its handmade premium products. See
'Business--Market Overview,' '--The Tobacco Industry' and '--Backorders.'
PRO FORMA RESULTS OF OPERATIONS
On November 25, 1996, the Company sold all the outstanding shares of
Flavors Common Stock to PCT International. The following discussion of pro forma
statement of operations data gives effect to the Flavors Dividend, the
Disposition and the Distribution assuming that such transactions had been
consummated on January 1, 1995. For the year ended December 31, 1994, the pro
forma financial data reflects the results of operations of Consolidated Cigar.
The following discussion should be read in conjunction with 'Pro Forma Financial
Data.'
Pro Forma Nine Month Period Ended September 29, 1996 Compared with the Pro
Forma Nine Month Period Ended October 1, 1995
Pro forma net sales in the first nine months of 1996 and 1995 were $152.7
million and $115.1 million, respectively, an increase of $37.6 million or 32.7%.
The increase in net sales was primarily due to higher sales of cigars. Cigar
sales increased primarily as a result of both a shift in sales mix to higher
priced cigars and price increases on certain cigar brands and, to a lesser
extent, an increase in cigar unit volume, particularly in the premium market.
Pro forma cost of sales were $88.3 million and $68.3 million in the first
nine months of 1996 and 1995, respectively, an increase of $20.0 million or
29.3%. The increase in cost of sales in 1996 was due primarily to the increase
in sales and increases in the costs of raw materials for cigars. As a percentage
of sales, cost of sales improved to 57.8% in 1996 from 59.3% in 1995 primarily
due to fixed manufacturing costs spread over increased production.
Pro forma SG&A expenses were $33.5 million and $30.4 million in the first
nine months of 1996 and 1995, respectively. This increase was primarily due to
increased compensation, marketing and selling expenses. As a percentage of net
sales, SG&A expenses were 21.9% in the 1996 period and 26.4% in the 1995 period.
The decrease was primarily due to SG&A expenses increasing at a lower rate
relative to the increase in net sales.
Pro forma interest expense was $9.9 million and $10.1 million in the first
nine months of 1996 and 1995, respectively. The decrease was primarily due to a
lower amount of debt outstanding during 1996 as compared to 1995.
24
<PAGE>
Pro forma interest, investment and dividend income was $6.8 million and
$2.5 million in the first nine months of 1996 and 1995, respectively. The
increase primarily reflects interest income on invested cash acquired in
connection with the C&F Merger and the Cigar IPO.
Pro forma equity in earnings from continuing operations of PCT represents
the Company's interest in the continuing operations of PCT Common Stock acquired
in July 1995, preferred dividends on the Company's investment in PCT Preferred
Stock and the results of operations of Flavors Holdings as a result of the
Disposition.
The pro forma provision for income taxes as a percentage of income from
continuing operations before income taxes was 32.8% and 15.3% in the first nine
months of 1996 and 1995, respectively. The increase in the effective rate is due
to an increase in income from U.S. operations which primarily relates to the
gain on the Cigar IPO subject to state and federal income taxes during 1996
partially offset by a tax benefit associated with the Company's operations in
Puerto Rico. In addition, the 1995 tax provision also reflects a tax benefit
associated with the utilization of Consolidated Cigar's net operating loss
carryforwards.
Pro Forma Year Ended December 31, 1995 Compared to Pro Forma Year Ended
December 31, 1994
Pro forma net sales were $157.9 million and $131.5 million in 1995 and
1994, respectively, an increase of $26.4 million or 20.1%. The increase in net
sales was primarily due to higher sales of cigars. Cigar sales increased
primarily as a result of an increase in cigar unit volume, particularly in the
premium market and, to a slightly lesser extent, a sales mix shift to higher
priced cigars and price increases on certain cigar brands.
Pro forma cost of sales were $94.0 million and $78.8 million in 1995 and
1994, respectively, an increase of $15.2 million or 19.3%. The increase in cost
of sales for 1995 was due primarily to the increase in sales and increases in
the costs of raw materials. As a percentage of sales, cost of sales decreased to
59.5% in 1995 from 59.9% in 1994, primarily due to fixed manufacturing costs
spread over increased net sales.
Pro forma SG&A expenses were $42.2 million and $29.4 million in 1995 and
1994, respectively, an increase of $12.8 million or 43.5%. As a percentage of
net sales, SG&A expenses increased to 26.7% in 1995 from 22.4% in 1994. The
increase primarily reflects compensation, public company and other incremental
SG&A expenses incurred by the Company since the C&F Merger and increased
marketing and selling expenses of the Company's operating business.
Pro forma interest expense, net was $13.7 million and $12.8 million in 1995
and 1994, respectively. The increase of $0.9 million was due to interest
accretion on certain liabilities assumed by the Company in the C&F Merger
partially offset by a lower amount of average debt outstanding in 1995.
Pro forma interest, investment and dividend income was $5.5 million
and $0 in 1995 and 1994, respectively. The increase was primarily due to
the investment of assets acquired by the Company in connection with the
Abex Transactions in cash equivalents such as repurchase agreements,
commercial paper, time deposits and money market investments and
dividend income on the PCT Preferred Stock. The Company expects to
continue to invest in cash equivalents and marketable securities pending
its use for general corporate purposes, including acquisitions, and
pursuant to its share repurchase program.
RESULTS OF OPERATIONS
The following table sets forth certain historical statement of operations
data (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTH PERIOD ENDED
-------------------------------------------------------- --------------------------------------
1993 1994 1995 OCTOBER 1, 1995 SEPTEMBER 29, 1996
---------------- ---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $202.6 100.0% $226.9 100.0% $261.1 100.0% $195.3 100.0% $230.4
Cost of sales............. 125.0 61.6 136.0 59.9 154.0 59.0 115.3 59.0 131.9
Gross profit.............. 77.6 38.4 90.9 40.1 107.1 41.0 80.0 41.0 98.5
Selling, general and
administrative
expenses................ 33.9 16.7 37.9 16.7 51.4 19.7 37.2 19.0 40.0
Operating income.......... 43.7 21.7 53.0 23.4 55.7 21.3 42.8 22.0 58.5
<CAPTION>
<S> <C>
Net sales................. 100.0%
Cost of sales............. 57.2
Gross profit.............. 42.8
Selling, general and
administrative
expenses................ 17.4
Operating income.......... 25.4
</TABLE>
25
<PAGE>
Nine Month Period Ended September 29, 1996 Compared with the Nine Month Period
Ended October 1, 1995
Net sales in the first nine months of 1996 and 1995 were $230.4 million and
$195.3 million, respectively, an increase of $35.1 million or 18.0%. The
increase in net sales was primarily due to higher sales of cigars. Cigar sales
increased primarily as a result of both a shift in sales mix to higher priced
cigars and price increases on certain cigar brands and, to a lesser extent, an
increase in cigar unit volume, particularly in the premium market.
Cost of sales were $131.9 million and $115.3 million in the first nine
months of 1996 and 1995, respectively, an increase of $16.6 million or 14.4%.
The increase in cost of sales in 1996 was due primarily to the increase in sales
and increases in the costs of raw materials for cigars. As a percentage of
sales, cost of sales improved to 57.2% in 1996 from 59.0% in 1995 primarily due
to fixed manufacturing costs spread over increased production and an insurance
recovery in 1996 related to damaged inventory of $0.5 million above cost.
SG&A expenses were $40.0 million and $37.2 million in the first nine months
of 1996 and 1995, respectively. This increase was primarily due to increased
compensation, marketing and selling expenses, partially offset by a bad debt
recovery. As a percentage of net sales, SG&A expenses were 17.4% in the 1996
period and 19.0% in the 1995 period. The decrease was primarily due to SG&A
expenses increasing at a lower rate relative to the increase in net sales.
Interest expense was $19.3 million and $20.4 million in the first nine
months of 1996 and 1995, respectively. The decrease was primarily due to a lower
average amount of debt outstanding during 1996 as compared to 1995.
Interest, investment and dividend income was $7.1 million and $2.8
million in the first nine months of 1996 and 1995, respectively. The
increase primarily reflects interest income on invested cash acquired in
connection with the C&F Merger and the Cigar IPO.
Equity in earnings from continuing operations of PCT represents the
Company's interest in the continuing operations of PCT Common Stock acquired in
July 1995 and preferred dividends on the Company's investment in PCT Preferred
Stock.
The provision for income taxes as a percentage of income from continuing
operations before income taxes was 33.8% and 31.4% in the first nine months of
1996 and 1995, respectively. The increase in the effective rate is due to an
increase in income from U.S. operations which primarily relates to the gain on
the Cigar IPO subject to state and federal income taxes during 1996 partially
offset by a tax benefit associated with the Company's operations in Puerto Rico.
In addition, the 1995 tax provision also reflects a tax benefit associated with
the utilization of Consolidated Cigar's net operating loss carryforwards.
Equity in discontinued operations of PCT, net of income taxes which reflect
a dividend received deduction, represents the Company's interest in the
discontinued operations of PCT, including the gain on sale of PCT's aerospace
business in April 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales were $261.1 million and $226.9 million in 1995 and 1994,
respectively, an increase of $34.2 million or 15.1%. The increase in net sales
reflected a $26.7 million or 20.3% increase in sales of cigar products due
primarily to an increase in cigar unit volume and a sales mix shift to higher
priced cigars and a $7.5 million or 7.9% increase in sales of flavorings due
primarily to increased U.S. and foreign shipment volume.
Cost of sales were $154.0 million and $136.0 million in 1995 and 1994,
respectively, an increase of $18.0 million or 13.2%. The increase in cost of
sales for 1995 was due primarily to the increase in sales. As a percentage of
sales, cost of sales decreased to 59.0% in 1995 from 59.9% in 1994, primarily
due to fixed manufacturing costs spread over increased unit volume and lower
materials costs.
SG&A expenses were $51.4 million and $37.9 million in 1995 and 1994,
respectively, an increase of $13.5 million or 35.6%. As a percentage of net
sales, SG&A expenses increased to 19.7% in 1995 from 16.7% in 1994. The increase
primarily reflects compensation, public company and other incremental expenses
incurred by
26
<PAGE>
the Company since the C&F Merger and increased marketing and selling expenses of
the Company's operating businesses.
Interest expense was $27.2 million and $27.5 million in 1995 and 1994,
respectively. The decrease of $0.3 million was due to a lower amount of debt
outstanding in 1995, partially offset by interest accretion on certain
liabilities assumed by the Company in the Merger.
Interest, investment and dividend income was $6.0 million and $0.2 million
in 1995 and 1994, respectively. The increase was primarily due to the investment
of assets acquired by the Company in connection with the Abex Transactions in
cash equivalents such as repurchase agreements, commercial paper, time deposits
and money market investments and dividend income on the PCT Preferred Stock. The
Company expects to continue to invest in cash equivalents and marketable
securities pending the use of its cash for general corporate purposes, including
acquisitions, and pursuant to its share repurchase program.
The provision for income taxes as a percentage of income before income
taxes and extraordinary item was 29.6% and 31.4% in 1995 and 1994, respectively.
Income tax expense in 1995 and 1994 reflects provisions for federal income
taxes, net of the tax benefit resulting from the utilization of net operating
loss carryforwards, along with state income and franchise taxes. In addition,
income tax expense includes a provision for foreign taxes, Puerto Rico tollgate
taxes and taxes on Puerto Rico source income.
Equity in discontinued operations of PCT, net of income taxes, represents
the Company's interest in the discontinued operations of PCT.
In 1995, because of the reasons described above, net income was $24.4
million, an increase of $10.7 million over 1994. In 1994, the Company recorded
an extraordinary loss, net of $1.7 million tax benefit, of $2.7 million as a
result of the June 1994 refinancing of certain indebtedness. Prepayment
premiums, original issue discounts and certain other capitalized costs of the
refinanced indebtedness were expensed as such extraordinary loss.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales were $226.9 million and $202.6 million in 1994 and 1993,
respectively, an increase of $24.3 million or 12.0%. The increase in net sales
reflected a $21.1 million or 19.1% increase in sales of cigar products due
primarily to the inclusion of Consolidated Cigar for a full year in 1994 as
compared to ten months in 1993. The Company also experienced increases in cigar
unit volume and a sales mix shift to higher priced cigars in 1994 compared to
1993. Sales of flavorings increased $3.2 million or 3.5% in 1994 due primarily
to increased U.S. and foreign shipment volume partially offset by lower average
selling prices.
Cost of sales were $136.0 million and $125.0 million in 1994 and 1993,
respectively, an increase of $11.0 million or 8.80%. The increase in cost of
sales for 1994 was due primarily to the inclusion of Consolidated Cigar for a
full year in 1994 and to a lesser extent to the increase in sales. As a
percentage of net sales, cost of sales decreased to 59.9% in 1994 from 61.6% in
1993 due primarily to a decrease of $3.0 million in the amortization of the
Consolidated Cigar Acquisition purchase price allocated to inventory.
SG&A expenses were $37.9 million and $33.9 million in 1994 and 1993,
respectively, an increase of $4.0 million or 11.8%. The increase was due
primarily to the inclusion of Consolidated Cigar for a full year in 1994
partially offset by lower bad debt expense of the Company in 1994. As a
percentage of net sales, SG&A expenses were constant at 16.7% in both 1994 and
1993.
Interest expense was $27.5 million and $26.5 million in 1994 and 1993,
respectively, an increase of $1.0 million or 3.8%. The increase was due
primarily to the inclusion of Consolidated Cigar for a full year in 1994
partially offset by lower interest rates as a result of certain refinanced
indebtedness.
The provision for income taxes as a percentage of income before income
taxes and extraordinary item was 31.4% and 35.7% in 1994 and 1993, respectively.
The decrease in the effective rate is due primarily to the realization of a
valuation allowance related to deferred tax assets. Income tax expense in 1994
and 1993 reflects provisions for federal income taxes, net of the tax benefit
resulting from the utilization of net operating loss carryforwards, along with
state income and franchise taxes. In addition, income tax expense includes a
provision for foreign taxes, Puerto Rico tollgate taxes as well as taxes on
Puerto Rico source income.
27
<PAGE>
In 1994, for the reasons described above, net income was $13.7 million, an
increase of $3.7 million over 1993. In 1994, the Company recorded an
extraordinary loss, net of $1.7 million tax benefit, of $2.7 million as a result
of the June 1994 refinancing of certain indebtedness, as more fully described
above. Prepayment premiums, original issue discounts and certain other
capitalized costs of the refinanced indebtedness were expensed as such
extraordinary loss.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities were $6.1 million, $32.8 million
and $12.3 million for 1995, 1994 and 1993, respectively, and ($188.7) million
and $18.3 million in the first nine months of 1996 and 1995, respectively. The
decrease of $207.0 million from the first nine months of 1995 to the first nine
months of 1996 reflects a net increase in trading securities partially offset by
higher net income, excluding the after tax effect of the gain on the Cigar IPO.
The decrease of $26.7 million from 1994 to 1995 primarily reflects an increase
in restricted deposits, the payment of liabilities assumed in connection with
the Abex Transactions and a smaller decrease in inventories partially offset by
increased net income. In connection with the Abex Transactions, the Company
assumed and agreed to indemnify PCT against, or manage on PCT's behalf, various
contingent and other liabilities. See 'Business--Contingent and Other
Liabilities Assumed in Connection with the Abex Transactions' for a discussion
of the environmental, tax, casualty and certain other liabilities assumed in
connection with the Abex Transactions. The increase in net cash flows from
operating activities of $20.5 million from 1993 to 1994 reflects increased net
income, lower inventory levels and increased accounts payable and accrued
expenses.
Cash flows from investing activities in 1995 consists primarily of cash
acquired in the Merger partially offset by cash used to finance the purchase of
PCT Common Stock from Libra. Net cash flow used in investing activities in 1993
related principally to the Consolidated Cigar Acquisition. Cash flows used in
investing in the first nine months of 1996 consist primarily of capital
expenditures. Capital expenditures were $3.3 million, $2.7 million and $2.3
million for the years ended December 31, 1995, 1994 and 1993, respectively, and
$5.8 million and $2.1 million for the first nine months of 1996 and 1995,
respectively. Capital expenditures in 1995, 1994 and 1993 relate primarily to
investments in manufacturing equipment and are part of the continual maintenance
and upgrading of the Company's manufacturing facilities. Capital expenditures of
$5.8 million in 1996 primarily relate to investments in the Company's
manufacturing facilities to meet increased demand for the Company's premium
cigars. The Company is expanding its existing manufacturing facilities in the
Dominican Republic and Honduras and is constructing, as part of a joint venture,
new facilities in Jamaica. The Company currently expects that its facility
expansion projects in the Dominican Republic and Honduras and the construction
projects in Jamaica will be completed by the end of 1996. Capital expenditures
for the remainder of 1996 are expected to be $1.5 million, including funding for
the construction project.
Net cash flows from financing activities were $121.0 million and $(71.0)
million in the first nine months of 1996 and 1995, respectively. Cash flows
provided by financing activities in the first nine months of 1996 reflect the
proceeds from the Cigar IPO partially offset by net repayments of borrowings and
cash flows used for financing activities in the first nine months of 1995
reflect the purchase of Company common stock and VSRs, dividends paid to Mafco
Holdings, net repayments of borrowings and an increase in restricted deposits.
Cash flows used for financing activities in 1995 reflect the repurchase of
Company Common Stock for $29.9 million, net repayments of borrowings of $20.6
million and dividends of $14.0 million paid to Mafco Holdings immediately prior
to the Merger. Cash flows used for financing activities in 1994 primarily
reflect repayments of borrowings of $76.5 million and the issuance of long term
debt of $50.0 million. Cash flows used for financing activities in 1993
primarily reflect net borrowings and a capital contribution used to finance the
Consolidated Cigar Acquisition.
On February 5, 1996, the Company entered into a reimbursement agreement
with Chemical Bank and PCT, through Pneumo Abex, under which the Company
has a reimbursement obligation relating to letters of credit totaling
$20.8 million which have been issued to cover certain environmental
liabilities not related to PCT's former aerospace business. To secure
its obligations under such agreement, the Company pledged the PCT
Preferred Stock and 5,939,400 shares of PCT Common Stock that it owns.
See 'Business--Contingent and Other Liabilities Assumed in Connection
with the Abex Transactions.'
28
<PAGE>
Restricted cash of $16.6 million included in other assets at December 31,
1995 reflects segregated cash held for the benefit of certain parties to cover
obligations related to certain prior dispositions and certain environmental and
insurance matters.
In 1993 and 1994, Consolidated Cigar entered into two five-year interest
rate swap agreements in an aggregate notional amount of $85.0 million. Under the
terms of the agreements, Consolidated Cigar receives a fixed interest rate
averaging approximately 5.8% and pays a variable interest rate equal to the
six-month London interbank offered rate (LIBOR). Consolidated Cigar entered into
such agreements to take advantage of the differential between long-term and
short-term interest rates and effectively converted the interest rate on $85.0
million of fixed-rate indebtedness under the Senior Subordinated Notes to a
variable rate. Had Consolidated Cigar terminated these agreements, which the
Company considers to be held for other than trading purposes, on October 16,
1996, the Company would have realized a combined loss of approximately $1.0
million. Future positive or negative cash flows associated with these agreements
will depend upon the trend of short-term interest rates during the remaining
life of the agreements. In the event of non-performance of the counterparties at
anytime during the remaining lives of these agreements, which expire at December
1998 and January 1999, the Company could lose some or all of any future positive
cash flows. However, the Company does not anticipate non-performance by such
counterparties. The Company does not currently anticipate terminating these
agreements; however, the Company will from time to time continue to review its
financing alternatives with respect to its fixed and floating rate debt.
The Company intends to fund working capital requirements, capital
expenditures and debt service requirements for the foreseeable future through
cash flows from operations and borrowings under the Credit Agreement. The
Company is dependent on the earnings and cash flows of, and dividends and
distributions from, Consolidated Cigar to pay its expenses and meet its
obligation, to pay any cash dividends or distributions on the Company Common
Stock that may be authorized by the Board of Directors of the Company and make
any payments that may be required under the VSRs. There can be no assurance that
Consolidated Cigar will generate sufficient earnings and cash flows to pay
dividends or distribute funds to the Company to enable the Company to pay its
expenses and meet its obligations or that applicable state law and contractual
restrictions, including negative covenants contained in the debt instruments of
the Company's subsidiaries, including Consolidated Cigar, then in effect, will
permit such dividends or distributions. The terms of each of the Credit
Agreement and the Senior Subordinated Notes currently restrict Consolidated
Cigar from paying dividends or making distributions to the Company, each subject
to certain limited exceptions. See 'Risk Factors--Restrictions Imposed by the
Terms of the Company's Indebtedness; Consequences of Failure to Comply.'
The Credit Agreement consists of a $60.0 million reducing revolving credit
facility (the 'Revolving Credit Facility') and a $20.0 million working capital
facility (the 'Working Capital Facility'). The Revolving Credit Facility and the
Working Capital Facility have final maturities on April 3, 1999. The Revolving
Credit Facility is subject to quarterly commitment reductions of $2.5 million
during each year of the term of such facility. The Credit Agreement is secured
by first priority liens on all of the material assets of Consolidated Cigar and
its domestic subsidiaries and pledges of the capital stock of all of
Consolidated Cigar's subsidiaries (with certain exceptions for the capital stock
of foreign subsidiaries). The Credit Agreement is guaranteed by the Company, and
by all of the domestic subsidiaries of Consolidated Cigar. The guarantee by the
Company is secured by a pledge of all of the shares of common stock of
Consolidated Cigar owned by the Company. The Credit Agreement also contains
various restrictive covenants including, among other things, limitations on the
ability of Consolidated Cigar and its subsidiaries to incur debt, create liens,
pay dividends, sell assets and make investments, acquisitions and capital
expenditures. In addition, the Credit Agreement requires Consolidated Cigar to
maintain specified financial ratios and satisfy certain tests, including maximum
leverage ratios and minimum interest coverage ratios. The Credit Agreement also
contains customary events of default. Consolidated Cigar recently entered into
an amendment to the Credit Agreement, which, among other things, permits
Consolidated Cigar to pay the Cigar Dividend to the Company in the amount of
$5.6 million and to pay dividends and make distributions on terms substantially
similar to those contained in the Senior Subordinated Notes Indenture. See
'Description of Certain Indebtedness--Senior Subordinated Notes.' As of
September 28, 1996, there was approximately $16.4 million unused and available
under the Credit Agreement, after taking into account approximately $1.0 million
utilized to support letters of credit. See 'Description of Certain
Indebtedness--Credit Agreement.' The Senior Subordinated Notes Indenture
contains covenants that, among other things, limit the issuance of additional
debt and redeemable stock by Consolidated Cigar, the issuance of debt and
preferred stock
29
<PAGE>
by Consolidated Cigar's subsidiaries, the payment of dividends on and redemption
of capital stock of Consolidated Cigar and its subsidiaries and the redemption
of certain subordinated obligations of Consolidated Cigar, the sale of assets
and stock of Consolidated Cigar's subsidiaries, transactions with affiliates and
consolidations, mergers and transfers of all or substantially all of
Consolidated Cigar's assets. The Senior Subordinated Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries of
Consolidated Cigar and contains customary events of default. See 'Description of
Certain Indebtedness--Senior Subordinated Notes.'
In the connection with the Cigar IPO, Cigar Holdings issued the Promissory
Note in an original principal amount of $70.0 million to the Company. The
Promissory Note is noninterest bearing, unsecured, subordinated to senior
indebtedness (as defined in the Promissory Note) and repayable in whole or in
part at any time or from time to time without premium or penalty. The Promissory
Note is payable in quarterly installments of $2.5 million, beginning March 31,
1997 with the final installment payable on December 31, 2003. See 'Description
of Certain Indebtedness--Promissory Note.'
On November 25, 1996, the Company sold to PCT International all of the
outstanding shares of Flavors Common Stock and 23,156,502 VSRs for an aggregate
consideration of $180 million, before estimated expenses of approximately $7.3
million. In addition, PCT will be required to make deferred cash payments to the
Company of $3.7 million on June 30, 1997 and $3.5 million on December 31, 1997.
The Company expects to use the net proceeds from the Disposition and the sale of
the VSRs for general corporate purposes, including acquisitions, although no
specific acquisition is currently contemplated by the Company, and pursuant to
the Company's share repurchase program.
INFLATION
The Company has historically been able to pass inflationary increases for
raw materials and other costs onto its customers through price increases and
anticipates that it will be able to do so in the future.
TAXATION AND REGULATION
Excise Taxes
Cigars and pipe tobacco have long been subject to federal, state and local
excise taxes, and such taxes have frequently been increased or proposed to be
increased, in some cases significantly, to fund various legislative initiatives.
In particular, there have been proposals by the federal government in the past
to reform health care through a national program to be funded principally
through increases in federal excise taxes on tobacco products. Enactment of
significant increases in or new federal, state or local excise taxes would
result in decreased unit sales of cigars and pipe tobacco, which would have a
material adverse effect on the Company's business. See 'Business--The Tobacco
Industry--Excise Taxes.'
Possessions Tax Credit
Prior to December 31, 1993, income earned by the Company from its Puerto
Rico operations was generally exempt from United States federal income tax.
Section 936 of the Code allows a 'possessions tax credit' against United States
federal income tax for the amount of United States federal income tax
attributable to the Puerto Rico taxable earnings. As part of OBRA 93, the
possessions tax credit has been limited based upon a percentage of qualified
wages in Puerto Rico, plus certain amounts of depreciation. The Company believes
that it qualified for the possessions tax credit during 1995, 1994 and 1993. The
Company expects that it will continue to qualify for the possessions tax credit
for every year that such credit is available in such amounts to offset the
majority of any United States federal income tax related thereto, but
eligibility and the amounts of the credit will depend on the facts and
circumstances of the Company's Puerto Rico operations during each of the taxable
years subsequent to 1995. Failure to receive the Section 936 or possessions tax
credit attributable to the Company's Puerto Rico operations would have a
material adverse effect on the Company.
On August 20, 1996, the SBJPA was enacted into law. Under the SBJPA,
Section 936 of the Code, the 'possessions tax credit,' was repealed, subject to
special grandfather rules for which the Company would be eligible, provided that
the Company does not add a 'substantial new line of business.' Under the
grandfather rules, for the Company's taxable years beginning after December 31,
2001 and before January 1, 2006, the Company's business income from its Puerto
Rico operations eligible for the possessions tax credit would, in
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<PAGE>
addition to the Current Limitation, generally be limited to its average annual
income from its Puerto Rico operations, adjusted for inflation, computed during
the Company's five most recent taxable years ending before October 14, 1995 and
excluding the highest and lowest years. For taxable years after December 31,
2005, the possessions tax credit would be eliminated. The repeal of the
possessions tax credit could have a material adverse effect on the Company for
taxable years beginning after December 31, 2001 and before January 1, 2006 to
the extent that the Company's annual income from its Puerto Rico operations
exceeds its average annual income from its Puerto Rico operations (as computed
in the manner described in the preceding sentence), and for taxable years after
December 31, 2005. Although it does not currently have any definitive plans with
respect thereto, the Company expects to evaluate alternatives that may be
available to it in order to mitigate the effects of the SBJPA. See 'Risk
Factors--Substantial Effects of Failure to Receive Possessions Tax Credit.'
Puerto Rico Tax Exemption
Pursuant to a grant of industrial tax exemption which expires in 2002,
income earned by CIC from the manufacture of cigars in Puerto Rico enjoys a 90%
income tax exemption from Puerto Rican income taxes. The remaining 10% of such
income is taxed at a maximum surtax rate of 45%, resulting in an effective
income tax rate for such income of approximately 4.5% under current tax rates.
Funds repatriated to the Company are subject to a maximum Puerto Rican tollgate
tax of 10%. Legislation enacted in Puerto Rico in 1993 included a provision for
prepaying a portion of these tollgate taxes effective for the 1993 fiscal year
and subsequent periods. There can be no assurance that the Puerto Rico tax
exemption will not be limited or eliminated in the future. Any significant
limitation on or elimination of the Puerto Rico tax exemption would have a
material adverse effect on the Company. See Note 9 of the Notes to Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
Regulation
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation in the United States at the federal, state and local levels. The
recent trend is toward increasing regulation of the tobacco industry. There can
be no assurance as to the ultimate content, timing or effect of any additional
regulation of tobacco products by any federal, state, local or regulatory body,
and there can be no assurance that any such legislation or regulation would not
have a material adverse effect on the Company's business. See 'Business--The
Tobacco Industry--Regulation.'
SEASONALITY
The Company's business is generally non-seasonal. However, slight increases
in cigar unit volume are experienced prior to Father's Day and the Christmas
season.
31
<PAGE>
BUSINESS
GENERAL
The Company is a holding company with no business operations of its own.
After the Disposition, the Company's only material assets are (i) its ownership
of 80.2% of the outstanding shares of capital stock of Cigar Holdings
(representing approximately 97.6% of the combined voting power), which owns 100%
of the outstanding shares of capital stock of Consolidated Cigar (ii) its
ownership of 100% of the outstanding shares of PCT Preferred Stock and
approximately 29% of the outstanding shares of PCT Common Stock (together,
representing approximately 36% of the outstanding shares of PCT Common Stock on
a fully diluted basis), (iii) approximately $412.8 million in cash and
marketable securities at September 29, 1996, on a pro forma basis after giving
effect to the Transactions, $172.7 million of which represents the net proceeds
received by the Company in connection with the Disposition and the related sale
of the VSRs to PCT International, (iv) the Promissory Note and (v) a pension
plan asset with a book value of approximately $62.5 million at September 29,
1996. Through Consolidated Cigar, the Company manufactures and distributes
cigars and pipe tobacco products. In addition, in connection with the Abex
Transactions, the Company assumed and agreed to indemnify PCT against, or to
manage on PCT's behalf, various contingent and other liabilities. See
'--Contingent and Other Liabilities Assumed in Connection with the Abex
Transactions.'
The Company is the largest manufacturer and marketer of cigars sold in the
United States in terms of dollar sales, with a 1995 market share of
approximately 23% according to the Company's estimates. The Company markets its
cigar products under a number of well-known brand names at all price levels and
in all segments of the growing cigar market, including premium large cigars,
mass market large cigars and mass market little cigars. The Company attributes
its leading market position to the following competitive strengths: (i)
well-known brand names, many of which are the leading brands in their category;
(ii) broad range of product offerings within both the premium and mass market
segments of the United States cigar market; (iii) commitment to and reputation
for manufacturing quality cigars; (iv) marketing expertise and close attention
to customer service; (v) efficient manufacturing operations; and (vi) an
experienced management team. The Company is also a leading producer of pipe
tobacco and is the largest supplier of private label and branded generic pipe
tobacco to mass market retailers. In addition, the Company distributes a variety
of pipe and cigar smokers' accessories.
The Company's cigars and pipe tobacco products are marketed under a number
of well-known brand names. The Company's premium cigars include the H. UPMANN,
MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY and
MONTECRUZ brands. The Company's mass market large cigars include the ANTONIO Y
CLEOPATRA (also known as AYC), DUTCH MASTERS, EL PRODUCTO, MURIEL, BACKWOODS,
SUPER VALUE and SUPRE SWEETS brands. The Company's mass market little cigars
include the DUTCH TREATS, SUPER VALUE and SUPRE SWEETS brands. The Company's
pipe tobacco products include the MIXTURE NO. 79 and CHINA BLACK brands.
BUSINESS STRATEGY
The Company's business strategy includes the following initiatives:
Capitalize on Growth Opportunities in the Premium Cigar Segment
The Company intends to capitalize on the rapidly growing premium cigar
market by (i) increasing the Company's production capabilities through its
planned expansion of its existing facilities in the Dominican Republic and
Honduras and the construction of new facilities in Jamaica, (ii) improving the
market's awareness and recognition of its premium cigars through targeted
marketing programs and (iii) expanding its premium cigar product offerings
through the introduction of new super-premium cigars, such as H. UPMANN
CHAIRMAN'S RESERVE and PLAYBOY by DON DIEGO, and the extension of its existing
brands.
Increase Premium Cigar Production. To increase production to meet existing
and expected growth in demand for its premium cigars, the Company is (i) adding
workers for second shifts at its manufacturing facilities in the Dominican
Republic, (ii) actively hiring experienced, skilled rollers and bunchers, as
well as training new rollers and bunchers, (iii) expanding its manufacturing
facilities in the Dominican Republic and Honduras and building new manufacturing
facilities in Jamaica, (iv) evaluating joint venture opportunities in countries
where it may be advantageous to produce premium cigars and (v) continuing to
improve manufacturing efficiencies. The Company currently estimates that it will
spend approximately $4.0 million for expansion of existing facilities and
construction
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<PAGE>
of new facilities as well as improvements in manufacturing efficiencies. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
Improve Brand Awareness and Recognition. In order to further strengthen
and broaden the brand recognition of its premium cigars and to support new
product introductions, the Company is increasing its marketing and advertising
expenditures for its premium cigar products. This advertising is designed to
enhance the Company's image and to promote specific brands.
Expand Premium Cigar Brands. As part of its strategy to capitalize on the
significant growth in the premium cigar market and the increased demand for its
premium cigars, the Company plans to continue to introduce new super-premium
cigars. Recently, the Company introduced two super-premium cigars, H. UPMANN
CHAIRMAN'S RESERVE and PLAYBOY by DON DIEGO. In addition, the Company plans to
introduce, in December 1996, a limited edition, collectible 'Leroy Neiman
Selection' cigar box featuring a reproduction of an original painting by Mr.
Neiman. The Company intends to extend its premium cigar lines, including the
MONTECRISTO and SANTA DAMIANA brands, through the introduction of new sizes,
shapes, packaging and other new features. As a result of increased demand for
cigars by women, the Company plans to introduce into various of the Company's
brands cigar shapes designed specifically for women. The Company believes that
such introductions and extensions will enable it to increase sales by shifting
its premium cigar mix to more expensive cigars.
Expand Mass Market Cigar and Pipe Products Businesses
The Company will seek to expand further its mass market cigar business and
pipe tobacco products business by continuing to capitalize on its well-known
brand names and introducing new products that extend the Company's existing
product lines. The Company plans to expand its ANTONIO Y CLEOPATRA line by
introducing CHURCHILL MADURO, a full size machine made, natural wrapper cigar
with a band placed on each cigar resembling those on hand made cigars. In
addition, the Company intends to introduce new flavors, sizes, packaging and
other new features and improvements to its existing mass market cigar and pipe
tobacco products. Since 1989, the Company has introduced new cigar brands that
include DUTCH MASTERS COLLECTION, SUPRE SWEETS and RUSTLERS to the mass market
and extended its existing brands with new cigar products that included ANTONIO Y
CLEOPATRA MINIS, WHIFFS, CONNECTICUT SHADE WRAPPER and BACKWOODS SWEET AROMATIC.
The Company has also introduced new pipe tobacco products that include MURIEL
PIPE TOBACCO and BLACK'N NATURAL.
Broaden Mass Market Cigar Distribution Channels
As a result of its existing relationships with mass market retailers, the
Company is well-positioned to take advantage of the increase in consumer demand
for mass market cigars sold through that channel of distribution. The Company
distributes certain of its cigar and pipe tobacco products to, and develops new
private label brands for, mass market retailers, such as WONDER BLEND for Kmart
and other such products for Wal-Mart, Eckerd Drug stores, CVS stores, Thrifty
Drug Stores and numerous other retail chains. The Company intends to broaden its
existing relationships and actively develop new relationships with other mass
market retailers and is pursuing opportunities in other distribution channels,
including actively marketing its mass market cigars to convenience stores to
take advantage of the increase in consumer demand for mass market cigars at such
locations.
Improve Manufacturing Processes and Raw Material Procurement
The Company continually seeks ways to improve further the efficiency of its
manufacturing operations in order to ensure quality and realize cost savings. To
ensure the quality of its raw materials while also maximizing cost savings, the
Company will (i) continue to develop long-term relationships with tobacco
suppliers, (ii) expand its commercial and technical ties with local growers,
(iii) obtain its tobacco raw materials from a variety of suppliers and growers
and (iv) take advantage of its large purchasing requirements to negotiate
favorable terms from suppliers.
Pursue Selectively Strategic Acquisitions
The Company intends to pursue selectively strategic acquisitions in the
cigar and pipe tobacco products industry to expand its market share and product
lines and benefit from synergies. However, the Company's ability to acquire
additional tobacco businesses and brands is limited by, among other things, a
dwindling number of potential acquisition candidates resulting from the
consolidation in the tobacco industry as well as other
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<PAGE>
economic, regulatory and industry factors. The Company also intends to pursue
joint venture opportunities to enhance its overall cigar and pipe tobacco
businesses.
The Company will consider other strategic acquisitions to diversify its
business mix, including acquisitions of products and businesses that can utilize
the Company's existing manufacturing facilities, distribution channels and sales
and marketing organizations. The Company has not identified any specific
material acquisition or joint venture opportunities at this time and the
Company's ability to make acquisitions may be limited by the level and terms of
its indebtedness, regulatory constraints and other factors. The Company may use
the proceeds from the Disposition and the related sale of the VSRs to fund such
acquisitions.
MARKET OVERVIEW
In recent years, cigar smoking has gained popularity in the United States,
resulting in a significant increase in consumption and retail sales of cigars,
particularly for premium cigars. Management believes that this increase in cigar
consumption and retail sales is the result of a number of factors, including:
(i) the increase in the number of adults over the age of 50 (a demographic group
believed to smoke more cigars than any other demographic segment) and (ii) the
emergence of an expanding base of younger affluent adults who have recently
started smoking cigars and who tend to smoke premium cigars. The Company
believes the increase in cigar smoking is in large part attributable to a
positive and improving image of cigar smoking resulting from increased
publicity, including the success of Cigar Aficionado magazine, the increased
visibility of use by celebrities and the proliferation of 'Cigar Smokers'
dinners and other special events for cigar smokers.
Consumption of cigars is currently increasing following a decline in
consumption at a compound annual rate of 3.6% from 1964 to 1993. Consumption of
cigars increased to 4.0 billion units in 1995 from 3.4 billion units in 1993,
with substantial growth in premium cigars. Consumption of premium cigars
increased at a compound annual unit growth rate of 2.4% from 1976 to 1991, at a
compound annual unit growth rate of 8.9% from 1991 to 1994 and at a unit growth
rate of 30.6% from 1994 to 163.9 million units in 1995. Growth in the premium
segment has continued to accelerate in 1996. The mass market segment of the
industry has also experienced increased consumption with a compound annual unit
growth rate of 7.2% from 1993 to 3.8 billion units in 1995. Retail sales of
cigars, which generally declined from 1964 to 1987 and grew modestly from 1987
to 1993, experienced significant growth from 1993 to 1995 with retail sales of
cigars outpacing unit growth since 1991. This growth in retail sales of cigars
was primarily the result of a combination of increased prices and a shift in the
sales mix to more expensive cigars. Total retail sales have increased at a
compound annual growth rate of 9.3% from 1991 to $1.0 billion in 1995, while the
corresponding compound annual unit growth rate was only 3.6%. There can be no
assurance that unit consumption and retail sales of cigars will continue to
increase in the future. See 'Risk Factors--Declining Market for Cigars through
1993' and '--Extensive and Increasing Regulation of Tobacco Products.'
The following table illustrates the trends in unit consumption and retail
sales experienced by the premium and mass market segments of the U.S. cigar
industry from 1991 to 1995.
U.S. CIGAR INDUSTRY(A)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
------- ------- ------- ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Unit Consumption:
Premium(b)....................................... 97.2 98.9 109.6 125.5 163.9
Mass market...................................... 3,433.3 3,419.2 3,313.8 3,592.6 3,806.4
------- ------- ------- ------- --------
Total............................................ 3,530.5 3,518.1 3,423.4 3,718.1 3,970.3
Retail Sales....................................... $ 705.0 $ 715.0 $ 730.0 $ 860.0 $1,005.0
</TABLE>
- ------------------
(a) Source: Cigar Association of America, Inc. ('CAA').
(b) CAA's premium cigar data includes cigars imported from seven leading
supplier countries and does not include any premium cigars produced in other
countries, including the United States. CAA includes such U.S. premium cigar
production, which approximated 5.0 million units in 1995, in mass market
cigar data.
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<PAGE>
PRODUCTS
Mass Market Cigars
Mass market cigars are machine made and generally have a retail price point
of $1.00 or less per cigar. Mass market cigars use less expensive tobacco than
premium cigars. The Company uses a variety of techniques and grades of tobacco
to produce mass market cigars which compete at all the price points in the mass
cigar market. Mass market cigars include large cigars (weighing three pounds per
1,000 cigars or more) and little cigars (weighing less than three pounds per
1,000 cigars).
Mass market large cigars generally consist of 'filler' tobacco that is
wrapped first with a 'binder' and then with a 'wrapper.' The more expensive mass
market large cigars combine natural leaf wrapper and man-made binder made from
tobacco ingredients instead of natural binder, with filler threshed into short,
uniform pieces. In less expensive mass market large cigars, man-made wrapper
made primarily from tobacco ingredients replaces natural tobacco leaf. The
Company adds flavors and/or plastic tips to certain of its popularly priced mass
market large cigars. The Company's major mass market brands in the middle price
range include ANTONIO Y CLEOPATRA, DUTCH MASTERS, EL PRODUCTO, BACKWOODS, SUPER
VALUE and SUPRE SWEETS. The Company's MURIEL brand is in the less expensive
range.
Little cigars consist of filler tobacco wrapped only by a wrapper with a
filter tip. Little cigars are made on a high-speed machine with man-made wrapper
made from tobacco ingredients and no binder. Little cigars are flavored and
produced with a filter. Generally, little cigars are the lowest priced segment
of the mass market category. The Company's little cigar brands include DUTCH
TREATS, SUPER VALUE and SUPRE SWEETS.
The Company manufactures its own cigar boxes and man-made wrapper, filler
and binder and little cigar filters.
Premium Cigars
Premium cigars are generally hand made and primarily sell at retail price
points above $1.00 per cigar. The Company's premium cigars are primarily
long-filler, large cigars that have high quality natural leaf wrappers and
binders. The Company uses tobaccos of the best grades for its premium cigars.
Such tobaccos are combined according to brand-specified formulas to create the
filler of each cigar. In order to make hand made cigars, binder tobacco is
hand-wrapped around filler to create the 'bunch' which is placed into a mold.
Then, 'wrapper' tobacco is hand-wrapped around the bunch, creating a premium
cigar. In the Company's premium cigars, the wrapper, binder and filler are
natural tobacco leaf.
The Company's premium cigars include the well-known H. UPMANN, MONTECRISTO,
DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY and MONTECRUZ
brands as well as other recognized brand names. The Company's premium cigars are
manufactured in its Dominican Republic and Honduras facilities, except for
TE-AMO, which is manufactured in Mexico and purchased from a third party.
Pipe Tobacco and Accessories
In addition to its cigars, the Company manufactures pipe tobaccos for sale
under its own brand names, such as MIXTURE NO. 79 and CHINA BLACK, and for sale
in bulk to tobacconists, as well as private label brands for chain stores and
wholesale distributors. The Company also distributes smokers' accessories, such
as lighters, tobacco pouches, pipe cleaners and cigar cutters.
The Company uses tobaccos of various types, grades, countries of origin and
crop years for its pipe tobacco, which are moisturized with steam and then
blended according to specific formulas ('primary blends'). The primary blends
are 'cased' (sprayed or dipped) in liquids containing water, humectant, sugars,
licorice, cocoa, fruit juices or other flavorings in order to keep the tobacco
in pliable condition and to enhance its aroma and taste. The cased tobaccos are
cut and dried and then held in bins to allow the casing and moisture to be
distributed uniformly throughout the tobacco. Thereafter, the tobacco blends are
flavored with natural and artificial flavors, herbs or spices, and blends are
held for a short period of time prior to packaging into pouches, bags, cans or
other selling containers.
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<PAGE>
Specialty and Other Products
The Company's other products include various tobacco and non-tobacco
related products manufactured by the Company in order to utilize excess
manufacturing capacity at certain of its facilities and improve overall
efficiency. See 'Certain Relationships and Related Transactions--Specialty
Products Division.'
BACKORDERS
The increased demand for cigars, especially premium cigars, has caused the
Company's back orders of premium cigars to increase from 3.2 million cigars at
December 31, 1994 to 4.3 million cigars at December 31, 1995, and to further
increase to 12.0 million cigars at June 29, 1996. The Company's ability to
increase its production of premium cigars and decrease its backorders is
constrained by a shortage of experienced skilled laborers. Although the Company
is hiring and training new rollers and bunchers, the training process averages
up to one year and not all trainees are able to successfully complete the
Company's training program. The Company is also building additional plant
capacity to meet future growth in demand for its premium cigars. Although the
Company believes that these measures will enable it to increase its production
of premium cigars and that the backorders outstanding at June 29, 1996, which
approximated 12.0 million cigars, will be filled during the second half of 1996,
there can be no assurance that the Company will be able to meet any future level
of demand for its premium cigars. There can be no assurance, however, that
demand for the Company's premium cigars will continue to grow in the future.
The Company's ability to manufacture premium and mass market cigars may
also be constrained by the ability of tobacco growers and suppliers to meet the
Company's demands for its raw materials in a timely manner. Tobacco, as a crop
that is harvested annually, restricts the ability of tobacco growers to adjust
acreage grown in any given year to meet changes in market demands. In addition,
increases in acreage of tobacco grown requires significant capital, which
growers may be unable or unwilling to invest. If the rate of escalation in
consumption of cigars and other tobacco products continues, but the supply of
tobacco remains constant or increases at a lower rate than demand, the Company's
ability to increase its production of cigars, and thereby reduce its backorders,
could be inhibited.
SALES AND MARKETING
The Company sells its cigar and pipe tobacco products throughout the United
States to over 2,500 customers, consisting of wholesale distributors, direct
buying chains, including drug store chains and mass market retailers, and
tobacconists. The Company employs a full-time in-house sales organization to
develop and service its sales to wholesalers, distributors, direct buying chains
and tobacconists. The Company's sales force is organized into two sales units: a
mass market division and a premium division. The Company believes that the
organization of its sales force into two divisions positions it to maintain a
high degree of focus on each of its principal product categories. The mass
market sales force calls on distributors and retail and chain store accounts,
including Kmart, Wal-Mart, Eckerd Drug stores, CVS stores and Thrifty Drug
stores, across the United States. Approximately 89% of the Company's mass market
cigar products are sold through wholesale distributors while approximately 11%
are sold to direct buying chains or independent retailers that warehouse for
themselves. The premium cigar sales force calls directly on tobacconists and
distributors. The Company's sales force operates regionally and locally from
home and car, maintaining close familiarity with local customers. Most salesmen
maintain a small stock of inventory which is used primarily to replace local
distributors' old or damaged products and to display new product introductions
or promotions.
The Company supplies cigar merchandising fixtures to retailers at no cost
and believes that it is the primary supplier of such fixtures to the United
States retail trade. These fixtures help to maintain an attractive product
display and to increase shelf space available for the Company's products.
The Company advertises its mass market cigar products primarily through
coupons and other promotions distributed at point of sale and through direct
mail. The Company advertises its premium cigar products in magazines, such as
Cigar Aficionado, Playboy and The New York Times Sunday Magazine, as well as in
newspapers and on radio. In order to strengthen and broaden further the brand
recognition of its premium cigars and to maximize the business opportunities
created by the resurgence in popularity of and increased demand for premium
cigars, the Company has increased its marketing and advertising expenditures in
connection with its existing premium cigar brands. The increased advertising and
marketing expenditures are being used to support new product introductions and
increase awareness and recognition of the Company's premium brands.
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<PAGE>
Sales of the Company's cigar products outside of the United States are
currently not material, although the Company has begun to strengthen its
presence in the international market for premium and mass market cigars,
particularly in Europe, the Middle East, Latin America and Asia, by increasing
management's focus on the Company's direct export business. The Company has
hired an experienced international marketing manager to concentrate on foreign
sales and promotions and currently has a total of 47 agents and distributors in
Europe, the Middle East, Latin America and Asia.
TRADEMARKS
Trademarks and brand name recognition are important to the Company's
business. The Company generally owns the trademarks under which its products are
sold. The Company has registered its trademarks in the United States and many
other countries and will continue to do so as new trademarks are developed or
acquired. The Company does not hold or own the right to use certain of its
well-known trademarks and brand names in certain foreign markets. The Company's
ability to expand into such markets by capitalizing on the strength of its brand
names in the United States may be limited by its right to use or acquire such
brand names in those foreign markets. Unless otherwise indicated, the Company
owns the trademarks listed below:
MASS MARKET CIGAR TRADEMARKS
<TABLE>
<S> <C>
Antonio y Cleopatra Headline
Backwoods La Corona
Ben Franklin Muriel
Dutch Masters Roi-Tan
Dutch Treats Super Value
El Producto Supre Sweets
Harvester Wonder Blend
</TABLE>
PREMIUM CIGAR TRADEMARKS
<TABLE>
<S> <C>
Cabanas Montecruz
Don Diego Por Larranaga(a)
Don Marcos Primo Del Rey
Don Miguel Santa Damiana
Flor de Canarias Santa Ynez
H. Upmann(a) Super Value
Henry Clay Te-Amo
Las Cabrillas Wonder Blend
Malaguena
Montecristo(a)
</TABLE>
PIPE TOBACCO TRADEMARKS
<TABLE>
<S> <C>
China Black Super Value
Dutch Masters Three Star Royal
Kriswill Wonder Blend
Mixture No. 79
</TABLE>
- ------------------
(a) Trademark is owned by Cuban Cigar Brands, N.V., a 51% owned subsidiary of
the Company.
While the Company does not believe that any single trademark is material to
the vitality of its business, it believes that its trademarks taken as a whole
are material to its business. Accordingly, the Company has taken, and will
continue to take, action to protect its interests in all such trademarks.
RAW MATERIALS
The Company has developed and is developing long-term relationships with
tobacco suppliers and is expanding its commercial and technical ties with local
growers to secure a variety of sources for raw materials, ensure the quality of
its raw materials and maximize cost savings.
The Company buys tobacco directly from a large number of suppliers in
Brazil, Cameroon, the Central African Republic, Costa Rica, Germany, Italy, the
Dominican Republic, Paraguay, the Philippines, Indonesia, the
37
<PAGE>
United States, Ecuador, Honduras, Mexico and other countries and does not
believe that it is dependent on any single source for tobacco. The Company has
recently experienced shortages in certain types of its natural wrapper and
premium cigar tobaccos due to the increase in demand for high quality natural
wrapped cigars. These shortages have caused the price of natural wrapper and
premium cigar tobaccos to increase. To date, the shortages of tobacco have not
adversely affected cigar manufacturing or the Company's profitability, but could
if the Company is unable to purchase additional quantities of certain tobaccos
in the future or is unable to pass increases for such raw materials onto its
customers. See 'Risk Factors--Social, Political and Economic Risks Associated
with Foreign Operations and International Trade' and '--Backorders.'
In addition, the Company purchases packaging materials from multiple
suppliers predominantly in the United States. No single supplier accounts for
10% or more of the Company's raw materials.
COMPETITION
The Company is the largest manufacturer and marketer of cigars in the
United States in terms of dollar sales and believes that it is the only
participant in the cigar industry that is a major competitor in all
subcategories of cigars at all price levels. The other three significant
competitors in the cigar market in terms of market share, in order of size, are
General Cigar Co. Inc., a division of Culbro Corporation, Havatampa/Phillies
Cigar Corporation, a privately held corporation, and Swisher International, also
a privately held corporation. In addition, Tobacco Exporters International
Limited (a subsidiary of Rothmans International) is a significant competitor in
the little cigar market. The Company believes that its leading market position
in the cigar industry is due to its strong, well-known brand names, broad range
of product offerings within both the mass market and premium segments of the
United States cigar market, commitment to and reputation for manufacturing
quality cigars, marketing expertise, close attention to customer service,
efficient manufacturing operations and an experienced management team.
Through its Allied Tobacco Division in Richmond, Virginia, the Company
competes in all areas of the U.S. pipe tobacco business including branded,
private label and bulk tobacco. The Company believes it is the fourth largest
manufacturer in the U.S. of pipe tobacco, in terms of dollar sales, and its
largest competitors in order of size are Lane Limited, John Middleton Inc. and
UST Inc.
THE TOBACCO INDUSTRY
Regulation
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation in the United States at federal, state and local levels. Together
with changing public attitudes towards smoking, a constant expansion of smoking
regulations since the early 1970's has been a major cause of the overall decline
in consumption of tobacco products. Moreover, the trend is toward increasing
regulation of the tobacco industry.
Federal law has required health warnings on cigarettes since 1965 and has
recently required states, in order to receive full funding for federal substance
abuse block grants, to establish a minimum age of 18 years for the sale of
tobacco products, together with an appropriate enforcement program. In recent
years, a variety of bills relating to tobacco issues have been introduced in the
Congress of the United States, including bills that would have (i) prohibited
the advertising and promotion of all tobacco products and/or restricted or
eliminated the deductibility of such advertising expenses; (ii) increased
labeling requirements on tobacco products to include, among other things,
addiction warnings and lists of additives and toxins; (iii) modified federal
preemption of state laws to allow state courts to hold tobacco manufacturers
liable under common law or state statutes; (iv) shifted regulatory control of
tobacco products and advertisements from the FTC to the FDA; (v) increased
tobacco excise taxes; and (vi) required tobacco companies to pay for health care
costs incurred by the federal government in connection with tobacco related
diseases. Hearings have been held on certain of these proposals; however, to
date, none of such proposals have been passed by Congress. Future enactment of
such proposals or similar bills may have an adverse effect on the sales or
operations of the Company. In addition, various federal agencies, including the
FDA as discussed below, have recently proposed to regulate the tobacco industry.
In addition, the majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies have also increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated 'smoking' areas. In a
38
<PAGE>
few states, legislation has been introduced, but has not yet passed, which would
require all little cigars sold in those states to be 'fire-safe' (i.e., cigars
which extinguish themselves if not continuously smoked). Passage of this type of
legislation could have a material adverse effect on the Company's little cigar
sales because of the technological difficulties in complying with such
legislation. There is currently an effort by the U.S. Consumer Product Safety
Commission to establish such standards for cigarettes. The enabling legislation,
as originally proposed, included little cigars; however, little cigars were
deleted due to the lack of information on fires caused by these products.
Although federal law has required health warnings on cigarettes since 1965,
there is no federal law requiring that cigars or pipe tobacco carry such
warnings. However, California requires 'clear and reasonable' warnings to
consumers who are exposed to chemicals known to the state to cause cancer or
reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. Violations of this law, known as Proposition 65, can result in a
civil penalty not to exceed $2,500 per day for each violation. Although similar
legislation has been introduced in other states, no action has been taken.
During 1988, the Company and 25 manufacturers of tobacco products entered
into a settlement of legal proceedings filed against them pursuant to
Proposition 65. Under the terms of the settlement, the Company and such other
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos other than cigarettes manufactured or
imported for sale in California with a specified warning label. To guarantee
compliance with the California requirements, to eliminate errors in distribution
and to maintain the efficiencies of the manufacturing process, the Company and
most of its competitors have begun using the label on all of their tobacco
products shipped to customers in all states, except for a few premium cigar
customers. Massachusetts recently enacted legislation requiring manufacturers of
cigarettes, chewing tobacco and snuff to provide the state annually with a list
of the additives (in descending order of weight) and the nicotine yield ratings
of each brand they produce, which information will, subject to certain
conditions, be made publicly available.
The U.S. Environmental Protection Agency (the 'EPA') published a report in
January 1993 with respect to the respiratory health effects of passive smoking,
which concluded that widespread exposure to environmental tobacco smoke presents
a serious and substantial public health concern. In June 1993, Philip Morris
Companies Inc. and five other representatives of the tobacco manufacturing and
distribution industries filed suit against the EPA seeking a declaration that
the EPA does not have the statutory authority to regulate environmental tobacco
smoke, and that, in view of the available scientific evidence and the EPA's
failure to follow its own guidelines in making the determination, the EPA's
final risk assessment was arbitrary and capricious. The court ruled in May 1995
that plaintiffs have standing to pursue this action. Whatever the outcome of
this litigation, issuance of the report, which is based primarily on studies of
passive cigarette smokers, may lead to further legislation designed to protect
non-smokers.
In February 1994, the FDA, in a letter to an anti-smoking group, claimed
that it may be possible for the FDA to regulate cigarettes under the drug
provisions of the Food, Drug, and Cosmetic Act (the 'FDC Act'). The FDA's claim
is based upon allegations that manufacturers may intend that their products
contain nicotine to satisfy an alleged addiction on the part of some of their
customers. The letter indicated that regulation of cigarettes under the FDC Act
could ultimately result in the removal from the market of products containing
nicotine at levels that cause or satisfy addiction. In March 1994, the FDA began
investigating whether cigarettes should be regulated as a drug. In July 1995,
the FDA announced that it has concluded for the first time that nicotine is a
drug that should be regulated and proposed to regulate smokeless tobacco and
cigarettes. The FDA recently adopted final regulations relating to the
marketing, promotion and advertisement of smokeless tobacco and cigarettes.
Although the FDA's definition of cigarettes originally included little cigars,
little cigars were excluded from the final regulations. These regulations are
currently being challenged in the United States District Court for the Eastern
District of North Carolina and the United States District Court for the Southern
District of New York. While the Company is unable to predict the effect of these
regulations on its business, these and other regulations promulgated by the FDA
in the future could have a material adverse effect on the operations of the
Company.
39
<PAGE>
Litigation
Historically, the cigar industry has not experienced material
health-related litigation and, to date, the Company has not been the subject of
any material health-related litigation. However, the cigarette industry has
experienced and is experiencing significant health-related litigation involving
tobacco and health issues.
Litigation against the cigarette industry has historically been brought by
individual cigarette smokers. In 1992, the United States Supreme Court in
Cippollone v. Liggett Group, Inc. ruled that federal legislation relating to
cigarette labeling requirements preempts claims based on failure to warn
consumers about the health hazards of cigarette smoking, but does not preempt
claims based on express warranty, misrepresentation, fraud or conspiracy. To
date, individual cigarette smokers' claims against the cigarette industry have
been generally unsuccessful; however, on August 9, 1996, a Florida jury in
Carter v. Brown & Williamson Tobacco Corporation determined that a cigarette
manufacturer was negligent in the production and sale of its cigarettes and sold
a product that was unreasonably dangerous and defective, awarding the plaintiffs
a total of $750,000 in compensatory damages. The verdict is on appeal.
Current tobacco litigation generally falls within one of three categories:
class actions, individual actions (which have been filed mainly in the State of
Florida), and actions brought by individual states or localities to recover
Medicaid costs allegedly attributable to tobacco-related illnesses. The pending
actions allege a broad range of injuries resulting from the use of tobacco
products or exposure to tobacco smoke and seek various remedies, including
compensatory and, in some cases, punitive damages together with certain types of
equitable relief such as the establishment of medical monitoring funds and
restitution. The major tobacco companies are vigorously defending these actions,
including by challenging the authority of state attorneys general to bring
Medicaid actions attributable to tobacco-related illnesses and, in some states,
bringing preemptive lawsuits to enjoin the state attorneys general from
instituting litigation.
In May 1996, the Fifth Circuit Court of Appeals in Castano v. American
Tobacco, et al. reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette smokers.
Notwithstanding the dismissal, new class actions asserting claims similar to
those in Castano have recently been filed in certain states. To date, two
pending class actions against major cigarette manufacturers have been certified.
The first case is limited to Florida citizens allegedly injured by their
addiction to cigarettes; the other is limited to flight attendants allegedly
injured through exposure to secondhand smoke.
There can be no assurance that there will not be an increase in
health-related litigation involving tobacco and health issues against the
cigarette industry or similar litigation in the future against cigar
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on the
Company's business.
Excise Taxes
Cigars and pipe tobacco have long been subject to federal, state and local
excise taxes, and such taxes have frequently been increased or proposed to be
increased, in some cases significantly, to fund various legislative initiatives.
From 1977 until December 31, 1990, cigars were subject to a federal excise
tax of 8.5% of wholesale list price, capped at $20.00 per thousand cigars.
Effective January 1, 1991, the federal excise tax rate on large cigars (weighing
more than three pounds per thousand cigars) increased to 10.625%, capped at
$25.00 per thousand cigars, and increased to 12.75%, capped at $30.00 per
thousand cigars, effective January 1, 1993. However, the base on which the
federal excise tax is calculated was lowered effective January 1, 1991 to the
manufacturer's selling price, net of the federal excise tax and certain other
exclusions. In addition, the federal excise tax on pipe tobacco increased from
$0.45 per pound to $0.5625 per pound effective January 1, 1991. The excise tax
on pipe tobacco increased effective January 1, 1993, to $0.675 per pound. The
federal excise tax on little cigars (weighing less than three pounds per
thousand cigars) increased from $0.75 per thousand cigars to $0.9375 per
thousand cigars effective January 1, 1991. The excise tax on little cigars
increased to $1.125 per thousand cigars effective January 1, 1993. The increase
in the federal excise tax rate in 1991 and again in 1993 did not have a material
adverse effect on the Company's product sales.
In the past, there have been various proposals by the federal government to
fund legislative initiatives through increases in federal excise taxes on
tobacco products. In 1993, the Clinton Administration proposed a
40
<PAGE>
significant increase in excise taxes on cigars, pipe tobacco, cigarettes and
other tobacco products to fund the Clinton Administration's health care reform
program. The Company believes that the volume of cigars and pipe tobacco sold
would have been dramatically reduced if excise taxes were enacted as originally
proposed as part of the Clinton Administration's health care reform program.
Future enactment of significant increases in excise taxes, such as those
initially proposed by the Clinton Administration or other proposals not linked
specifically to health care reform, would have a material adverse effect on the
business of the Company. The Company is unable to predict the likelihood of the
passage or the enactment of future increases in tobacco excise taxes.
Tobacco products are also subject to certain state and local taxes. Deficit
concerns at the state level continue to exert pressure to increase tobacco
taxes. Since 1964, the number of states that tax cigars has risen from six to
forty-one. Since 1988, the following eleven states have enacted excise taxes on
cigars, where no prior tax had been in effect: California, Connecticut, New
Jersey, New York, North Carolina, Ohio, South Dakota, Rhode Island, Illinois,
Missouri and Michigan. State excise taxes generally range from 2% to 75% of the
wholesale purchase price. In addition, the following nine states have increased
existing taxes on large cigars since 1988: Arizona, Arkansas, Idaho, Iowa,
Maine, New York, North Dakota, Vermont and Washington. The following five states
tax little cigars at the same rates as cigarettes: California, Connecticut,
Iowa, Oregon and Tennessee. Except for Tennessee, all of these states have
increased their cigarette taxes since 1988.
State cigar excise taxes are not subject to caps similar to the federal
cigar excise tax. From time to time, the imposition of state and local taxes has
had some impact on sales regionally. The enactment of new state excise taxes and
the increase in existing state excise taxes are likely to have an adverse effect
on regional sales as cigar consumption generally declines, which in turn is
likely to have an adverse effect on the Company's results of operations.
EMPLOYEES
Consolidated Cigar employs approximately 4,000 persons. The Company
believes that its relations with its employees are satisfactory. Union
contracts, expiring at various dates, cover salesmen in New York and hourly
employees in McAdoo, Pennsylvania and Richmond, Virginia. The McAdoo agreement
with the Teamsters Local 401 expires in December 1998 and the Richmond agreement
with the Warehouse Employees Local 322 expires in January 1999. The Company has
experienced no work stoppages in the last ten years.
PROPERTIES
As of June 29, 1996, the principal properties owned or leased by
Consolidated Cigar for use in its business included:
<TABLE>
<CAPTION>
APPROXIMATE
OWNED OR FLOOR SPACE
LOCATION PRINCIPAL USE LEASED (SQ. FT.)
- ------------------------------------------- ------------------------------------------- -------- -----------
<S> <C> <C> <C>
Cayey, Puerto Rico......................... Mass market cigar manufacturing Owned 280,000
Comerio, Puerto Rico....................... Tobacco processing Owned 151,000
Danli, Honduras............................ Premium cigar manufacturing Owned 25,000
Fort Lauderdale, Florida................... Administrative office Leased 19,000
La Romana, Dominican Republic.............. Premium cigar manufacturing Leased 133,000
Maypen, Jamaica(a)......................... Premium cigar manufacturing Owned 25,000
McAdoo, Pennsylvania....................... Mass market cigar manufacturing and
distribution Owned 369,000
Richmond, Virginia......................... Pipe tobacco manufacturing and premium
cigar distribution Leased 90,000
</TABLE>
- ------------------
(a) Facility is under construction and is expected to be completed by the end of
1996.
The Company believes that its existing and planned manufacturing facilities
and distribution centers are adequate for the current level of the Company's
operations. The Company believes that additional facilities, if necessary, would
be readily available on a timely basis on commercially reasonable terms. The
Company is expanding its existing manufacturing facilities in the Dominican
Republic and Honduras, is constructing, as part of a joint venture, new
facilities in Jamaica and is improving manufacturing efficiencies in existing
facilities, for a total expected cost of approximately $4 million.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
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<PAGE>
Further, the Company believes that the leased space that houses its
existing manufacturing and distribution facilities is not unique and could be
readily replaced, if necessary, at the end of the terms of its existing leases
on commercially reasonable terms. The Company's leases have expiration dates
ranging from 1999 to 2000, many of which are renewable at the option of the
Company.
All of the principal properties owned by the Company are subject to first
priority liens granted in favor of the lenders under the Credit Agreement. See
'Description of Certain Indebtedness--Credit Agreement.'
The Company has excess capacity in all of its cigar and pipe tobacco
plants. The Company's ability to take advantage of such excess capacity by
increasing shift operations and the production of premium and mass market cigars
may be limited by the availability of trained laborers and shortages in the
supply of tobacco. See '--Backorders.'
The Company believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.
CONTINGENT AND OTHER LIABILITIES ASSUMED IN CONNECTION WITH THE ABEX
TRANSACTIONS
In connection with the Abex Transactions, the Company entered into a
transfer agreement (the 'Transfer Agreement') pursuant to which it assumed and
agreed to indemnify PCT against, or to manage on PCT's behalf, various
contingent and other liabilities as set forth below. In addition, the Company
assumed responsibility for various other matters relating to businesses formerly
conducted by Abex.
Environmental Matters
Certain of Abex's former subsidiaries have been named as parties in several
governmental enforcement and private actions seeking cleanup costs and/or
damages for personal injury or property damage under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
('CERCLA'), and related federal and state laws. In addition, certain of these
subsidiaries have been identified by governmental authorities as being
potentially responsible for cleanup costs and/or natural resource damages or
have received inquiries from governmental authorities regarding their possible
involvement with hazardous waste sites. One such site in Portsmouth, Virginia,
which was formerly operated by Abex and a portion of which is owned by the
Company, has been placed on the National Priorities List under CERCLA. The
potential costs related to such matters and the possible impact thereof on
future operations are uncertain due to, among other factors, the following:
uncertainty regarding the extent of prior pollution; the complexity of laws and
regulations and their interpretations; the varying costs and effectiveness of
alternative cleanup technologies and methods; and the questionable and varying
degrees of responsibility and/or involvement by Abex subsidiaries.
Under applicable state and federal law, including CERCLA, each potentially
responsible party ('PRP') can be held jointly and severally liable for all
cleanup and related costs at each site. For the reasons noted above, it is
impossible to predict the extent to which remediation will be required at a
particular site and the ultimate cost thereof. Based upon its present knowledge
of the sites at which Pneumo Abex has been named as a PRP, the Company estimates
that the total cost of investigation and remediation at all sites, to all
identified PRPs, could exceed $200 million. Pneumo Abex's share of liability at
most sites is expected to be minimal. With respect to the Portsmouth site,
Pneumo Abex has entered into a Consent Decree in which the EPA has required that
financial responsibility in the amount of $20 million be established as evidence
of Pneumo Abex's financial capability of undertaking the remedial work. As
discussed below, the Company is indemnified by Whitman Corporation ('Whitman')
for the costs of establishing and maintaining letters of credit that establish
such financial responsibility. Whitman also is required to indemnify the Company
for the cleanup costs at such site.
Pursuant to the Transfer Agreement, the Company agreed to indemnify PCT, to
the extent not paid by third party indemnitors or insurers, with respect to all
environmental matters associated with Abex's former operations other than the
operations relating to PCT's aerospace business which were recently sold to
Parker-Hannifin. The Company believes that its insurance coverage is sufficient
to reimburse the Company for such environmental expenditures. Moreover, pursuant
to a stock purchase agreement, dated April 28, 1988, as amended, between Pneumo
Abex and Whitman and related settlement agreement, dated September 23, 1991,
between Pneumo Abex and Whitman (collectively, the 'Whitman Agreements'),
Whitman is obligated to indemnify Pneumo Abex for
42
<PAGE>
costs, expenses and liabilities relating to environmental and natural resource
matters to the extent attributable to the operation of the businesses acquired
from Whitman prior to their acquisition in 1988, subject to certain conditions
and limitations principally relating to compliance with notice, cooperation and
other procedural requirements. Generally, known and unknown liabilities arising
after the 1988 Whitman acquisition, of which there have been few to date, are
the responsibility of PCT or the Company. Whitman is generally discharging the
related liabilities in the ordinary course. Whitman is actively managing a
significant number of indemnified matters, including the potential cleanup of
the Portsmouth, Virginia site, and the Company's involvement varies and is
limited for those matters being managed by Whitman. Other third party
indemnitors include FMC Corporation, Wagner Electric Corporation and BFGoodrich
Company, each of which purchased assets and businesses of Pneumo Abex and agreed
to indemnify Pneumo Abex for any liabilities arising out of their operations
subsequent to the date of closing each respective transaction.
In addition to the remedial action costs for the Portsmouth, Virginia site,
as to which Whitman has acknowledged its indemnification responsibilities, there
are approximately 30 tort claims pending against Pneumo Abex alleging exposure
to lead dust from the Portsmouth site. Whitman has agreed to fund 50% of the
defense costs and has reserved its rights on any obligation to indemnify Pneumo
Abex in the event of an adverse outcome. These cases are in the preliminary
stages of discovery and the Company believes that there is a lack of proof of
any causal connection between the alleged damages and Pneumo Abex's activities
at the site. The Company is defending these cases vigorously. Based upon
currently available information, the Company believes that the resolution of
these matters will not have a material adverse effect on the Company's financial
condition.
Based upon the Company's experience to date (including the existence of the
indemnification arrangements referred to above), the cost of compliance with
environmental laws is not expected to have a material adverse effect on the
Company's earnings, liquidity or competitive position. However, future events,
such as changes in existing laws or enforcement policies, may give rise to
additional compliance and/or other costs which could have a material adverse
effect on the Company's financial condition or results of operations.
The Company has not recognized any liability in its financial statements
for environmental matters occurring prior to the 1988 Whitman acquisition which
are covered by Whitman's indemnification obligations under the Whitman
Agreements. Management of the Company considers these obligations to be
Whitman's and monitors the financial position of Whitman to determine the level
of uncertainty associated with Whitman's ability to satisfy its obligations.
Based upon Whitman's active management of indemnifiable matters, its discharging
of the related liabilities when required, and its financial position based upon
publicly filed financial statements, the Company believes that the likelihood of
Whitman failing to satisfy its obligations is remote.
Asbestos Matters
A predecessor of Pneumo Abex has been named as a defendant in personal
injury lawsuits claiming damages relating to asbestos-containing friction
products formerly manufactured by such predecessor. The predecessor, which
discontinued the manufacture and sale of asbestos-containing friction products
in the United States in 1987, has never been found liable in any such case. As
of September 30, 1996, Pneumo Abex or the predecessor had been named as a
defendant in approximately 50,000 pending claims, typically with 10 to 30 or
more co-defendants.
Pursuant to the Whitman Agreements, Whitman has retained ultimate
responsibility for all asbestos-related claims made through August 1998 and for
certain asbestos-related claims asserted thereafter. In connection with the sale
by Abex in December 1994 of its friction products division (the 'Friction
Products Sale'), a subsidiary of Cooper Industries, Inc. ('Cooper') assumed
responsibility for substantially all of the asbestos-related claims made after
August 1998 and therefore not subject to the Whitman indemnity. Pneumo Abex
maintained products liability insurance covering substantially all of the period
during which asbestos-containing products were manufactured and both the Company
and Whitman have the benefit of such insurance. Pursuant to court rulings and
interim agreements reached with certain insurance carriers, Pneumo Abex is being
reimbursed for approximately 90% of the aggregate defense and settlement costs
associated with such claims, and continues to seek recovery of the remaining
amount of unreimbursed costs from its carriers in an ongoing insurance coverage
litigation commenced by Pneumo Abex in 1982. As of September 30, 1996, the
Company had approximately
43
<PAGE>
$7.4 million in unreimbursed defense and settlement costs pending receipt from
the insurance carriers or Whitman.
The Company is unable to predict the amount of future defense and
settlement costs associated with asbestos litigation, but consistent with Abex's
historical treatment, the Company has not recognized any liability in its
financial statements for asbestos-related claims as substantially all of these
costs are expected to be insured and, to the extent not insured entirely, are
covered by Whitman's indemnifications under the Whitman Agreements or by Cooper.
Although PCT retains ultimate responsibility and indemnifies the Company
for such matters under the Transfer Agreement, the Company undertakes
administrative and funding obligations with respect to such matters, including
as to such unreimbursed defense and settlement costs subject to certain
termination events as described below. PCT's obligation to make reimbursement
for the amounts so funded will be limited to amounts received by PCT under
related indemnification and insurance agreements. The Company's administrative
and funding obligations would be terminated in the case of a bankruptcy of
Pneumo Abex or PCT or, following an exhaustion of available insurance, either a
bankruptcy of Whitman or Cooper or the failure of Whitman or Cooper to make
required indemnification payments other than for reasons primarily caused by
actions or inactions taken by the Company.
Based upon the Company's experience to date (including the court rulings
and interim agreements relating to its insurers described above and the
existence of the indemnification arrangements with Whitman and Cooper), the
Company believes that defense and settlement costs associated with
asbestos-related claims arising out of the former friction products business
will not have a material adverse effect on the Company's financial condition or
results of operations. As discussed in '--Environmental Matters' above, the
Company monitors Whitman's financial position and believes that the likelihood
of Whitman failing to satisfy its obligations is remote. A substantial failure
of Pneumo Abex's insurance and the indemnification arrangements with Whitman or
Cooper, however, could have a material adverse effect on the Company.
Tax Matters
In connection with the Abex Transactions, the Company entered into a tax
sharing agreement with PCT, pursuant to which the Company has agreed to
indemnify PCT with respect to all taxes applicable to periods prior to June 15,
1995 except for foreign taxes related to PCT's aerospace business.
In connection with the July 16, 1992 distribution (the '1992 Distribution')
of Abex, the predecessor of the Company, to the stockholders of its prior
parent, The Henley Group, Inc. ('Henley'), Abex entered into a tax sharing
agreement with Henley in which Abex indemnified Henley for tax liabilities
resulting from certain adjustments to the tax liabilities of Abex entities and
for certain tax liabilities of a prior affiliated company, Wheelabrator
Technologies Inc. for the period from May 26, 1986 through December 31, 1988.
All federal tax liabilities related to this period were settled prior to 1995;
however, certain state tax liabilities of approximately $7 million remained open
as of December 31, 1995.
Abex had been included in the consolidated federal income tax return of
Henley for 1990 and 1991. The Internal Revenue Service has asserted deficiencies
against Henley for these periods of approximately $23 million, plus interest.
Koll Real Estate Group, Inc. ('Koll'), as the parent of Henley, has indicated
that it will vigorously contest the deficiencies through the administrative
appeals process as well as in court and that a final conclusion to this matter
could take several years. In any event, the adjustments creating these
deficiencies do not relate to Abex entities and are therefore not liabilities of
the Company as successor to Abex under the tax sharing agreement. However, if
Henley or Koll were unable to pay any deficiency remaining after the review
process, then the Internal Revenue Service, in accordance with Treasury
Regulation 1.1502-06, could seek payment from any of the other entities that
were included in the federal consolidated return of Henley for 1990 and 1991,
including the Company as successor to Abex.
Koll has recently announced that it is soliciting consents from its
debtholders for a financial restructuring, but the Company is presently unable
to determine the effect, if any, of a financial restructuring on the ability of
Koll to pay any remaining deficiency.
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<PAGE>
Management believes that reserves as of September 30, 1996 are adequate for
all indemnifications associated with these tax sharing agreements as well as any
potential liability asserted by the Internal Revenue Service in accordance with
Treasury Regulation 1.1502-06.
Other Matters
The Company assumed responsibility under the Transfer Agreement for various
other legal proceedings, claims and investigations related to various commercial
transactions and product liability matters. Most of these other matters are
covered by insurance, subject to deductibles and maximum limits, and/or by third
party indemnities. The Company does not believe, based on currently available
information, that the outcome of these other matters, irrespective of insurance
coverage and third party indemnities, will have a material adverse effect on its
financial position or results of operations.
In connection with the 1992 Distribution, Abex assumed and agreed to
indemnify Henley against certain liabilities related to the businesses of Henley
or its predecessors, including certain liabilities relating to self-insurance
programs. The Company believes that its balance sheet reflects adequate reserves
for these matters. In addition, Abex guaranteed certain contingent obligations
of Koll relating to a pension plan and environmental liabilities of Henley and
certain of its predecessors, and Koll agreed to indemnify Abex in respect
thereof. Koll has been discharging its responsibilities with respect to these
guaranteed obligations in the ordinary course, and the Company does not believe,
based on currently available information, that the guaranteed obligations would
have a material adverse effect on its financial position or results of
operations even if Koll were to stop discharging its responsibilities.
LEGAL PROCEEDINGS
The Company is a party to lawsuits incidental to its business. The Company
believes that the outcome of such pending legal proceedings in the aggregate
will not have a material adverse effect on the Company's consolidated financial
position. The Company carries general liability insurance but has no health
hazard policy, which, to the best of the Company's knowledge, is consistent with
industry practice. There can be no assurance, however, that the Company will not
experience material health-related litigation in the future.
In addition, various legal proceedings, claims and investigations are
pending against the Company related to commercial transactions, product
liability, safety and health matters and other environmental matters, involving
Abex's former subsidiaries or their predecessors, including those for which the
Company assumed responsibility pursuant to the Abex Transactions. See
'--Contingent and Other Liabilities Assumed in Connection with the Abex
Transactions.' Most of these matters are related to matters covered by
insurance, subject to deductibles and maximum limits, and by third party
indemnities. The Company does not believe, based on currently available
information, that the outcome of these matters will have material adverse effect
on its financial position or results of operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information (ages as of November 30,
1996) concerning the Directors and executive officers of the Company. All
Directors serve terms of one year or until the election of their respective
successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Ronald O. Perelman.............................. 53 Chairman of the Board of Directors and a
Director
Howard Gittis................................... 62 Vice Chairman and a Director
James R. Maher.................................. 47 President, Chief Executive Officer and a
Director
Irwin Engelman.................................. 62 Executive Vice President and Chief Financial
Officer
Barry F. Schwartz............................... 47 Executive Vice President and General Counsel
Theo W. Folz.................................... 53 President and Chief Executive Officer of Tobacco
Products Group and a Director
Gary R. Ellis................................... 43 Senior Vice President and Chief Financial
Officer of Tobacco Products Group
Philip E. Beekman............................... 65 Director
Jewel S. Lafontant-Mankarious................... 73 Director
Drew Lewis...................................... 65 Director
Robert Sargent Shriver III...................... 42 Director
</TABLE>
Mr. Perelman has been Chairman of the Board of the Company since June 1995.
Mr. Perelman has been Chairman of the Board and Chief Executive Officer of Mafco
Holdings and MacAndrews & Forbes Holdings Inc. (together with Mafco Holdings,
'MacAndrews & Forbes') and various of their affiliates since 1980. Mr. Perelman
also is Chairman of the Board of Andrews Group Incorporated ('Andrews Group'),
Cigar Holdings, Meridian Sports Incorporated ('Meridian Sports'), New World
Communications Group Incorporated ('New World'), PCT and Toy Biz, Inc. ('Toy
Biz') and is the Chairman of the Executive Committee of the Boards of Directors
of Marvel Entertainment Group, Inc. ('Marvel'), Revlon Consumer Products
Corporation ('Revlon Products') and Revlon, Inc. ('Revlon'). Mr. Perelman is a
Director of the following corporations which file reports pursuant to the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'): Andrews Group,
Cigar Holdings, The Coleman Company, Inc. ('Coleman'), Coleman Holdings Inc.,
Coleman Worldwide Corporation ('Coleman Worldwide'), Consolidated Cigar, First
Nationwide Bank, a Federal Savings Bank ('First Nationwide Bank'), First
Nationwide Holdings, Inc. ('First Nationwide'), First Nationwide (Parent)
Holdings Inc. ('First Nationwide Parent'), Mafco Consolidated, Marvel, Marvel
Holdings Inc. ('Marvel Holdings'), Marvel (Parent) Holdings Inc. ('Marvel
Parent'), Marvel III Holdings Inc. ('Marvel III'), Meridian Sports, New World,
New World Television, NWCG Holdings Corporation ('NWCG Holdings'), PCT, Pneumo
Abex, Revlon, Inc., Revlon Products, Revlon Worldwide Corporation ('Revlon
Worldwide') and Toy Biz.
Mr. Gittis has been Vice Chairman and a Director of the Company since June
1995. Mr. Gittis has been Vice Chairman and a Director of MacAndrews & Forbes
and various of its affiliates since 1985. Mr. Gittis is a Director of the
following corporations which file reports pursuant to the Exchange Act: Andrews
Group, Cigar Holdings, Consolidated Cigar, First Nationwide, First Nationwide
Bank, First Nationwide Parent, Jones Apparel Group, Inc., Loral Corporation, New
World, New World Television, NWCG Holdings, PCT, Pneumo Abex, Revlon Worldwide,
Revlon and Revlon Products and Rutherford-Moran Oil Corporation.
Mr. Maher has been President, Chief Executive Officer and a Director of the
Company since June 1995. Mr. Maher was Chairman of the Board of Laboratory
Corporation of America Holdings, a clinical laboratory
46
<PAGE>
company, from 1995 to April 1996 and was President and Chief Executive Officer
of National Health Laboratories Holdings Inc., a clinical laboratory company,
from 1992 to 1995. Mr. Maher was Vice Chairman of The First Boston Corporation,
an investment bank, from 1990 to 1992 and Managing Director of The First Boston
Corporation from 1982 to 1990. Mr. Maher is a Director of First Brands
Corporation, which files reports pursuant to the Exchange Act.
Mr. Engelman has been the Executive Vice President and Chief Financial
Officer of the Company since June 1995 and has been the Executive Vice President
and Chief Financial Officer of MacAndrews & Forbes and various of its affiliates
since February 1992. Mr. Engelman was Executive Vice President and Chief
Financial Officer of GAF Corporation, a specialty chemical and building
materials company, from 1990 to February 1992. Mr. Engelman was President and
Chief Operating Officer of Citytrust Bancorp Inc. from 1988 to 1990; Executive
Vice President of the Blackstone Group LP from 1987 to 1988; and Executive Vice
President of General Foods Corporation for more than five years prior to 1987.
Mr. Schwartz has been Executive Vice President and General Counsel of the
Company since June 1995. He has been Executive Vice President and General
Counsel of MacAndrews & Forbes and various of its affiliates, including Cigar
Holdings, since 1993. Mr. Schwartz was Senior Vice President of MacAndrews &
Forbes from 1989 to 1993.
Mr. Folz has been President and Chief Executive Officer of the Tobacco
Products Group and a Director of the Company since June 1995. Mr. Folz has been
a Director and President and Chief Executive Officer of Cigar Holdings since
June 1996, Consolidated Cigar since August 1984 and Vice Chairman, Director and
Chief Executive Officer of Mafco Worldwide since January 1995.
Mr. Ellis has been Senior Vice President and Chief Financial Officer of the
Tobacco Products Group of the Company since June 1995. Mr. Ellis has been Senior
Vice President, Chief Financial Officer and Treasurer of Cigar Holdings since
June 1996 and Consolidated Cigar since November 1988.
Mr. Beekman has been a Director of the Company since June 1995. Mr. Beekman
has been President of Owl Hollow Enterprises, a consulting and investment
company, for more than the past five years. Prior to that time Mr. Beekman was
Chairman of the Board of Directors and Chief Executive Officer of Hook-SuperRx,
Inc. Mr. Beekman also is a Director of Fisher Scientific International Inc.
which files reports pursuant to the Exchange Act.
Ms. LaFontant-Mankarious has been a Director of the Company since June
1995. Ms. LaFontant-Mankarious has been a Partner in the law firm of Holleb &
Coff since 1993. From 1989 to 1993, Ms. LaFontant-Mankarious was a United States
Ambassador-at-Large. Ms. LaFontant-Mankarious also is a Director of Trans World
Airlines, Inc.
Mr. Lewis has been a Director of the Company since May 1996. Mr. Lewis has
been Chairman and Chief Executive Officer of Union Pacific Corporation, a
diversified holding company, since 1994 and, for more than five years prior to
such date, was President and Chief Executive Officer of Union Pacific
Corporation ('Union Pacific'). Mr. Lewis also is a Director of the following
corporations which file reports pursuant to the Exchange Act: American Express
Company, Ford Motor Company, FPL Group, Inc., Gannett Co., Inc., Lucent
Technologies Inc, Union Pacific and Union Pacific Resources Group.
Mr. Shriver has been a Director of the Company since 1995. Mr. Shriver has
been President of Special Olympic Productions, Inc. for more than the past five
years. Mr. Shriver also is a Director of MK Gold Company which files reports
pursuant to the Exchange Act.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee consisting of Messrs.
Perelman, Gittis and Maher, an Audit Committee consisting of Messrs. Beekman and
Shriver and a Compensation Committee consisting of Messrs. Gittis and Shriver
and Ms. LaFontant-Mankarious.
47
<PAGE>
The Executive Committee has all powers and rights necessary to exercise the
full authority of the Board of Directors in the management of the business and
affairs of the Company when necessary in between meetings of the Board of
Directors.
The Compensation Committee has the responsibility of reviewing the
performance of the executive officers of the Company and recommending to the
Board of Directors of the Company annual salary and bonus amounts for all
officers of the Company. The Compensation Committee shall consist of at least
two Directors who are 'outside directors' within the meaning of Section 162(m)
of the Code.
The Audit Committee has the responsibility of reviewing and supervising the
financial controls of the Company. The Audit Committee's responsibilities
include (i) making recommendations to the Board of Directors of the Company with
respect to the Company's financial statements and the appointment of independent
auditors, (ii) reviewing significant audit and accounting policies and practices
of the Company, (iii) meeting with the Company's independent public accountants
concerning, among other things, the scope of audits and reports and (iv)
reviewing the performance of overall accounting and financial controls of the
Company.
COMPENSATION OF DIRECTORS
Directors who do not receive compensation as officers or employees of the
Company or any of its affiliates will be paid an annual retainer fee of $25,000
and a fee of $1,000 for each meeting of the Board of Directors or any committee
thereof they attend, plus reasonable out-of-pocket expenses.
On July 22, 1996, the Company granted options to acquire 750,000 shares of
Company Common Stock to Mr. Perelman as compensation for services rendered and
to be rendered to the Company by Mr. Perelman in his capacity as Chairman of the
Board of Directors. Such options have an exercise price of $21.50 per share
(market price on the date of grant) and vest with respect to one third of the
shares subject to the options on the date of grant, and with respect to an
additional one third of such shares on each of July 22, 1997 and July 22, 1998.
The options expire on July 22, 2006.
EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
paid or accrued for services rendered to the Company in all capacities during
the three years ended December 31, 1995 for the Chief Executive Officer and the
two other executive officers of the Company whose total annual salary and bonus
in the last fiscal year exceeded $100,000 (collectively, the 'Named Executive
Officers').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)
- ----------------------------------------------------- ---- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
James R. Maher
President and Chief Executive Officer.............. 1995 500,000 1,000,000 750,000 1,843,750(a)
Theo W. Folz 1995 1,000,000 1,000,000 3,000(b)
President and Chief Executive Officer of 1994 675,000 400,000 3,000(b)
Consolidated Cigar................................. 1993 638,000 300,000 -- 4,717(b)
Gary R. Ellis 1995 200,000 200,000 3,000(b)
Senior Vice President and Chief Financial 1994 185,000 100,000 3,000(b)
Officer of Consolidated Cigar...................... 1993 175,000 75,000 -- 4,717(b)
</TABLE>
- ------------------
(a) Represents that portion of the special payment that has vested under Mr.
Maher's employment agreement with the Company, assuming that Mr. Maher
becomes entitled to the maximum amount payable under his employment
agreement. See '--Employment Agreements.'
(b) Represents the Company's contribution to the employee's account under
Consolidated Cigar's 401(k) plan.
48
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Mafco Consolidated Group Inc. 1995 Stock Option Plan to the
Company's Chief Executive Officer in 1995. No option grants were made to the
other Named Executive Officers in 1995.
OPTION GRANTS IN LAST FISCAL YEAR(a)
<TABLE>
<CAPTION>
POTENTIAL RELIZABLE
VALUE AT
INDIVIDUAL GRANT ASSUMED ANNUAL RATE OF
------------------------------------------------------------------- STOCK PRICE APPRECIATION
NUMBER OF PERCENT OF TOTAL FOR
SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM(b)
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION ------------------------
NAME OPTIONS GRANTED IN 1995 ($/SH) DATE 5%($) 10%($)
- --------------------- --------------- ------------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
James R. Maher 750,000(c) 100% $17.375 June 30, 2005 $8,193,750 $20,771,250
</TABLE>
- ------------------
(a) No stock appreciation rights were granted by the Company in 1995.
(b) These amounts, based on assumed appreciation rates of 5% and 10% prescribed
by the rules of the Securities and Exchange Commission (the 'Commission'),
are not intended to forecast possible future appreciation, if any, of the
price of the Company Common Stock. These amounts assume a compounded
appreciation rate per year for 10 years from the grant price. For the 5%
column, the appreciated price would be $28.30 and for the 10% column, the
appreciated price would be $45.07. The Company did not use an alternative
formula for a grant date valuation as it is not aware of any formula which
will determine with reasonable accuracy a present value based on future
unknown or volatile factors. There can be no assurance that the amounts in
this table will be achieved.
(c) Such stock options vest one-third upon grant (December 1, 1995) and
one-third on each of July 1, 1996 and 1997.
In addition, on June 25, 1996, the Company granted to Mr. Folz options to
purchase 100,000 shares of Company Common Stock at an exercise price of $22.00
per share (market value on the date of grant). These options have a term of ten
years and vest 25% upon the date of grant and 25% on each of the first, second
and third anniversaries of the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information with respect to options exercised
by the Company's Chief Executive Officer during 1995 and the number and value of
securities underlying unexercised options held by the Company's Chief Executive
Officer on December 31, 1995. No options were held by the other Named Executive
Officers on December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(A)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Maher -- -- 250,000 500,000 $ 156,250 $ 312,500
</TABLE>
- ------------------
(a) Amounts shown represent the market value of the underlying Company Common
Stock at year end calculated using the December 29, 1995 NYSE closing price
per share of Company Common Stock of $18.00 minus the exercise price of the
stock option. The actual value, if any, an executive may realize is
dependent upon the amount by which the market price of the Company Common
Stock exceeds the exercise price when the stock options are exercised. The
actual value realized may be greater or less than the value shown in the
table.
49
<PAGE>
PERFORMANCE BONUS PLAN
The Company has a performance bonus plan (the 'Performance Bonus Plan') for
senior executive officers of the Company. The Performance Bonus Plan provides
for the payment of cash compensation upon the achievement of predetermined
individual and corporate performance goals during the calendar year. The
Performance Bonus Plan is administered by the Compensation Committee. The
Compensation Committee has the full power to select the senior executive
officers for participation in the Performance Bonus Plan and to establish the
performance goals for each senior executive officer in the Performance Bonus
Plan. Compensation payable under the Performance Bonus Plan is intended to
qualify as 'performance based compensation' under Section 162(m) of the Code.
The payments under the Performance Bonus Plan to any one individual during any
calendar year may not exceed $500,000. See '--Employment Agreements.'
TRANSACTION BONUS PLAN
The Company has a performance bonus plan (the 'Transaction Bonus Plan') for
the Company's Chief Executive Officer. The Transaction Bonus Plan provides for
the payment of cash compensation to the Company's Chief Executive Officer for
achieving certain performance goals relating to the consummation of acquisitions
of businesses, divestitures of businesses or the value of any acquisitions
and/or divestitures consummated during the applicable performance period. The
Transaction Bonus Plan is administered by the Compensation Committee.
Compensation payable under the Transaction Bonus Plan is intended to qualify as
'performance based compensation' under Section 162(m) of the Code. The payments
under the Transaction Bonus Plan may not exceed an aggregate maximum of
$4,000,000. In connection with the Disposition, the Company's Chief Executive
Officer received a payment of approximately $3,000,000 under the Transaction
Bonus Plan. See '--Employment Agreements.'
CONSOLIDATED CIGAR PERFORMANCE BONUS PLAN
The Company has adopted the Consolidated Cigar Performance Bonus Plan.
Compensation payable under the Consolidated Cigar Performance Bonus Plan is
intended to qualify as 'performance based compensation' under Section 162(m) of
the Code. Senior executive officers of Cigar Holdings and Consolidated Cigar,
selected for participation in the Consolidated Cigar Performance Bonus Plan by
the Compensation Committee, will be entitled to participate in the Consolidated
Cigar Performance Bonus Plan. The performance goals under the Consolidated Cigar
Performance Bonus Plan will be based on achievement of EBITDA targets
established by the Compensation Committee with respect to each calendar year.
The payments under the Consolidated Cigar Performance Bonus Plan to any one
individual during any calendar year may not exceed $2,000,000. See '--Employment
Agreements.'
DEFINED BENEFIT PLAN
Domestic (United States) salaried employees of Consolidated Cigar are
eligible to participate in the Consolidated Cigar Domestic Salaried Employees'
Defined Benefit Plan, a defined benefit pension plan (the 'Plan'), which,
effective as of the end of 1995, was merged into a defined benefit pension plan
sponsored by a subsidiary of the Company. The merger of the Plan did not change
the level of pension benefits provided to Consolidated Cigar employees. Plan
benefits are a factor of service (up to a maximum of 33 years) with Consolidated
Cigar and Average Final Compensation (average monthly compensation during the 60
consecutive months in which compensation was highest in the 10 years prior to
termination of employment). Compensation includes total wages, overtime, bonuses
and 401(k) salary deferrals, and excludes fringe benefits and employer
contributions to other deferred compensation plans. Benefits in the Plan are
reduced by (i) any annuity purchased under the Gulf Western Consumer Products
Salaries Employees Retirement Plan (the 'Gulf & Western Plan') as of March 8,
1983 and (ii) the actuarial equivalent of any Consolidated Cigar-provided
benefits received under the Consolidated Cigar's 401(k) plan.
The Company established a benefit restoration plan effective January 1,
1994 (the 'BRP') which was designed to restore retirement benefits to those
employees whose eligible pension earnings were limited to $150,000 under
regulations recently enacted by the Internal Revenue Service. The BRP is not
funded and all other vesting and payment rules follow the Plan.
50
<PAGE>
The annual payment under the Plan and BRP, expressed as a straight life
annuity, before adjustment for social security beginning at age 65 and before
reduction for the Gulf & Western Plan or the Company's 401(k) plan, are as
follows:
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 5 10 15 20 25 35
- ----------------------------------------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000................................. $ 3,780 $ 7,572 $11,352 $15,144 $18,900 $ 24,996
75,000................................. 5,676 11,352 17,028 22,716 28,380 37,488
100,000................................. 7,572 15,144 22,716 30,300 37,872 49,920
125,000................................. 9,468 18,936 28,404 37,878 47,346 62,496
150,000................................. 11,352 22,704 34,056 45,432 56,760 74,976
175,000................................. 13,248 26,496 39,744 53,016 66,252 87,408
200,000................................. 15,144 30,288 45,432 60,600 75,744 99,840
225,000................................. 17,040 34,080 51,120 68,178 85,218 112,416
250,000................................. 18,936 37,872 56,808 75,756 94,692 124,992
300,000................................. 18,936 37,872 56,808 75,756 94,692 124,992
400,000................................. 18,936 37,872 56,808 75,756 94,692 124,992
450,000................................. 18,936 37,872 56,808 75,756 94,692 124,992
500,000................................. 18,936 37,872 56,808 75,756 94,692 124,992
</TABLE>
Benefits under the Plan are subject to the maximum limitations imposed by
federal law on pension benefits. The annual limitation in 1995 was $120,000 or
$10,000 per month, based on a maximum annual compensation of $150,000. The
maximum annual remuneration considered for purposes of the BRP was increased
from approximately $250,000 in 1995 to $500,000 in 1996.
As of December 31, 1995, the credited years of service were twelve years
for Mr. Folz, seven years for Mr. Ellis and no years for Mr. Maher.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement (the 'CEO Employment
Agreement') with Mr. Maher with respect to an employment term commencing on July
1, 1995 and ending on June 30, 1998. Under the CEO Employment Agreement, Mr.
Maher has agreed to serve as the Company's President and Chief Executive Officer
at a base salary of $1,000,000 per year. Mr. Maher received a one-time bonus of
$1,000,000 upon execution of the CEO Employment Agreement. In addition, during
the term of the CEO Employment Agreement Mr. Maher will earn a deferred bonus of
$1,500,000 per year, which will be paid upon the later of the expiration of the
term of the CEO Employment Agreement and the date Mr. Maher ceases to be a
'covered employee' under Section 162(m) of the Code. Mr. Maher also participates
in the Performance Bonus Plan and the Transaction Bonus Plan and is entitled to
receive certain stock options. The CEO Employment Agreement also grants Mr.
Maher the right to receive a special payment, which right vests one-third on
December 1, 1995, one-third on July 1, 1996 and one-third on July 1, 1997. The
special payment will be paid upon the later of the expiration of the term of the
CEO Employment Agreement and the date Mr. Maher ceases to be a 'covered
employee' under Section 162(m) of the Code. The amount of the special payment
will equal the product of (i) the difference between (A) the lower of (x)
$17.375 and (y) the price of a share of Company Common Stock on the date of
payment and (B) $10.00 and (ii) 750,000, up to a maximum of approximately $5.5
million. Mr. Maher also receives certain benefits, including the use of an
automobile, participation in the Company's retirement and welfare plans, life
insurance coverage equal to four times his base salary, health benefits coverage
with 100% reimbursement of the reasonable and customary expenses incurred by Mr.
Maher, his spouse and his dependents, and use of an aircraft, pursuant to the
CEO Employment Agreement. Upon the death, disability or termination of Mr. Maher
by the Company without cause (as defined in the CEO Employment Agreement),
termination by Mr. Maher for good reason (as defined in the CEO Employment
Agreement) or following a 'change in control' (as defined below), Mr. Maher will
receive: (i) a lump sum accelerated payment of the amount of the base salary,
deferred bonuses and performance bonuses otherwise payable during the remainder
of the term of the CEO Employment Agreement (these payments will not be less
than $3,000,000 in total); (ii) a payment of all transaction bonuses otherwise
payable during the remainder of the term of the CEO Employment Agreement; (iii)
a gross-up for any excise tax imposed on excess parachute payments under the
Code;
51
<PAGE>
(iv) vesting of stock options and the special payment; and (v) continued welfare
benefits for Mr. Maher and his dependents for the remainder of the term of the
CEO Employment Agreement. Upon the termination of employment of Mr. Maher by the
Company for cause or by Mr. Maher otherwise than as described above, Mr. Maher
will receive: (i) no further base salary; (ii) a pro rata performance bonus for
the year of termination; (iii) in case of termination for cause only, a lump sum
accelerated payment of deferred bonuses for the remainder of the term of the CEO
Employment Agreement; and (iv) transaction bonuses for the remainder of the term
of the CEO Employment Agreement. Under the CEO Employment Agreement, a 'change
in control' of the Company means the failure of Ronald O. Perelman or his
affiliated entities to beneficially own 25% or more of the voting power of the
Company's voting securities, or some other person and its affiliates owning more
than 50% of the voting power of the Company's voting securities.
The Company also entered into an employment agreement (the 'Folz Employment
Agreement') with Mr. Folz with respect to an employment term commencing on July
1, 1995 and ending on December 31, 1998, unless sooner terminated by Mr. Folz's
death, disability, gross neglect or willful misconduct (in which case the
Company may terminate immediately upon written notice), or the Company's breach
of the Folz Employment Agreement. In the event of Mr. Folz's death or
disability, a pro rated performance bonus and 60% of his base compensation is to
be paid to Mr. Folz or his beneficiaries, as the case may be, for the longer of
the remaining term of the Folz Employment Agreement or twelve months. In the
event that the Company breaches the Folz Employment Agreement, Mr. Folz is
entitled to terminate his employment under the agreement; in that event, a
pro-rated performance bonus and the remaining base compensation specified in the
agreement is to be paid to Mr. Folz offset by any other compensation Mr. Folz
receives during this period, and Mr. Folz is entitled to group life, health and
pension plan coverage for the longer of the remaining term of the Folz
Employment Agreement or twelve months. Base salary for the year ended December
31, 1995 was $1,000,000 per annum pursuant to an arrangement (memorialized in
the Folz Employment Agreement) entered into prior to the Abex Transactions. In
addition, Mr. Folz participates in the Consolidated Cigar Performance Bonus
Plan. As of August 1, 1996, for the services to be rendered by Mr. Folz to Cigar
Holdings and Consolidated Cigar, Consolidated Cigar has assumed the obligations
of the Company under the Folz Employment Agreement with respect to a portion of
the base salary and employee benefits to be provided to Mr. Folz under the Folz
Employment Agreement and, simultaneously therewith, has entered into a new
employment agreement with Mr. Folz memorializing such assumption and expiring on
December 31, 1999. Consolidated Cigar has assumed 70% of the obligations of the
Company under the Folz Employment Agreement with respect to any payments or
benefits payable upon Mr. Folz's severance, death or disability. The base salary
which will be paid by Consolidated Cigar to Mr. Folz will be $770,000 for the
year ended December 31, 1996. In addition, Mr. Folz is eligible to participate
in the Consolidated Cigar Performance Bonus Plan. See '--Consolidated Cigar
Performance Bonus Plan.'
Consolidated Cigar entered into an employment agreement with Mr. Ellis with
respect to an employment term commencing July 1, 1995 and ending on December 31,
1998, unless sooner terminated by Mr. Ellis' death, disability (in which case
Consolidated Cigar may elect to terminate the employment agreement), gross
neglect or willful misconduct (in which case Consolidated Cigar may terminate
immediately upon written notice) or Mr. Ellis' willful and material failure to
perform his contractual obligations or by Consolidated Cigar's material breach
of the Ellis Employment Agreement. In the event that Consolidated Cigar breaches
the Ellis Employment Agreement, Mr. Ellis is entitled to terminate the
employment agreement; in that event full compensation and benefits are to be
paid to Mr. Ellis for the longer of the remaining term of the Ellis Employment
Agreement or twelve months, offset by any other compensation of Mr. Ellis
receives during this period. The Ellis Employment Agreement provides for an
initial annual base salary of $200,000 for Mr. Ellis. The Ellis Employment
Agreement also provides for a bonus expressed as a percentage of the Mr. Ellis'
base salary provided that Consolidated Cigar achieves certain levels of
operating performance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995 Messrs. Gittis and Shriver and Ms. LaFontant-Mankarious served
as members of the Compensation Committee.
52
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 30, 1996, the total number
of shares of Company Common Stock beneficially owned, and the percent so owned,
by each Director of the Company, by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Company Common Stock, by
each Named Executive Officer and by all Directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(A) OF CLASS
- -------------------------------------------------------------------------------- --------------------- ----------
<S> <C> <C>
Ronald O. Perelman(b) .......................................................... 20,027,752 85%
35 East 62nd Street
New York, New York 10021
James R. Maher(c)............................................................... 500,000 2%
Philip E. Beekman............................................................... 5,000 *
Howard Gittis................................................................... 5,000 *
Drew Lewis...................................................................... 2,000 *
Robert Sargent Shriver III...................................................... 3,250 *
Barry F. Schwartz............................................................... 3,000 *
Theo W. Folz(d)................................................................. 33,334 *
Gary R. Ellis................................................................... 1,000 *
All directors and executive officers as a group
(11 persons)(e)(f)............................................................ 20,580,336 86%
</TABLE>
- ------------------
* Less than 1%
(a) Shares of Company Common Stock that an individual or group has a right to
acquire within 60 days after October 31, 1996 pursuant to the exercise of
options, warrants or other rights are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
(b) All but 250,000 of such shares of Company Common Stock are indirectly owned
by Mr. Perelman through Mafco Holdings. The remaining 250,000 shares
represent shares of Company Common Stock as to which Mr. Perelman has the
right to acquire beneficial ownership upon the exercise of stock options.
All of the shares owned by Mafco Holdings are, and shares of intermediate
holding companies may from time to time be, pledged by Mafco Holdings to
secure obligations.
(c) Represents shares of Company Common Stock as to which Mr. Maher has the
right to acquire beneficial ownership upon the exercise of stock options.
(d) Represents shares of Company Common Stock as to which Mr. Folz has the right
to acquire beneficial ownership upon the exercise of stock options.
(e) Includes 250,000, 500,000 and 33,334 shares of Company Common Stock as to
which Messrs. Perelman, Maher and Folz, respectively, have the right to
acquire beneficial ownership upon the exercise of stock options.
(f) Neither Ms. LaFontant-Mankarious, who is a Director of the Company, or Mr.
Engelman, Executive Vice President and Chief Financial Officer of the
Company, beneficially owns any shares of Company Common Stock.
53
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MAFCO HOLDINGS
Mafco Holdings currently indirectly owns approximately 85% of the
outstanding shares of Company Common Stock. Mafco Holdings is wholly owned by
Ronald O. Perelman. As a result of Mafco Holdings' stock ownership, the
Company's Board of Directors is, and is expected to continue to be, comprised
entirely of designees of Mafco Holdings, and Mafco Holdings is, and is expected
to continue to be, able to direct and control the policies of the Company and
its subsidiaries, including with respect to mergers, sales of assets and similar
transactions.
Mafco Holdings is a diversified holding company with interests in several
industries. Through its 83% ownership of Revlon, Mafco Holdings is engaged in
the cosmetics and skin care, fragrance and personal care products business.
Mafco Holdings owns 83% of Coleman, which is engaged in the manufacture and
marketing of recreational outdoor products, portable generators, power-washing
equipment, spas and hot tubs and 65% of Meridian Sports, a manufacturer and
marketer of specialized boats and water sports equipment. Marvel, a youth
entertainment company, is 80% owned by Mafco Holdings. Mafco Holdings is also
engaged in the television broadcast and programming production business through
its approximate 42% ownership of New World Communications, and, through its 85%
ownership of the Company, in the manufacture and distribution of cigars and pipe
tobacco. Mafco Holdings also is in the financial services business through its
80% ownership of First Nationwide. The principal executive offices of Mafco
Holdings are located at 35 East 62nd Street, New York, New York 10021.
Employees of affiliates of the Company provide services to the Company in
connection with insurance and legal services, benefit plan administration and
other services and the Company reimburses such affiliates for the allocated
share of the costs related to such employees. In 1995, the amount allocated to
the Company was $436,414, and for the nine months ended September 30, 1996 was
$484,915. The Company believes that the terms of such allocated services are at
least as favorable to the Company as would be available from unaffiliated third
parties.
Included in accrued expenses and other liabilities are payables to Mafco
Holdings and affiliates in the amount of $2.0 million and $544,000 at December
31, 1995 and 1994, respectively.
TAX SHARING AGREEMENT
The Company and certain of its domestic subsidiaries (including
Consolidated Cigar) (the 'Company Group') have been, for federal income tax
purposes, members of an affiliated group of corporations of which Mafco Holdings
was the common parent (the 'Mafco Holdings Group'). Accordingly, the Company
Group has been included in the consolidated federal income tax returns and, to
the extent permitted by applicable law, included in combined state or local
income tax returns filed on behalf of the old Mafco Holdings Group. Pursuant to
a tax sharing agreement (the 'Mafco Consolidated Tax Sharing Agreement') between
the Company and Mafco Holdings, the Company is required to pay to Mafco Holdings
with respect to each taxable year an amount equal to the consolidated federal
and state and local income taxes that would have been incurred by the Company
Group had it not been included in the consolidated federal and any combined
state or local income tax returns filed by the Mafco Holdings Group. Pursuant to
a tax sharing agreement (the 'Subsidiary Tax Sharing Agreement') between the
Company and Consolidated Cigar, Consolidated Cigar is required to pay to the
Company with respect to each taxable year an amount equal to the consolidated
federal and state and local income taxes that would have been incurred by
Consolidated Cigar had it not been included in the consolidated federal and any
combined state or local income tax returns filed by the Mafco Holdings Group.
Under existing federal income tax regulations the Company and Consolidated
Cigar are liable for the consolidated federal income taxes of the Mafco Holdings
Group for any taxable year in which they are a member of the Mafco Holdings
Group. Pursuant to the Mafco Consolidated Tax Sharing Agreement and the
Subsidiary Tax Sharing Agreement, Mafco Holdings has agreed to indemnify the
Company, and the Company has agreed to indemnify Consolidated Cigar and its
direct and indirect subsidiaries for any such federal income tax liability.
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PROMISSORY NOTE
In connection with the Cigar IPO, Cigar Holdings issued the Promissory Note
in an original principal amount of $70 million to the Company. The Promissory
Note is noninterest bearing, unsecured, subordinated to senior indebtedness (as
defined in the Promissory Note) and repayable in whole or in part at any time or
from time to time without premium or penalty. The Promissory Note is payable in
quarterly installments of $2.5 million beginning March 31, 1997 with the final
installment payable on December 31, 2003. See 'Description of Certain
Indebtedness.'
PURCHASE OF LICORICE EXTRACT
Consolidated Cigar purchases all of the licorice extract used as flavoring
and moistening agents in its manufacturing processes from Mafco Worldwide, which
following the Disposition became an indirect wholly owned subsidiary of PCT.
During the years ended December 31, 1993, 1994 and 1995, the Company purchased
approximately $210,000, $265,000 and $269,000 of licorice extract from Mafco
Worldwide. The Company believes that the licorice extract purchased from Mafco
Worldwide was purchased on terms no less favorable to the Company than those
obtainable in an arm's length transaction with an independent third party.
SPECIALTY PRODUCTS DIVISION
Consolidated Cigar's Specialty Products Division assembles lipstick
containers for Revlon Products, an 83% owned subsidiary of Mafco Holdings.
Revlon Products purchased lipstick containers from the Company for approximately
$481,000, $763,000 and $874,000 for the years ended December 31, 1993, 1994 and
1995, respectively. The Company believes that the terms of such arrangements
with Revlon Products were no less favorable to Consolidated Cigar than those
obtainable in an arm's length transaction with an independent third party.
LICENSE AGREEMENT
Pursuant to a license agreement, Mafco Holdings has licensed to Mafco
Worldwide on a royalty-free basis the right to use the name 'MacAndrews &
Forbes' until November 12, 1997.
OPTION GRANT
On July 22, 1996, the Company granted options to acquire 750,000 shares of
Company Common Stock to Mr. Perelman as compensation for services rendered and
to be rendered to the Company by Mr. Perelman in his capacity as Chairman of the
Board of Directors. Such options have an exercise price of $21.50 per share
(market price on the date of grant) and vest with respect to one third of the
shares subject to the options on the date of grant, and with respect to an
additional one third of such shares on each of July 22, 1997 and July 22, 1998.
The options expire on July 22, 2006.
REGISTRATION RIGHTS AGREEMENTS
Pursuant to a Registration Rights Agreement, Mafco Consolidated Holdings
has the right to require the Company to use its best efforts to register under
the Securities Act and the securities or blue sky laws of any jurisdiction
designated by Mafco Consolidated Holdings all or a portion of the shares of
Company Common Stock acquired by Mafco Consolidated Holdings pursuant to the
Abex Transactions (the 'Registrable Shares'). The Company is not required to (i)
effect a demand registration more than once in any 12 month period, (ii) effect
more than two demand registrations with respect to the Registrable Shares or
(iii) file a registration statement during periods (not to exceed 60 days) when
(a) the Company is contemplating a public offering, (b) the Company is in
possession of certain material non-public information or (c) audited financial
statements are not available and their inclusion in a registration statement is
required. In addition, and subject to certain conditions described in the
Registration Rights Agreement, if at any time the Company proposes to register
under the Securities Act an offering of shares of Company Common Stock or any
other classes of equity securities, then Mafco Consolidated Holdings would have
the right to require the Company to use its best efforts to effect the
registration under the Securities Act and the securities or blue sky laws of any
jurisdiction designated by Mafco Consolidated Holdings of all or a portion of
the Registrable Shares as designated by Mafco Consolidated
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Holdings. The Company is responsible for all expenses relating to the
performance of, or compliance with, the Registration Rights Agreement, except
that Mafco Consolidated Holdings is responsible for underwriters' discounts and
selling commissions with respect to the Registrable Shares being sold.
Prior to the consummation of the Cigar IPO, the Company and Cigar Holdings
entered into a Registration Rights Agreement pursuant to which the Company and
certain transferees of the Class B Common Stock, par value $0.01 per share (the
'Class B Common Stock') of Cigar Holdings held by the Company (the 'Holders')
have the right to require Cigar Holdings to register (a 'Demand Registration')
all or part of the Class A Common Stock issuable upon conversion of the Class B
Common Stock owned by such Holders under the Securities Act); provided that
Cigar Holdings (i) will not be obligated to effect a Demand Registration within
180 days of the closing date of the Cigar IPO unless the managing underwriter in
the Cigar IPO has given its consent and (ii) may postpone giving effect to a
Demand Registration for up to a period of 30 days if Cigar Holdings believes
such registration might have a material adverse effect on any plan or proposal
by Cigar Holdings with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, or Cigar Holdings is in possession
of material non-public information that, if publicly disclosed, could result in
a material disruption of a major corporate development or transaction then
pending or in progress or in other material adverse consequences to Cigar
Holdings. In addition, the Holders will have the right to participate in
registrations by Cigar Holdings of its Class A Common Stock (a 'Piggyback
Registration'). Cigar Holdings will pay any expenses incurred in connection with
any Demand Registration or Piggyback Registration, except for underwriting
discounts, commissions and certain expenses attributable to the shares of Class
A Common Stock sold by such Holders.
DESCRIPTION OF THE VALUE SUPPORT RIGHTS AND VSR NOTES
The VSRs were issued under the VSR Agreement, a copy of which is filed as
an exhibit to the Registration Statement, of which this Prospectus forms a part.
The following summaries of certain provisions of the VSR Agreement are complete
in all material respects. Where reference is made to particular provisions of
the VSR Agreement, such provisions, including the definitions of certain terms,
are incorporated by reference as a part of such summaries or terms, which are
qualified in their entirety by such reference. References to sections in the
following summaries are references to sections of the VSR Agreement. The
definitions of certain capitalized terms used in the following summary are set
forth below under '--Certain Definitions Used in the VSR Agreement.'
GENERAL
The VSRs are unsecured obligations of the Company and rank equally with all
other unsubordinated indebtedness of the Company. American Stock Transfer &
Trust Company will be the Trustee, Paying Agent and the Security Registrar under
the VSR Agreement.
The VSRs are issuable only in registered form. Payment of any amounts
pursuant to the VSRs shall be made only upon presentation thereof by the Holders
(as defined below) at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York and at any other
office or agency maintained by the Company for such purpose. (Section 3.7). All
VSRs surrendered for payment shall be delivered to the Trustee and shall be
promptly cancelled by it. (Section 3.9). No service charge will be made for any
registration of transfer or exchange of VSRs, except that the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith. (Section 3.5). The VSRs may
be surrendered for registration of transfer or exchange at the office maintained
by the Company for that purpose in the Borough of Manhattan, The City of New
York.
The Company may deliver VSRs executed by the Company to the Trustee for
authentication, together with a Company Order (as defined below) for the
authentication and delivery of such VSRs. The Trustee, in accordance with such
Company Order, shall authenticate and deliver such VSRs as provided in the VSR
Agreement and not otherwise. (Section 3.3).
Upon any application or request by the Company to the Trustee to take any
action under any provision of the VSR Agreement, the Company shall furnish to
the Trustee an Officers' Certificate (as defined below) stating
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that, in the opinion of the signer, all conditions precedent, if any, provided
for in the VSR Agreement relating to the proposed action have been complied with
and an Opinion of Counsel (as defined below) stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with. Every
certificate or opinion with respect to compliance with a condition or covenant
provided for in the VSR Agreement shall include: (i) a statement that each
individual signing such certificate or opinion has read such covenant or
condition and the definitions herein relating thereto; (ii) a brief statement as
to the nature and scope of the examination or investigation upon which the
statements or opinions contained in such certificate or opinions are based;
(iii) a statement that, in the opinion of each such individual, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and (iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with. (Section 1.2).
The VSR Agreement also provides that the Trustee may rely upon determinations by
the Company contained in an officer's certificate or by the Accounting Firm or
any Independent Financial Expert and shall have no responsibility to
independently determine such facts or amounts.
PAYMENT AT THE MATURITY DATE OR AN OPTIONAL CALL DATE
The VSR Agreement provides that, subject to adjustment as described in
'--Antidilution,' unless the right to receive any such amount previously has
been satisfied in connection with an Optional Call Date, a Total Disposition, an
Event of Default, or a Redemption Event (as such terms are defined herein), the
Company shall pay to each Holder on the Maturity Date (as defined below) for
each VSR held by such Holder, an amount, if any, as determined by an independent
'big six' accounting firm (other than the accounting firm or firms serving as
the principal auditors for the Company or PCT) selected by the Company (the
'Accounting Firm'), equal to the lesser of (x) the excess, if any, of the Base
Amount (as defined below) over the 30-Day Average Market Price (as defined
below) and (y) $3.25. Such determinations by the Accounting Firm absent manifest
error shall be final and binding on the Company and the Holders. (Section 3.1
(c)).
Upon an Optional Call Date, the Company may, in its sole discretion, pay to
the Holder thereof for each VSR represented thereby an amount, as determined by
the Accounting Firm, payable in cash equal to the lesser of (x) the excess, if
any, of the Base Amount over the 30-Day Average Market Price and (y) $3.25;
provided, however, such amount (the 'Optional Call Payment Amount') shall in no
event be less than $0.50 if such Optional Call Date is on or prior to January 1,
1998. Such determinations by the Accounting Firm absent manifest error shall be
final and binding on the Company and the Holders. Such payment shall be made on
any date (the 'Optional Call Payment Date') established by the Company, which in
no event shall be more than 30 days after the Optional Call Date, to holders of
record at the close of business on the tenth business day following such
Optional Call Date. In the event the Company exercises its optional right to
call the VSRs on an Optional Call Date, the Company will issue a press release
on such date announcing such event, the Optional Call Payment Amount and the
Optional Call Payment Date. As soon as practicable following such Optional Call
Date, the Company shall give the Holder and the Trustee thereof notice that the
Company has exercised its optional right to call the VSRs, the Optional Call
Payment Amount and the Optional Call Payment Date; provided, however, such
notice to the Holders may, at the option of the Company, occur simultaneously
with the payment of the Optional Call Payment Amount. (Section 3.1(d)).
During the 60-day period immediately preceding (and including) an Optional
Call Date on which the Company exercises its optional right to call the VSRs or
the Maturity Date, as the case may be, the Company shall not, and shall not
permit any of its subsidiaries or affiliates (including for such purpose any
director or officer of the Company and PCT) to, engage in any Prohibited
Activity.
PAYMENT UPON THE OCCURRENCE OF A TOTAL DISPOSITION
Upon the consummation of a Total Disposition (as defined below), the
Company shall pay to each Holder for each VSR held by such Holder an amount in
cash, if any, as determined by the Accounting Firm, equal to the lesser of (x)
the excess, if any, of the Base Amount over the Total Disposition Amount (as
defined below) and (y) $3.25. Such determinations by the Accounting Firm and any
Independent Financial Expert (as defined below) absent manifest error shall be
final and binding on the Company and the Holders. Such payment shall be made on
the Total Disposition Payment Date (as defined herein). (Section 3.1(e)). As
soon as practicable following a Total
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Disposition, the Company shall give each Holder and the Trustee notice of such
Total Disposition and the Total Disposition Payment Date. (Section 3.1(f)).
PAYMENT IN CASH OR VSR NOTES
To the extent the aggregate principal amount of the senior debt obligation
referred to below is at least $25,000,000, all amounts payable pursuant to the
VSRs on the Maturity Date (but not otherwise) may be paid, at the option of the
Company, either in cash or by the issuance not later than the date on which the
cash amount would otherwise be payable of VSR Notes, which will be senior debt
obligations of the Company that are not subordinated to any other debt
obligation of the Company, with a principal amount equal to the amount of the
payment due. In connection with such issuance, the Company may establish a
minimum principal amount per VSR Payment Note not to exceed $1,000 and may
require that VSR Notes will only be issued in specified increments not to exceed
$1,000 above such minimum principal amount. Cash would be paid in lieu of the
issuance of fractional VSR Notes and could be funded in whole or in part through
the aggregation of fractional VSR Notes and sale of such VSR Notes in the
market. Any VSR Notes issued by the Company in satisfaction of the Company's
obligations with respect to VSRs shall be issued pursuant to an indenture that
will be qualified under the TIA and will have a maturity of up to three years
from the date of issuance and will have an interest rate and redemption
provisions designed to result, in the joint opinion of Morgan Stanley and the
independent financial advisor for the plaintiffs (the 'Plaintiffs' Advisor')
referred to under 'Background and the Disposition--Background,' in the VSR Notes
having a market value as of the date of issuance on a fully distributed basis
equal to 100% of their principal amount. In the event Morgan Stanley and the
Plaintiffs' Advisor are unable to agree, a nationally recognized investment
banking firm shall be chosen by such firms; in such event, at the Company's
option, either the opinion of such third firm or the opinion of the Plaintiffs'
Advisor shall be controlling. The Company has agreed to cause any VSR Notes that
may be issued to be registered under the Securities Act and listed on a national
securities exchange or quoted for trading on the NASDAQ National Market.
OPTIONAL REDEMPTION
Upon the occurrence of a Redemption Event (as defined below), the VSRs may
be redeemed at the option of the Company in whole (but not in part) on or prior
to the consummation of such event or transaction at a redemption price (the
'Redemption Price'), payable in cash, equal to the lesser of (x) 115% of the
excess, if any, of the Base Amount determined as of the fifth Business Day (as
defined below) prior to the date notices of redemption are mailed to Holders
(the date of such mailing is referred to herein as the 'Redemption Notice Date')
over the 30-day Average Market Price determined as of the Redemption Notice Date
and (y) $3.25.
A 'Redemption Event' shall be deemed to have occurred if either (i) as a
result of an event beyond the reasonable control of the Company, the existence
of the VSRs would cause the Company to cease to be a member of the consolidated
group with respect to which the Company files consolidated federal income tax
returns and such situation would be avoided or cured by the redemption of the
VSRs or (ii) the VSRs would create any material financial or legal impediment to
the consummation of any bona fide significant corporate event or transaction (a
'Redemption Transaction') involving the Company, which transaction would, if
consummated, result in a Change of Control of the Company, and in connection
with which transaction the Company has entered into definitive documentation
which creates a binding obligation upon the Company to consummate such
transaction (subject to customary conditions to closing and fiduciary
obligations), in either of clauses (i) and (ii) as determined in good faith by
the Board as evidenced by an Officers' Certificate of the Company.
Notwithstanding the foregoing, VSRs may not be redeemed (i) if the Company
or (unless it shall have been the subject of a Change of Control) PCT or any of
their respective successors or Affiliates (including for such purpose any
director or officer of the Company and PCT) shall have engaged in any Prohibited
Activity during the 35-trading day period preceding the Redemption Notice Date
or (ii) in the case of a Redemption Event arising out of a Redemption
Transaction, unless such Redemption Transaction shall have been consummated on
or prior to the Redemption Payment Date. In the event the VSRs cannot be
redeemed as a result of the occurrence of either clause (i) or (ii) above, the
VSRs will remain outstanding and continue to be governed by the terms of the VSR
Agreement.
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Notice of redemption shall include the Redemption Price and if the
Redemption Event arises out of a Redemption Transaction, a statement to the
effect that such redemption is contingent upon the consummation of such
Redemption Transaction, and shall be mailed at least 15 days but not more than
60 days before the date (the 'Redemption Payment Date') payments are scheduled
to be made to each Holder of VSRs to be redeemed at its registered address. If
money sufficient to pay the Redemption Price of all VSRs to be redeemed is
deposited with the Paying Agent (as defined below) on or before the payment
date, on or after such date the VSRs shall terminate and become null and void
and the Holders thereof shall have no further rights with respect thereto other
than to receive the Redemption Price, which, in the case of a Redemption Event
arising out of a Redemption Transaction, shall be subject to the consummation of
such Redemption Transaction. If the Redemption Transaction is not consummated,
the VSRs would remain outstanding and continue to be governed by the terms of
the VSR Agreement. (Section 3.1(h)).
NO INTEREST
Notwithstanding any provision of the VSR Agreement or of the VSRs to the
contrary, other than in the case of interest on the Default Payment Amount (as
defined below), no interest shall accrue on any amounts payable on the VSRs to
the Holders. (Section 3.1(i)).
EVENTS OF DEFAULT
Unless all of the VSRs shall have already become due and payable, either
the Trustee or the Holders of not less than 25% of the VSRs then Outstanding by
notice in writing to the Company (and to the Trustee if given by the Holders)
may declare the VSRs to be due and payable immediately upon the occurrence of an
Event of Default (as defined below) that is continuing (i.e., has not been
cured) at the time of such declaration. In such event, the Default Amount shall
become immediately due and payable and, thereafter, shall bear interest at the
Default Interest Rate (as defined below) until payment is made to the Trustee.
'Event of Default,' with respect to the VSRs, means each of the following: (a)
default in the payment of all or any part of the amounts payable in respect of
any of the VSRs as and when the same shall become due and payable either at an
Optional Call Payment Date, the Maturity Date, the Total Disposition Payment
Date or Redemption Payment Date; (b) default in the performance, or breach, of
any covenant or warranty of the Company, and continuance of such default or
breach for a period of 90 days after written notice has been given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% of the Outstanding VSRs; or (c) certain events of bankruptcy,
insolvency, reorganization or other similar events in respect of the Company.
(Section 8.1).
If at any time after such declaration of acceleration has been made, and
before any judgment or decree for the payment of the amounts due shall have been
obtained or entered, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay all amounts which shall have become due otherwise than by
acceleration (with interest upon such overdue amount at the Default Interest
Rate to the date of such payment or deposit) and such amount as shall be
sufficient to cover reasonable compensation to the Trustee, its agents,
attorneys and counsel, and all other expenses and liabilities incurred and all
advances made, by the Trustee except as a result of negligence or bad faith, and
if any and all Events of Default, other than the non-payment of the amounts
which have become due by acceleration, shall have been cured, waived or
otherwise remedied, then the Holders of a majority of all the VSRs then
Outstanding, by written notice to the Company and to the Trustee, may waive all
defaults with respect to the VSRs and rescind and annul such declaration and its
consequences. (Section 8.1).
REMEDIES OF THE TRUSTEE AND HOLDERS UPON AN EVENT OF DEFAULT
If the Company shall default in the payment of all or any part of the VSRs,
whether at an Optional Call Payment Date, the Maturity Date, the Total
Disposition Payment Date, the Default Payment Date, or upon acceleration or
otherwise, then upon demand of the Trustee, the Company will pay to the Trustee
for the benefit of the Holders of the VSRs the whole amount that then shall have
become due and payable on all VSRs (with interest from the date due and payable
to the date of such payment upon the overdue amount at the Default Interest
Rate). (Section 8.2).
If the Company shall fail to pay such amounts upon such demand, the
Trustee, in its own name and as trustee of an express trust, shall be entitled
and empowered to institute any action or proceedings at law or in
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equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the VSRs and
collect in the manner provided by law out of the property of the Company or
other obligor upon such VSRs, wherever situated, the moneys adjudged or decreed
to be payable. (Section 8.2).
In case an Event of Default has occurred, has not been waived and is
continuing, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by the VSR Agreement by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either at law or in equity or in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
the VSR Agreement or in aid of the exercise of any power granted in the VSR
Agreement or to enforce any other legal or equitable right vested in the Trustee
by the VSR Agreement or by law. (Section 8.4).
No Holder of any VSR shall have any right to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise upon or under or
with respect to the VSR Agreement, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy thereunder, unless such Holder previously shall have given to the Trustee
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of not less than 25% of the VSRs then
Outstanding shall have made written request upon the Trustee to institute such
action or proceedings in its own name as trustee thereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby and the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity shall have failed to institute any such action or proceeding and no
direction inconsistent with such written request shall have been given to the
Trustee by the Holders of a majority of the VSRs. (Section 8.6).
No delay or omission of the Trustee or of any Holder to exercise any right
or power accruing upon any Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and, except as
described above, every power and remedy given by the VSR Agreement or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as shall be deemed expedient, by the Trustee or by the Holders. (Section 8.8).
The Holders of a majority of the VSRs at the time Outstanding shall have
the right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee with respect to the VSRs; provided that such direction shall not
be otherwise than in accordance with law and the provisions of the VSR
Agreement; and provided further that, subject to certain provisions of the VSR
Agreement, the Trustee shall have the right to decline to follow any such
direction if the Trustee, being advised by counsel, shall determine that the
action or proceeding so directed may not lawfully be taken or if the Trustee in
good faith by its board of directors, the executive committee, or a trust
committee of directors or responsible officers of the Trustee shall determine
that the action or proceedings so directed would involve the Trustee in personal
liability or if the Trustee in good faith shall so determine that the actions or
forebearance specified in or pursuant to such direction would be unduly
prejudicial to the interests of Holders of the Securities not joining in the
giving of said direction, it being understood that, subject to certain
provisions of the VSR Agreement, the Trustee shall have no duty to ascertain
whether or not such actions or forebearance are unduly prejudicial to such
Holders. (Section 8.9).
The Trustee shall transmit to the Holders notice by mail of all defaults
which have occurred within 90 days after the occurrence thereof, unless such
defaults shall have been cured before the giving of such notice; provided that,
except in the case of default in the payment of the amounts payable in respect
of any of the VSRs, the Trustee shall be protected in withholding such notice if
and so long as the board of directors, the executive committee, or a trust
committee of directors or trustees and/or Responsible Officers (as defined
below) of the Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders. (Section 8.11).
PROHIBITED ACTIVITY AND MANIPULATIVE TRANSACTIONS
During the 60-day period immediately preceding (and including) an Optional
Call Date on which the Company exercises its optional right to call the VSRs or
the Maturity Date, as the case may be, the Company shall not, and shall not
permit any of its subsidiaries or Affiliates (including for such purpose any
director or
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officer of the Company and PCT) to engage in any Prohibited Activity (as defined
below). Moreover, neither the Company nor any of its Affiliates shall take any
action that is intended to manipulate the 30-Day Average Market Price during the
60-day period immediately preceding (and including) an Optional Call Date on
which the Company exercises its optional right to call the Securities or the
Maturity Date, as the case may be.
The Company shall not, and shall not permit any of its subsidiaries or
Affiliates (including for such purpose any director or officer of the Company
and PCT) to acquire in open market transactions, private transactions or
otherwise, the Securities.
ANTIDILUTION
In the event PCT shall in any manner subdivide (by stock split, stock
dividend or otherwise) or combine (by reverse stock split or otherwise) the
number of outstanding shares of PCT Common Stock (an 'Adjustment Event'), the
Applicable Number with respect to shares of PCT Common Stock shall, from and
after the date of such Adjustment Event (subject to further adjustment in
accordance with this section), equal the Applicable Number with respect to the
shares of PCT Common Stock, in effect immediately prior to such Adjustment
Event, multiplied by a fraction, the numerator of which shall be the total
number of shares of PCT Common Stock outstanding immediately following such
Adjustment Event and the denominator of which shall be the total number of
shares of PCT Common Stock outstanding immediately prior to such Adjustment
Event. In the event that any securities received with respect to PCT Common
Stock shall in any manner be subdivided (by stock split, stock dividend or
otherwise) or combined (by reverse stock split or otherwise), appropriate
adjustments shall be made in a manner consistent with the principles set forth
in this section. Whenever such an adjustment is made, as provided above, the
Company shall (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Trustee a copy of such certificate and (c) mail a brief summary
thereof to each Holder. The Trustee shall be fully protected in relying on any
such certificate and on any adjustment therein contained. Such adjustment absent
manifest error shall be final and binding on the Company and the Holders.
(Section 3.1(k)).
CERTAIN DEFINITIONS USED IN THE VSR AGREEMENT
'Affiliate' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
'control' when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Securities (as defined below), by
contract or otherwise; and the terms 'controlling' and 'controlled' have
meanings correlative to the foregoing.
'Applicable Number,' initially shall be equal to one, subject to adjustment
as described under '--Antidilution' above.
'Authorized Newspaper' means The Wall Street Journal (Eastern Edition), or
if The Wall Street Journal (Eastern Edition) shall cease to be published, or, if
the publication or general circulation of The Wall Street Journal (Eastern
Edition) shall be suspended for whatever reason, such other English language
newspapers of general circulation in The City of New York, New York, as is
selected by the Company.
'Base Amount' means, as of any date of determination the excess (rounded to
the nearest $0.01) of (a) (x) $10.25, if the date of determination occurs on or
prior to January 1, 1998, or (y) $11.00, if the date of determination occurs
after January 1, 1998, over (b) the Distribution Amount (as defined below).
'Business Day' means any day (other than a Saturday or a Sunday) on which
banking institutions in The City of New York, New York are not authorized or
obligated by law or executive order to close and, if the VSRs are listed on a
national securities exchange, such exchange is open for trading.
'Change of Control' shall mean, with respect to any specified Person, the
occurrence of one or more of the following events: (i) a Person or entity or a
group of Persons or entities acting in concert as a partnership, limited
partnership, syndicate or other group (within the meaning of Rule 13d-3 under
the Exchange Act) shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of shares representing 50% or more of the voting
power of the outstanding shares of voting stock of such specified Person; (ii)
such specified Person or any subsidiary of such specified Person shall merge or
consolidate with any other Person and after
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giving effect to such merger or consolidation the holders of the voting stock of
such specified Person immediately prior thereto will own shares representing
less than 50% of the voting power of the voting stock of such specified Person
or its ultimate parent; (iii) a sale or other disposition of all or
substantially all of the assets of such specified Person; (iv) the issuance of
shares of voting stock by such specified Person which would result in the number
of shares of voting stock of such specified Person outstanding after such
issuance being equal to or in excess of 150% of the number of shares of voting
stock of such specified Person outstanding as of the Effective Date (subject to
appropriate adjustment in the event of a stock split, stock dividend,
recapitalization or other similar event applicable to shares of voting stock
following the Effective Date); and (v) if such specified person is PCT,
individuals who would constitute a majority of the nominees to be elected to the
Board of Directors of PCT (the 'PCT Board') at any meeting of stockholders or by
written consent (without regard to any members of the Board of Directors elected
pursuant to the terms of any class or series of preferred stock of PCT) shall be
elected to the PCT Board where the election or nomination for election by PCT's
stockholders of such directors was not approved by a vote of at least a majority
of the directors in office immediately prior to such election.
'Company Request' or 'Company Order' means a written request or order
signed in the name of the Company by the chairman of the Board of Directors or
the president or any vice president, the controller or assistant controller and
the treasurer or assistant treasurer or the secretary or any assistant
secretary, and delivered to the Trustee.
'Default Payment Amount' means, as of a Default Payment Date, an amount, if
any, determined by the Accounting Firm equal to the lesser of (i) the excess, if
any, of (x) the Base Amount determined as of such Default Payment Date over (y)
the 30-Day Average Market Price determined as of such Default Payment Date and
(ii) $3.25.
'Default Interest Rate' means 8.46% per annum.
'Default Payment Date' means the date upon which the VSRs become due and
payable as described in '--Events of Default.'
'Distribution Amount' means, as of any date of determination, the sum of
(i) the value of all cash dividends or other cash distributions declared and
paid with respect to the Applicable Number of shares of PCT Common Stock, (ii)
all cash received by a holder of PCT Common Stock with respect to the Applicable
Number of shares of PCT Common Stock, as consideration in a merger,
consolidation or other business combination, (iii) the fair market value, as
determined by the Independent Financial Expert, of all dividends or other
distributions consisting of property or assets (other than cash, the VSRs or
other securities, but including any rights, warrants, options to purchase
securities or other securities that expire prior to an Optional Call Date or the
Maturity Date, as the case may be (collectively, 'Designated Options')),
declared and paid with respect to the Applicable Number of shares of PCT Common
Stock and (iv) the fair market value, as determined by the Independent Financial
Expert, of all consideration consisting of property or assets (other than cash,
the VSRs, or other securities, but including Designated Options) received by a
holder of PCT Common Stock with respect to the Applicable Number of shares of
PCT Common Stock, as consideration in a merger, consolidation or other business
combination, in all such cases from the Effective Date to such date of
determination.
For the purposes of this definition, (x) the amount of dividends declared
and paid and the amount of consideration received with respect to the Applicable
Number of shares of PCT Common Stock shall include dividends declared and paid
and considerations received with respect to any securities paid as dividends or
received as consideration with respect to the Applicable Number of shares of PCT
Common Stock and (y) the fair market value of any Designated Option, as of any
date of determination, shall equal the excess, if any, of the average of the
Market Prices of the security underlying such Designated Option for the 30
consecutive trading days ended on the Business Day immediately prior to such
date of determination (or if the underlying security no longer exists, for the
30 consecutive trading days ended on the Business Day immediately prior to the
date of the transaction as a result of which such security ceased to exist) over
the exercise price therefor provided in such Designated Option; provided, that,
if on the date any such Designated Option expired, the Market Price of the
security underlying such Designated Option was less than the exercise price
therefor provided in such Designated Option, the fair market value of such
Designated Option shall equal zero.
'Effective Date' means November 30, 1996.
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'Holder' means a Person in whose name a VSR is registered in the Security
Register.
'Independent Financial Expert' means a nationally recognized investment
banking firm selected by the Company, that does not have a direct or indirect
ownership interest in the Company, or any of its Affiliates and that at the time
it is called upon to give independent financial advice to the Company, is not
(and none of whose directors, officers or Affiliates is) a director or officer
of the Company or any of its Affiliates; provided, that, notwithstanding the
foregoing, no such investment banking firm shall be disqualified from serving as
an Independent Financial Expert solely by reason of its ownership, in the
ordinary course of business, for its own account or for the account of any
customer of securities of the Company or any Affiliate of the Company.
'Market Price' means, as of any date of determination, for any security,
the last reported sale price as reported on the principal national securities
exchange on which such security is then listed, or, if (i) such security is not
listed on a national securities exchange or (ii) such security is listed on a
national securities exchange but the majority of the trading volume with respect
to such security is effected on the NASDAQ National Market, the last reported
sale price as reported on the NASDAQ National Market, or, if such security is
not listed on a national securities exchange and is not quoted on NASDAQ
National Market the average of the highest reported bid and lowest reported
asked quotation on the NASDAQ or, if such security is not listed on a national
securities exchange and is not quoted by the NASDAQ National Market or the
NASDAQ but is traded in the over-the-counter market, the fair market value as
determined by an Independent Financial Expert.
'Maturity Date' means January 1, 1999.
'NASDAQ' means the National Association of Securities Dealers, Inc.
Automated Quotation System.
'Officers' Certificate,' when used with respect to the Company, means a
certificate signed by the chairman of the Board of Directors or the president or
any vice president, the controller or assistant controller and the treasurer or
assistant treasurer or the secretary or any assistant secretary of the Company,
delivered to the Trustee.
'Opinion of Counsel' means a written opinion of counsel, who may be counsel
for the Company.
'Optional Call Date' means each April 1, July 1, October 1 and January 1
from and including April 1, 1997 to and including October 1, 1998.
'Outstanding' when used with respect to VSRs means, as of the date of
determination, all VSRs theretofore authenticated and delivered under the VSR
Agreement, except:
(a) VSRs theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) From and after the earliest of the Default Payment Date, the Total
Disposition Payment Date, an Optional Call Date or the Maturity Date, VSRs,
for the payment of which money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in
trust, or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such VSRs; and
(c) VSRs in exchange for or in lieu of which other VSRs have been
authenticated and delivered pursuant to the VSR Agreement, other than any
such VSRs in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such VSRs are held by a bona fide
purchaser in whose hands the VSRs are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
Outstanding VSRs have given any request, demand, direction, consent or waiver
hereunder, VSRs owned by the Company or any Affiliate of the Company, whether
held as treasury stock or otherwise, shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, direction, consent or waiver, only
VSRs which the Trustee knows to be so owned shall be so disregarded.
'Paying Agent' means any Person authorized by the Company to pay the amount
payable, if any, on any VSRs on behalf of the Company, as described under
'--Payment at the Maturity Date or the Optional Call Date,' '--Payment Upon the
Occurrence of a Total Disposition,' '--Optional Redemption' and '--No Interest'
above.
'Person' means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
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'Prohibited Activity' means any acquisition or disposition in open market
transactions, private transactions or otherwise, of (i) any shares of PCT Common
Stock, (ii) any securities convertible into or exchangeable for shares of PCT
Common Stock or (iii) any securities which holders of PCT Common Stock have
received with respect to their shares of PCT Common Stock, whether as a dividend
or distribution or in connection with a merger, consolidation or otherwise
(other than, in each case, (w) shares of PCT Common Stock acquired on behalf of
a 401(k) plan established for PCT and its subsidiaries to satisfy participant
directions and related Company matching obligations, (x) shares issued or
acquired pursuant to employee stock options granted to directors, officers or
employees in the ordinary course of business prior to the first day of such
period, (y) sales or other dispositions of shares by directors or officers of
PCT or (z) acquisitions of up to an aggregate of 25,000 shares of PCT Common
Stock in the open market by directors or officers).
'Responsible Officer' when used with respect to the Trustee means any
officer assigned to the Corporate Trust Office and also means, with respect to
any particular corporate trust matter, any other officer of the Trustee to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
'Security Register' shall mean the register kept at the Corporate Trust
Office of the Trustee in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of VSRs and of
transfers of VSRs.
'30-Day Average Market Price' means, as of any date of determination, the
average of the Market Price of the Applicable Number of shares of PCT Common
Stock for the 30 consecutive trading days ended on the Business Day immediately
prior to such date of determination. For purposes of this definition, the Market
Price of the Applicable Number of shares of PCT Common Stock shall (following
such receipt) include the Market Price of any securities (other than the VSRs)
which shall have been received by a holder of PCT Common Stock with respect to
the Applicable Number of shares of PCT Common Stock from the Effective Date to
the date of determination, whether as a dividend or other distribution or in
connection with a merger, consolidation or other business combination or a
reclassification of PCT Common Stock.
'Total Disposition' means (i) one or more mergers, consolidations or other
business combinations, involving PCT after giving effect to which no shares of
PCT Common Stock shall remain outstanding or registered under the Exchange Act,
(ii) a sale, transfer or other disposition in one or a series of transactions,
of all or substantially all of the assets of PCT, or (iii) a reclassification of
PCT Common Stock as the capital stock of any other Person (other than an
Affiliate of PCT).
'Total Disposition Amount' means, the fair market value, as determined by
an Independent Financial Expert, of (A) the consideration, if any, received with
respect to the Applicable Number of shares of PCT Common Stock, by the holder
thereof as a result of such Total Disposition, or (B) if an election of the type
of consideration to be received by the holders of PCT Common Stock is made, the
consideration selected by a majority of such stockholders (and assuming such
holder did not exercise any right of appraisal granted under law).
'Total Disposition Payment Date,' with respect to a Total Disposition,
means the date established by the Company for payment on the amount due on the
VSRs in respect of such Total Disposition, which in no event shall be more than
30 days after the date on which such Total Disposition was consummated.
'Voting Securities' means securities having ordinary voting power to elect
a majority of the directors irrespective of whether or not stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency.
CERTAIN SECURITIES LAW CONSIDERATIONS
Due to the lack of legal precedent, it is uncertain how the VSRs would be
treated under the 'short-swing' trading or other provisions of Section 16 of the
Exchange Act. Accordingly, any person who is a director or officer of PCT or a
beneficial owner of 10% or more of the outstanding shares of PCT Common Stock
(and any person who acquires 10% or more of the VSRs) should consult his or its
legal advisor in connection with any purchase or sale of a VSR.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Each of the following summaries of certain provisions of certain debt
instruments of the Company does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of such
debt instruments.
CREDIT AGREEMENT
The Credit Agreement entered into by Consolidated Cigar with The Chase
Manhattan Bank (the 'Bank') consists of the $60.0 million Revolving Credit
Facility and the $20.0 million Working Capital Facility. The Revolving Credit
Facility and the Working Capital Facility have final maturities in April 1999.
The Revolving Credit Facility is subject to quarterly commitment reductions of
$2.5 million during each year of the term of such facility. The Credit Agreement
is secured by first priority liens on all of the material assets of Consolidated
Cigar and its domestic subsidiaries and pledges of the capital stock of all of
Consolidated Cigar's subsidiaries (with certain exceptions for the capital stock
of foreign subsidiaries). The Credit Agreement is guaranteed by Cigar Holdings,
and by all of the domestic subsidiaries of Consolidated Cigar. The guarantee by
the Company is secured by a pledge of all of the shares of common stock of
Consolidated Cigar owned by Cigar Holdings.
As of June 29, 1996, there was approximately $11.8 million unused and
available under the Credit Agreement, after taking into account approximately
$1.0 million utilized to support letters of credit. Loans outstanding under the
Credit Agreement bear interest, at Consolidated Cigar's option, at either (i)
the Bank's base rate plus 1.0%; (ii) the Bank's 30, 60, 90 or 180 day LIBOR rate
plus 2.0% or (iii) with respect to loans to Consolidated Cigar's wholly owned
subsidiary CIC, and subject to availability, the Bank's '936 Rate' plus 2.0%.
The Credit Agreement contains various restrictive covenants including,
among other things, limitations on the ability of Consolidated Cigar and its
subsidiaries to incur debt, create liens, pay dividends, sell assets and make
investments, acquisitions and capital expenditures. In addition, the Credit
Agreement requires Consolidated Cigar to maintain specified financial ratios and
satisfy certain tests, including maximum leverage ratios and minimum interest
coverage ratios. The Credit Agreement also contains customary events of default,
including if Cigar Holdings were to own and control less than all of the issued
and outstanding capital stock of Consolidated Cigar or if a 'Change of Control'
(as defined in the Senior Subordinated Notes Indenture) were to occur.
Consolidated Cigar recently entered into an amendment to the Credit Agreement,
which, among other things, permitted Consolidated Cigar to pay a $5.6 million
dividend to the Company and to pay dividends and make distributions on terms
substantially similar to those contained in the Senior Subordinated Notes
Indenture.
SENIOR SUBORDINATED NOTES
In February 1993, Consolidated Cigar sold $90 million aggregate principal
amount of its Senior Subordinated Notes and as of June 29, 1996, $90 million
aggregate principal amount of Senior Subordinated Notes were outstanding. The
Senior Subordinated Notes bear interest at the rate of 10 1/2% per annum,
payable semi-annually on March 1 and September 1. The Senior Subordinated Notes
mature on March 1, 2003 and Consolidated Cigar is not required to make any
sinking fund payments with respect to the Senior Subordinated Notes. The Senior
Subordinated Notes are subordinate in right of payment to all senior debt of
Consolidated Cigar, including the liabilities of Consolidated Cigar under the
Credit Agreement, rank pari passu with all future senior subordinated debt of
Consolidated Cigar and rank senior to all future subordinated debt of
Consolidated Cigar.
The Senior Subordinated Notes are redeemable at the option of Consolidated
Cigar, on and after March 1, 1998, in whole or in part, at the following
redemption prices (expressed as percentages of the principal amount) for the 12
month period beginning each March 1: 1998--103.00%; 1999--101.50%; and 2000 and
thereafter-- 100%, plus, in each case, accrued and unpaid interest to the date
fixed for redemption. In addition, the Senior Subordinated Notes are redeemable
at any time upon a Change of Control at the redemption prices set forth in the
Senior Subordinated Notes Indenture.
A 'Change of Control' means (i) any person, other than Ronald O. Perelman
or any person controlled, directly or indirectly, by Mr. Perelman (the
'Permitted Holders'), is or becomes the beneficial owner, directly or
indirectly, of more than 35% of the total voting power of the voting stock of
Consolidated Cigar and the Permitted Holders beneficially own, directly or
indirectly, a lesser percentage of the total voting power of the
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voting stock of Consolidated Cigar than such other person or (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of Consolidated Cigar (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of Consolidated Cigar was approved by a vote of
66 2/3% of the directors of Consolidated Cigar then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of Consolidated Cigar then in office.
The Senior Subordinated Notes Indenture contains certain covenants that,
among other things, limit the issuance of additional debt and redeemable stock
by Consolidated Cigar, the issuance of debt and preferred stock by Consolidated
Cigar's subsidiaries, the payment of dividends on and redemption of capital
stock of Consolidated Cigar and its subsidiaries and the redemption of certain
subordinated obligations of Consolidated Cigar, the sale of assets and stock of
Consolidated Cigar's subsidiaries, transactions with affiliates and
consolidations, mergers and transfers of all or substantially all of
Consolidated Cigar's assets. The Senior Subordinated Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries of
Consolidated Cigar and contains customary events of default.
In addition, upon the occurrence of a Change of Control (as defined in the
Senior Subordinated Notes Indenture), each holder of the Senior Subordinated
Notes has the right, subject to the satisfaction of certain conditions relating
to Consolidated Cigar's bank indebtedness, to require Consolidated Cigar to
repurchase such holder's Senior Subordinated Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of purchase.
PROMISSORY NOTE
In connection with the Cigar IPO, Cigar Holdings issued the Promissory Note
in an original principal amount of $70 million to Mafco Consolidated Group. The
Promissory Note is noninterest bearing, unsecured, subordinated to senior
indebtedness (as defined in the Promissory Note) and repayable in whole or in
part at any time or from time to time without premium or penalty. The Promissory
Note is payable in quarterly installments of $2.5 million beginning March 31,
1997 with the final installment payable on December 31, 2003. The failure by
Cigar Holdings to make any payment on the Promissory Note when due and the
failure by Cigar Holdings to cure such non-payment during the 60-day period
following such due date would result in an event of default thereunder, and the
Company could declare all remaining amounts outstanding under the Promissory
Note to be immediately due and payable.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary, which has been provided by Skadden Arps, Slate,
Meagher & Flom LLP, of certain U.S. federal income tax consequences that are
expected to result from the receipt, ownership, lapse, settlement or sale or
other taxable disposition of the VSRs. It is only addressed to PCT Common Stock
holders who receive VSRs in the Distribution (the 'Initial Holders') and who
hold such VSRs, as well as PCT Common Stock, as capital assets. This summary may
not be applicable to persons in special tax situations, such as financial
institutions, insurance companies, tax-exempt organizations, dealers in
securities or currencies, persons whose functional currency is not the U.S.
dollar, and this summary does not address any state, local or foreign tax
consequences. This summary is based on current provisions of the Code, existing,
temporary and proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change, possibly
with retroactive effect.
Many of the rules described below are intricate and their application to
the VSRs and PCT Common Stock are not entirely clear. Each Initial Holder is
urged to consult its tax advisor with respect to (i) the U.S. federal income tax
consequences arising from the receipt, holding, settlement, lapse or sale or
other disposition, of the VSRs, (ii) the U.S. federal income tax consequences
arising from the receipt of distributions on, and the sale or disposition of,
shares of PCT Common Stock (including the receipt of the VSRs in the
Distribution), and (iii) any consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
The U.S. federal income tax consequences resulting from the ownership,
lapse, settlement, sale or other disposition of the VSRs received by an Initial
Holder will, in part, depend upon how the VSRs are characterized for federal
income tax purposes. The U.S. federal income tax characterization of a right
such as a VSR is unclear
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under present law. No court has addressed the proper U.S. federal income tax
characterization of VSRs, although the Internal Revenue Service (the 'Service')
has issued a revenue ruling which held that rights which are in some respects
similar to the VSRs are to be treated as cash settlement put options for U.S.
federal income tax purposes. It should be noted, however, that the VSRs may be
treated as debt instruments or in some other manner for U.S. federal income tax
purposes. Initial Holders should consult their tax advisors in this regard. In
addition, subsequent legislation, regulations, court decisions and revenue
rulings could affect the U.S. federal income tax treatment of the VSRs.
The following discussion assumes that the VSRs are treated as cash
settlement put options for U.S. federal income tax purposes.
Receipt of the VSRs
The Distribution will be treated as a distribution with respect to PCT
Common Stock, in an amount equal to the fair market value of the VSRs on the
date of the Distribution. PCT has advised the Company that it does not expect to
have current or accumulated earnings and profits for the year ended December 31,
1996. Provided that this is the case, the Distribution will be applied against
and will reduce the recipient Initial Holder's basis in its PCT Common Stock
and, to the extent the Distribution exceeds the Initial Holder's basis in its
PCT Common Stock, will be treated as capital gain from the sale or exchange of
the Initial Holder's PCT Common Stock. There can be no assurance, however, that
PCT will not have earnings and profits for the year ended December 31, 1996. If
that were the case, the receipt of the Distribution would be taxable as ordinary
dividend income to the extent of an Initial Holder's pro rata share of PCT's
current and accumulated earnings and profits allocable to the Distribution of
the VSRs. Thereafter, the Distribution would be a tax-free return of capital
that would reduce the recipient Initial Holder's basis in its PCT Common Stock
and, to the extent the Distribution were to exceed the Initial Holder's basis in
the PCT Common Stock, would be treated as capital gain from the sale or exchange
of the Initial Holder's PCT Common Stock.
Corporate Initial Holders. The amount of the Distribution to a corporate
Initial Holder treated as a dividend generally will be eligible for the 70
percent dividends-received deduction available to domestic corporations.
However, a corporate Initial Holder would not be entitled to the
dividends-received deduction in respect of the amount of the Distribution
treated as a dividend, to the extent that the Distribution is with respect to
shares of PCT Common Stock for which such Initial Holder has not already
established a holding period of at least 46 days during which, in general terms,
such Initial Holder has not diminished its risk of loss with respect to such
share (the 'DRD Holding Period').
In general, the following rules apply for determining the days that are
counted toward the DRD Holding Period. The day the share of stock is disposed of
is included, but the day the share is acquired and any day more than 45 days
after the day the share becomes ex-dividend are not included. Also excluded for
this purpose are days during which the holder of the share (i) has an option to
sell, is contractually obligated to sell, or has an open short sale of, stock or
securities substantially identical to such share, (ii) is the grantor of a call
option on stock or securities substantially identical to such share, or (iii)
has diminished risk of loss on such share by holding, or is obligated to make
payments related to dividends received on such share with respect to, a
position(s) in property that is substantially similar or related to such share.
These rules are intricate, and Initial Holders are urged to consult their tax
advisor in this regard.
Since a VSR may be a position in property that is substantially similar or
related to a share of PCT Common Stock, an Initial Holder that receives a VSR in
respect of a share of PCT Common Stock for which it has not established the DRD
Holding Period possibly may not be entitled to include any days on which it
holds a VSR toward establishing the DRD Holding Period in respect of such share.
The receipt of a VSR on a share of PCT Common Stock for which the DRD Holding
Period has not been established may therefore render the Initial Holder of that
share ineligible for the dividends-received deduction in respect of dividend
income on that share, including dividend income arising from the receipt of the
VSR in respect of that share, until such time as the Initial Holder establishes
the DRD Holding Period in respect of such share.
In the event that the Distribution constitutes an 'extraordinary dividend'
within the meaning of Section 1059 of the Code, a corporate Initial Holder would
be required to reduce its tax basis for its shares of PCT Common Stock upon
which it received the Distribution by an amount equal to the portion of such
extraordinary dividend that is excluded from income pursuant to the
dividends-received deduction (generally
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70%). If the amount of any such required reduction in basis exceeds such
corporate Initial Holder's tax basis for such shares, the excess would be
treated as gain from the sale or exchange of such shares. A dividend with
respect to a share of PCT Common Stock would be an extraordinary dividend if
such share has not been held by the Initial Holder for at least two years before
the dividend announcement date and the amount of dividends received on that
share having ex-dividend dates within an 85-day period equals or exceeds 10
percent, or the amount of dividends received on that share having ex-dividend
dates within a one-year period equals or exceeds 20 percent, of the higher of
the fair market value or the tax basis of that share. Thus, a corporate Initial
Holder that has not held its shares of PCT Common Stock as of the dividend
announcement date for the Distribution for at least two years (with application
of the rules for determining the days that are counted in such corporate Initial
Holder's DRD Holding Period, discussed above), should consider the application
of this rule to their particular circumstance.
In addition, Section 246A of the Code will reduce or eliminate the
dividends-received deduction in respect of dividends received on stock that is
debt financed.
Tax Basis and Holding Period of the VSRs
Initial Holders will have a tax basis in a VSR received pursuant to the
Distribution equal to the VSR's fair market value on the date of the
Distribution and, subject to the straddle rules described below, a holding
period in such VSR that begins on the day following the date of the
Distribution.
Treatment of the VSRs as Cash Settlement Put Options
Based upon the Service's position in Revenue Ruling 88-31, 1988-1 C.B. 302,
the VSRs should be characterized as cash settlement put options. Therefore, an
Initial Holder will realize capital gain or loss upon the settlement, lapse or
sale or other taxable disposition of a VSR in an amount equal to the difference
between the amount realized (equal to the sum of the cash received and the fair
market value of any VSR Notes received), if any, and such Initial Holder's tax
basis in the VSR. Such capital gain or loss will be long term if the holding
period for the VSR is more than one year. Although the issue is not entirely
clear, some or all of any loss realized upon the settlement, lapse or sale or
other taxable disposition of a VSR may be deferred, and an Initial Holder's
holding period may be tolled, under the straddle rules described below.
Settlement of VSRs with VSR Notes
To the extent an Initial Holder receives VSR Notes and, possibly, cash in
settlement of the VSRs, such Initial Holder's amount realized will equal the sum
of the amount of cash received and the fair market value of the VSR Notes
received. In such a case, the Initial Holder will have a tax basis in the VSR
Notes equal to their fair market value on the day that they are received and a
holding period that begins the following day.
In general, an Initial Holder who receives any VSR Notes in settlement of
its VSRs will recognize ordinary interest income upon payment or accrual of
interest with respect to the VSR Notes in accordance with the Initial Holder's
method of accounting. In addition, the VSR Notes will be treated as having been
issued with original issue discount ('OID') if the ratio of the VSR Notes'
'stated redemption price at maturity' over their issue price exceeds a de
minimis amount equal to 1/4 of 1 percent of the VSR Notes' stated redemption
price at maturity multiplied by the number of complete years to their maturity.
For these purposes, in general, a VSR Note's (i) issue price is equal to the
fair market value of the VSRs exchanged therefor on the day of the settlement
less any cash received in the settlement; (ii) stated redemption price at
maturity is equal to its face value; and (iii) OID is equal to the difference
between its stated redemption price at maturity and its issue price.
If the VSR Notes are issued with OID, Initial Holders must include such OID
in gross income as ordinary interest income as it accrues under an economic
accrual method of accounting using semiannual compounding. In general, such
income must be included in income in advance of the receipt of the cash
representing that income.
If an Initial Holder sells a VSR Note, the Initial Holder will recognize
gain or loss in an amount equal to the difference between the amount realized on
the sale and such Initial Holder's adjusted tax basis in the VSR Note. An
Initial Holder's adjusted tax basis in a VSR Note is equal to its cost basis
increased by any OID previously included by such Initial Holder in gross income
with respect to such VSR Note. Any such gain or loss will be capital gain if the
Initial Holder held the VSR Note as a capital asset, except for gain
attributable to any OID that has not previously accrued. Moreover, any such
capital gain or loss will be long term capital gain or loss if such Initial
Holder held the VSR Note for more than one year.
68
<PAGE>
Straddle Rules
Section 1092 of the Code provides special rules concerning the recognition
of losses and the determination of holding periods with respect to positions
that are part of a 'straddle' (the 'straddle rules'). The term 'straddle' means
offsetting positions with respect to 'personal property.' The term 'position'
means an interest (including an option) in personal property. The term 'personal
property' generally includes stock only if such stock is part of a straddle
where one of the offsetting position is either (i) an option with respect to
such stock or substantially identical stock or securities, or (ii) a position
with respect to substantially similar or related property (other than stock)
(for example, a debt instrument). Positions are treated as 'offsetting' where
the risk of loss from holding one position is substantially diminished by reason
of holding the other position.
In the event that the VSRs are treated as cash settlement put options in
accordance with Revenue Ruling 88-31, the holding of a VSR and a share of PCT
Common Stock will be a straddle within the meaning of the straddle rules. If a
VSR and a share of PCT Common Stock were a straddle within the meaning of the
straddle rules, then a loss realized in a taxable year by an Initial Holder upon
the settlement, lapse or sale or other taxable disposition of a VSR, or the sale
or other taxable disposition of a share of PCT Common Stock, may be recognized
only to the extent that it exceeds the unrecognized gain (as of the end of such
year) with respect to the retained offsetting position or any successor position
thereto. The unrecognized portion of such loss would then generally be deferred
and would be treated as a loss incurred in a later taxable year, the recognition
of which may continue to be subject to the straddle rules.
The straddle rules can also result in elimination or suspension of the
holding period for property that is part of a straddle. If a share of PCT Common
Stock and a VSR comprise a straddle, the following rules will apply to determine
whether long term or short term capital gain or loss is realized upon the sale
or other taxable disposition of a share of PCT Common Stock or upon the
settlement, lapse or sale or other taxable disposition of a VSR. If an Initial
Holder has a long term holding period for a share of PCT Common Stock (i.e. a
holding period in excess of one year) at the time it receives a VSR in respect
of such share, then (i) the long term period for such share will be retained and
(ii) the holding period of the VSR received in the Distribution will begin only
at the time such VSR is no longer part of a straddle. In such a case, however, a
special rule provides that any capital loss recognized by the Initial Holder
upon a sale of the VSR will treated as long term, regardless of the Initial
Holder's holding period for the VSR. In certain circumstances, a similar rule
may apply if an Initial Holder later acquires a share of PCT Common Stock that
is treated as part of a straddle with a VSR.
If an Initial Holder does not have a long term holding period for a share
of PCT Common Stock at the time a VSR in respect of such share is received in
the Distribution, then the holding period for such share before the receipt of
the VSR is disregarded, and instead the holding period for such share and the
VSR received in the Distribution will begin at the time such VSR or share is no
longer part of a straddle. As a result of this rule, any capital gain or loss
recognized upon the sale or other taxable disposition of such share or the
settlement, lapse or sale or other taxable disposition of the VSR, which ever
occurs first, will be short term, and any capital gain or loss recognized upon
the settlement, lapse or sale or other taxable disposition of the second
position will be long term or short term depending upon whether a long term
holding period has been acquired for the second position since the lapse,
settlement, sale or other disposition of the first position.
In addition, Section 263(g) of the Code disallows a deduction for interest
and carrying charges allocable to a position that is a part of a straddle and
requires such amounts to be added to the tax basis of such position.
Backup Withholding
An Initial Holder may be subject to U.S. backup withholding and information
reporting requirements on (i) the portion, if any, of the VSRs that constitute a
dividend, (ii) consideration received upon the settlement, lapse or sale or
other disposition of a VSR, and (iii) payments of interest and principal on VSR
Notes, unless such Initial Holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (b)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules.
Backup withholding is not an additional tax. Any amount paid as backup
withholding will be creditable against the Initial Holder's tax liability.
69
<PAGE>
LEGAL MATTERS
Certain legal matters, including certain tax matters, will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Skadden, Arps, Slate, Meagher & Flom LLP has from time to time represented, and
may continue to represent, Mafco Holdings and certain of its affiliates
(including the Company) in connection with certain legal matters. Joseph H.
Flom, a partner in the firm of Skadden, Arps, Slate, Meagher & Flom LLP, is a
director of Revlon Group Incorporated, a wholly owned subsidiary of Mafco
Holdings.
EXPERTS
The consolidated financial statements and schedules of Mafco Consolidated
Group Inc. and subsidiaries at December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995, appearing in this Prospectus
and Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein which,
as to the year 1995, is based in part on the report of Arthur Andersen LLP,
independent public accountants. The financial statements referred to above are
included in reliance upon such reports and upon the authority of such firms as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company and PCT are subject to the informational requirements of the
Exchange Act. In accordance with the Exchange Act, the Company files proxy
statements, reports and other information with the Commission. This filed
material can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Midwest
Regional Office (Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661) and Northeast Regional Office (7 World Trade Center, 13th Floor,
New York, New York 10048). Copies of such material can be obtained by mail from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Company Common
Stock and the PCT Common Stock listed on the NYSE and such material is available
for inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005. The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
The Company has filed a registration statement on Form S-1 containing this
Prospectus (as amended from time to time, the 'Registration Statement') with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Copies of the Registration Statement are
available from the Commission, upon payment of prescribed rates. For further
information, reference is made to the Registration Statement and the exhibits
filed therewith. Statements contained in this Prospectus or in any document
incorporated by reference in this Prospectus relating to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994............................................... F-3
Consolidated Statements of Earnings for the three years ended December 31, 1995, 1994 and 1993............. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the three years ended December 31, 1995, 1994
and 1993................................................................................................. F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1995, 1994 and 1993........... F-6
Notes to Consolidated Financial Statements................................................................. F-7
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of September 29, 1996.............................................. F-27
Unaudited Consolidated Statements of Earnings for the nine month periods ended September 29, 1996 and
October 1, 1995.......................................................................................... F-28
Unaudited Consolidated Statements of Cash Flows for the nine month periods ended September 29, 1996 and
October 1, 1995.......................................................................................... F-29
Notes to Unaudited Consolidated Financial Statements....................................................... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mafco Consolidated Group Inc.
We have audited the accompanying consolidated balance sheets of Mafco
Consolidated Group Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of earnings, stockholders' equity (deficit)
and cash flows for each of the three years in the 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. The financial statements of Power Control
Technologies Inc. (a corporation in which the Company has a 29% common equity
interest), have been audited by other auditors whose report has been furnished
to us; insofar as our opinion on the consolidated financial statements relates
to data included for Power Control Technologies Inc., it is based solely on
their report.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Mafco Consolidated
Group Inc. and subsidiaries at December 31, 1995 and 1994 and the consolidated
results of their earnings and their consolidated cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 9, 1996
F-2
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 93,417 $ 9,323
Notes and trade receivables, net........................................................ 25,211 21,699
Inventories............................................................................. 84,494 85,456
Prepaid expenses and other.............................................................. 25,610 3,894
-------- --------
Total current assets................................................................. 228,732 120,372
Property, plant and equipment, net........................................................ 46,052 47,983
Pension asset............................................................................. 57,245 --
Investment in PCT preferred and common stock.............................................. 55,547 --
Trademarks, net........................................................................... 32,021 32,887
Intangible assets related to businesses acquired, net..................................... 62,770 69,037
Other assets.............................................................................. 78,232 12,572
-------- --------
$560,599 $282,851
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt and short term borrowings............................. $ 10,960 $ 8,134
Accounts payable........................................................................ 9,595 9,945
Accrued expenses and other.............................................................. 55,515 19,366
-------- --------
Total current liabilities............................................................ 76,070 37,445
Long-term debt............................................................................ 218,678 242,057
Other liabilities......................................................................... 162,130 14,149
Stockholders' equity (deficit):
Common stock of Mafco Consolidated Group Inc., par value $.01 per share, 250,000,000
shares authorized, 24,722,190 issued and outstanding................................. 247 --
Common stock of Flavors Holdings, par value $1, 2,000 shares authorized, 1,000 shares
issued and outstanding............................................................... -- 1
Common stock of Cigar Parent, par value $1, 1,000 shares authorized, issued and
outstanding.......................................................................... -- 1
Additional paid-in-capital.............................................................. 167,105 43,290
Accumulated deficit..................................................................... (35,605) (55,018)
Currency translation adjustment......................................................... 1,877 926
Treasury stock at cost.................................................................. (29,903) --
-------- --------
Total stockholders' equity (deficit)................................................. 103,721 (10,800)
-------- --------
$560,599 $282,851
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................................... $ 261,126 $ 226,879 $ 202,578
Cost of sales........................................................... 154,022 135,967 124,949
---------- ---------- ----------
Gross profit............................................................ 107,104 90,912 77,629
Selling, general and administrative expenses............................ 51,360 37,906 33,933
---------- ---------- ----------
Operating income........................................................ 55,744 53,006 43,696
Interest expense........................................................ (27,174) (27,547) (26,519)
Interest and investment income.......................................... 5,958 242 75
Amortization of deferred charges and bank fees.......................... (2,095) (2,044) (2,009)
Equity in loss from continuing operations and preferred dividends of
PCT................................................................... 727 -- --
Other income (expense), net............................................. (366) 156 244
---------- ---------- ----------
Income from continuing operations before income taxes and extraordinary
item.................................................................. 32,794 23,813 15,487
Provision for income taxes.............................................. (9,703) (7,478) (5,523)
---------- ---------- ----------
Income from continuing operations....................................... 23,091 16,335 9,964
Discontinued operations:
Equity in discontinued operations of PCT, net of
income taxes of $712............................................... 1,322 -- --
---------- ---------- ----------
Income from continuing operations....................................... 24,413 16,335 9,964
Extraordinary item, net of tax benefit of $1,698........................ -- (2,667) --
---------- ---------- ----------
Net income............................................................ $ 24,413 $ 13,668 $ 9,964
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per share:
Income from continuing operations..................................... $ 1.06 $ 0.82 $ 0.50
Discontinued operations............................................... 0.06 -- --
Extraordinary item.................................................... -- (0.13) --
---------- ---------- ----------
Net income......................................................... $ 1.12 $ 0.69 $ 0.50
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding.............................. 21,794,117 19,777,752 19,777,752
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON COMMON
COMMON STOCK STOCK
STOCK OF MAFCO OF OF ADDITIONAL CURRENCY
CONSOLIDATED FLAVORS CIGAR PAID-IN ACCUMULATED TRANSLATION TREASURY
GROUP HOLDINGS PARENT CAPITAL DEFICIT ADJUSTMENT STOCK TOTAL
-------------- ------ ------ ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992........................ $ -- $ 1 $-- $ 10,133 $ (78,338) $ 582 $ -- $(67,622)
Net income.................... 9,964 9,964
Currency translation
adjustment.................. (616) (616)
Other......................... (312) (312)
Net contributions............. 1 33,157 33,158
----- -- ------ ---------- ----------- ---------- -------- --------
Balance at December 31,
1993........................ -- 1 1 43,290 (68,686) (34) -- (25,428)
Net income.................... 13,668 13,668
Currency translation
adjustment.................. 960 960
----- -- ------ ---------- ----------- ---------- -------- --------
Balance at December 31,
1994........................ -- 1 1 43,290 (55,018) 926 -- (10,800)
Net income.................... 24,413 24,413
Currency translation
adjustment.................. 951 951
Dividends..................... (9,000) (5,000) (14,000)
Abex merger, net of
transaction costs........... 247 (1) (1) 71,197 71,442
Treasury stock................ (29,903) (29,903)
Retirement of value support
rights...................... 61,618 61,618
----- -- ------ ---------- ----------- ---------- -------- --------
Balance at December 31,
1995........................ $247 $ -- $-- $167,105 $ (35,605) $1,877 $(29,903) $103,721
----- -- ------ ---------- ----------- ---------- -------- --------
----- -- ------ ---------- ----------- ---------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................................... $24,413 $13,668 $ 9,964
------- ------- --------
Adjustments to reconcile net income to net cash flows from operating activities:
Extraordinary item.............................................................. 4,365
Depreciation and amortization................................................... 10,483 10,407 13,043
Earnings of affiliates (greater)/less than distributions........................ (1,200) (260) 266
Increase in notes and trade receivable.......................................... (4,483) (1,952) (1,136)
Increase in restricted deposits................................................. (16,623)
Decrease (increase) in inventories.............................................. 1,449 5,503 (8,857)
(Decrease) increase in accounts payable......................................... (2,353) 912 (2,389)
(Decrease) increase in accrued expenses and other, net.......................... (5,582) 173 1,371
------- ------- --------
(18,309) 19,148 2,298
------- ------- --------
Net cash flows from operating activities........................................ 6,104 32,816 12,262
------- ------- --------
Cash flows from investing activities:
Cash acquired in Abex Merger, net of transaction costs.......................... 174,837
Acquisition of Cigar, net of cash acquired...................................... (179,056)
Capital expenditures............................................................ (3,318) (2,686) (2,273)
Purchase of PCT common stock.................................................... (33,653)
Proceeds from the sale of fixed assets and marketable securities................ 3,318 6,232 100
Other, net...................................................................... (7) (8) 198
------- ------- --------
Net cash flows from investing activities........................................ 141,177 3,538 (181,031)
------- ------- --------
Cash flows from financing activities:
Issuance of long-term debt...................................................... 50,000 156,619
Repayment of long-term debt..................................................... (5,725) (57,439) (5,055)
Repayment of revolving loans, net............................................... (14,872) (19,100) (9,419)
Purchase of Company Common Stock................................................ (29,903)
Prepayment premiums and expenses on repaid borrowings........................... (1,600)
Debt issuance costs paid........................................................ (2,344) (2,489)
Dividends paid.................................................................. (14,000)
Due to affiliates and other borrowings.......................................... 1,233 290 (824)
Net contribution from parent.................................................... 30,000
------- ------- --------
Net cash flows from financing activities........................................ (63,267) (30,193) 168,832
------- ------- --------
Effect of exchange rate changes on cash......................................... 80 64 (35)
------- ------- --------
Net increase in cash and cash equivalents....................................... 84,094 6,225 28
Cash and cash equivalents at beginning of period................................ 9,323 3,098 3,070
------- ------- --------
Cash and cash equivalents at end of period...................................... $93,417 $ 9,323 $ 3,098
------- ------- --------
------- ------- --------
Supplemental schedule of cash flow information
Interest paid................................................................. $28,278 $27,128 $ 26,099
Income taxes paid, net of refunds............................................. $ 6,789 $ 7,731 $ 1,056
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
On June 15, 1995, stockholders of Abex Inc. ('Abex') approved and adopted
an Agreement and Plan of Merger dated as of January 6, 1995 (as amended, the
'Merger Agreement') by and between Abex and Mafco Holdings Inc. ('Mafco
Holdings') and certain related agreements. Pursuant to the Merger Agreement and
related agreements, on June 15, 1995, the following occurred: (i) the transfer
(the 'Transfer'), to a subsidiary of Abex of substantially all of Abex's
consolidated assets and liabilities, other than those relating principally to
its Abex NWL Aerospace division and such division's overseas subsidiaries which
continue to be owned indirectly by Power Control Technologies Inc. ('PCT'), (ii)
the recapitalization of the capital stock of PCT into shares of common stock,
par value $.01 per share (the 'PCT Common Stock') and shares of Series A 8%
Convertible Redeemable Preferred Stock (the 'PCT Preferred Stock') with an
aggregate liquidation preference of $20.0 million and initially convertible into
2.5 million shares of PCT Common Stock (representing approximately 11% of the
shares of PCT Common Stock outstanding on a fully diluted basis, excluding
employee stock options), and (iii) the merger (the 'Merger') of Abex and C&F
Merger Inc. ('C&F'), a wholly owned subsidiary of Mafco Holdings which owned
indirectly 100% of the outstanding stock of Consolidated Cigar Corporation
('Consolidated Cigar'), and Mafco Worldwide Corporation ('Mafco Worldwide') with
Abex, which was renamed Mafco Consolidated Group Inc. ('MC Group' or the
'Company'), as the surviving corporation in the Merger. As a result of the
Merger, the Company acquired certain non-aerospace assets and assumed certain
liabilities of Abex as well as acquired an interest in the PCT Preferred Stock.
PCT, which became a separate publicly-traded company, continued to operate the
aerospace business.
Pursuant to the Merger, Abex's stockholders immediately prior to the
effective time of the Merger (the 'Effective Time'), other than stockholders who
perfected appraisal rights available under the Delaware General Corporation Law
in respect of their shares ('Dissenting Shares'), received for each share of
common stock, par value $.01 per share, of Abex (the 'Abex Common Stock') held,
in cancellation thereof, (a) one-quarter of one share of common stock of the
Company, par value $.01 per share (the 'MC Group Common Stock') and, where
applicable, cash in lieu of a fractional share of MC Group Common Stock, (b) one
share of PCT Common Stock, and (c) one value support right ('Abex VSR') issued
by MVR Inc. ('MVR'), a wholly-owned subsidiary of the Company, and guaranteed by
the Company. Shares of MC Group Common Stock were also issued upon cancellation
of restricted units of Abex (the 'Restricted Units') outstanding under Abex's
Restricted Unit Plan for Non-Employee Directors immediately prior to the
Effective Time, and shares of PCT Common Stock were also issued upon
cancellation of Restricted Units and stock appreciation rights of Abex (the
'SARs') outstanding under the 1992 Stock Plan for Executive Employees of Abex
and its Subsidiaries immediately prior to the Effective Time. On an aggregate
basis, disregarding any Dissenting Shares, Abex's stockholders and the holders
of Restricted Units and SAR's received 100% of the shares of PCT Common Stock
and Abex VSRs; Abex's stockholders and the holders of Restricted Units received
20% of the shares of MC Group Common Stock and Mafco Consolidated Holdings Inc.
('MCH'), a wholly owned subsidiary of Mafco Holdings, received 80% of the shares
of MC Group Common Stock, in each case the percentages reflecting the amount
outstanding immediately following completion of the Merger.
As part of the Merger Agreement, Mafco Worldwide paid a dividend of $9.0
million and Consolidated Cigar paid a dividend of $5.0 million which was
distributed to Mafco Holdings immediately before the Merger.
MC Group is a holding company owning directly or indirectly 100% of
Consolidated Cigar and Mafco Worldwide, all of the outstanding shares of PCT
Preferred Stock and a common equity interest in PCT. The Merger was accounted
for as a purchase of certain assets and the assumption of certain liabilities of
Abex, with C&F treated as the acquiror for accounting purposes. The assets
acquired and liabilities assumed by the MC Group were recorded at their
estimated fair market value, with the difference recorded as a credit to
additional paid-in capital. Beginning June 15, 1995, the date of the Merger, the
financial statements of the Company reflect the consolidated results of Flavors
Holdings, Cigar Parent and the assets and liabilities of Abex acquired in the
Merger. For all periods from March 3, 1993, the first date that Flavors Holdings
and Cigar Parent were under the common control of Mafco Holdings, to June 15,
1995, the financial statements reflect the combined results of
F-7
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BACKGROUND AND BASIS OF PRESENTATION--(CONTINUED)
Flavors Holdings Inc. ('Flavors Holdings') and Consolidated Cigar (Parent)
Holdings Inc. ('Cigar Parent'). The results of Flavors Holdings or its
predecessor are reflected for earlier periods. In connection with the Merger,
the Company recorded the assets acquired and liabilities assumed at their
estimated fair market value, with the difference recorded as a credit to
additional paid in capital, as follows (in millions):
<TABLE>
<S> <C>
Cash, net of transaction expenses of $6.7...................................................... $174.8
Other current assets........................................................................... 12.9
Pension asset.................................................................................. 60.8
Other long term assets......................................................................... 98.5
Accrued expense and other...................................................................... 37.2
Abex VSR obligation............................................................................ 62.0
Other liabilities.............................................................................. 176.4
Stockholders' equity........................................................................... 71.4
</TABLE>
The Abex VSRs were designed to help ensure that, within a stated time
period and subject to certain limitations, the combined market values of the
securities received in the Merger by Abex's stockholders was at least $10 per
share. The Abex VSRs were valued based on 20,667,142 Abex VSRs issued at the
maximum payment per Abex VSR of $3.00. The Abex VSRs expired in accordance with
their terms on September 19, 1995. As a result of the purchase of Abex VSRs by
the Company and the expiration of all the Abex VSRs, stockholders' equity
increased by $61.6 million.
On December 11, 1992, Triple C, Mafco Holdings and its wholly owned
subsidiary Consolidated Cigar Holdings Inc. ('CCC Holdings'), entered into an
agreement and plan of merger (the 'Cigar Merger Agreement'), pursuant to which
CCC Holdings was merged into Triple C with Triple C being the surviving
corporation. CCC Holdings is a wholly owned subsidiary of Cigar Parent. Pursuant
to the merger which was consummated on March 3, 1993, Mafco Holdings acquired
all the outstanding shares of Triple C common stock and warrants to purchase
Triple C common stock (the '1993 Acquisition'), for an aggregate purchase price
of approximately $188.0 million, including fees and expenses. Immediately
following the 1993 Acquisition, Triple C merged into Consolidated Cigar with
Consolidated Cigar being the surviving corporation. As a result, Consolidated
Cigar became an indirect wholly owned subsidiary of Mafco Holdings.
The Company currently operates in the tobacco products business. Tobacco
products include cigars and pipe tobacco products manufactured and distributed
by Consolidated Cigar and licorice extract and other flavoring agents
manufactured and distributed by Mafco Worldwide.
The financial statements have been restated to reflect the Company's equity
in the discontinued operations of PCT. Certain financial statement items and
financial statement disclosures for prior years have been reclassified to be
comparable with the 1995 presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all material intercompany accounts and
transactions. Investments of less than 50% but greater than 20% in affiliates
are accounted for on the equity method.
F-8
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition:
Sales are recorded as products are shipped to customers. Allowances for
sales returns, customer incentive programs and promotions are recorded at the
time of sale.
Cash and Cash Equivalents:
Cash equivalents are considered to be all highly liquid investments with
original maturities of three months or less when purchased and exclude
restricted cash.
Restricted Cash:
Restricted cash of $16.6 million included in other assets at December 31,
1995 reflects segregated cash held for the benefit of certain parties to cover
obligations related to certain prior dispositions and certain environmental and
insurance matters.
Inventories:
Inventories, with the exception of leaf tobacco, are stated at the lower of
cost (using the first-in, first-out method) or market value. Leaf tobacco is
carried at the lower of average cost or market. In accordance with generally
recognized industry practice, all leaf tobacco inventory is classified as
current although portions of such inventory, because of the duration of the
aging process, ordinarily would not be utilized within one year.
Property, Plant and Equipment:
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets ranging from
4 to 20 years. Leasehold improvements are amortized over their estimated useful
lives or the terms of the leases, whichever is shorter. Repairs and maintenance
are charged to operations as incurred, and expenditures for additions and
improvements are capitalized.
Trademarks:
Trademarks consist of registered and unregistered tradenames of cigars or
other tobacco brands which are being amortized on a straight-line basis over 40
years.
Intangible Assets Related to Businesses Acquired:
Intangible assets related to businesses acquired primarily represent the
excess of cost over fair value of net assets acquired in the 1993 Acquisition
which is being amortized on a straight-line basis over 40 years, consistent with
industry practice. Accumulated amortization of intangible assets related to
businesses acquired was $5.3 million and $3.6 million in 1995 and 1994,
respectively.
Impairment of Long-Lived Assets:
In March 1995, Statement of Financial Accounting Standards No. 121 ('SFAS
121'), 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of' was issued. SFAS 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. SFAS 121
is effective for financial statements for fiscal years beginning after December
15, 1995, and therefore the Company will adopt SFAS 121 in the first quarter of
1996. The Company does not believe the effect of the adoption will be material.
F-9
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Financial Instruments:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's customers are geographically dispersed but are concentrated in the
tobacco industry. The Company historically has had no material losses on its
accounts receivable from customers in the tobacco industry in excess of
allowances provided. Probable bad debt losses have been provided for in the
allowance for doubtful accounts.
The Company entered into interest rate swap agreements to modify the
interest characteristics of certain of its outstanding debt from a fixed to a
floating rate basis. These agreements involve the receipt of fixed rate amounts
in exchange for floating rate interest payments over the life of the agreement
without an exchange of the underlying principal amount. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest expense related to the debt. The related amount payable
to or receivable from counterparties is included in accrued expenses. To the
extent previous interest rate swap agreements have been terminated, the
resulting gain is being recognized over the remaining original life of the
terminated agreements. The fair values of the swap agreements are not recognized
in the financial statements.
The Company enters into forward exchange contracts to hedge certain
receivables and firm sales commitments denominated in foreign currencies. The
effects of movements in currency exchange rates on these instruments are
recognized when the related operating revenue is recognized. Realized gains and
losses on foreign currency contracts are included in the item to which it
relates and recognized in earnings when the future sales occur. At December 31,
1995 and 1994, the Company had forward exchange contracts, all having maturities
of less than one year, in the amount of $418,000 and $306,000, respectively. The
fair value of the Company's foreign exchange contracts are estimated based on
quoted market prices of comparable agreements, adjusted through interpolation
where necessary for maturity differences. The fair value of the Company's
foreign currency contracts approximate the carrying amounts at December 31, 1995
and 1994.
Foreign Currency Translation:
Assets and liabilities of foreign operations are translated into U.S.
dollars at the rates of exchange in effect at the balance sheet date. Income and
expense items are generally translated at the average exchange rates prevailing
during the period presented. Gains and losses resulting from foreign currency
transactions are included in the results of operations and those resulting from
translation of financial statements are recorded as a component of stockholders'
equity (deficit).
Earnings Per Share:
Earnings per share has been computed using the weighted average number of
common shares outstanding. For periods prior to the Merger, the weighted average
number of shares outstanding reflect the number of shares issued to CFPH in the
Merger. The dilutive effect of options outstanding under the Company's stock
option plan is not material.
Stock Based Compensation:
The Company may grant stock options and stock appreciation rights
representing a fixed number of shares to selected employees. The Company
accounts for such grants in accordance with APB Opinion No. 25 ('APB 25'),
'Accounting for Stock Issued to Employees', which requires compensation expense
for the Company's options to be recognized only if the market price of the
underlying stock exceeds the exercise price on the date of grant. Accordingly,
the Company has not recognized compensation expense for options granted in 1995.
F-10
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
During 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ('SFAS 123'), 'Accounting for Stock-Based Compensation,' which
establishes a fair value based method of accounting for compensation cost
related to stock option plans and other forms of stock based compensation plans
as an alternative to the intrinsic value based method of accounting defined
under APB 25. Companies that do not elect the new method of accounting for 1996
will be required to provide pro forma disclosures as if the fair value based
method had been applied for the current period and prior comparable period. The
Company intends to adopt SFAS 123 by providing the required pro forma
disclosures.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates. The most
significant estimates included in the preparation of the financial statements
are related to actuarial assumptions used in the determination of the pension
asset and liability, postretirement benefit liability and the valuation of
deferred tax assets.
3. INVESTMENT IN PCT AND PURCHASE OF TREASURY STOCK
On July 17, 1995, pursuant to a securities purchase agreement dated as of
June 26, 1995, MC Group purchased from Libra Invest & Trade Ltd. ('Libra') for
approximately $63.9 million, including expenses, 5,939,400 shares of PCT Common
Stock, 5,939,400 Abex VSRs, and 1,484,850 shares of MC Group Common Stock (the
'Libra Purchase'). Of the total purchase price of approximately $63.9 million,
approximately $29.9 million was allocated to the purchase of 1,484,850 shares of
MC Group Common Stock and is classified as treasury stock. In connection with
such purchase, the Company entered into an agreement with PCT which, subject to
certain exceptions, will limit the Company's ability to dispose of its shares of
PCT Preferred Stock and PCT Common Stock for a period of three years. As a
result of this transaction, the Company's investment in PCT increased to
approximately 29% of PCT Common Stock (36% on a fully diluted basis). On July
25, 1995, the Company filed a registration statement on Form S-3 with the
Securities and Exchange Commission to register for sale 1,484,850 shares of its
common stock.
The Company accounts for its investment in PCT on the equity method. At
December 31, 1995, PCT had total assets, total liabilities, redeemable preferred
stock and stockholders' equity of $51.3 million, $8.8 million, $20.0 million and
$22.5 million, respectively. For the year ended December 31, 1995, PCT had a
loss from continuing operations, income from discontinued operations and net
income of $4.1 million, $16.9 million and $11.2 million, respectively. At
December 31, 1995, the market value of PCT Common Stock owned by the Company was
$47.5 million. The difference between the carrying amount of the investment in
PCT Common Stock and the amount of the Company's underlying equity in net assets
of PCT is $28.0 million, which is considered goodwill and is amortized over a
period of 30 years.
On January 15, 1996, PCT announced that it had agreed to sell its entire
operations, including substantially all its assets, to Parker Hannifin
Corporation, subject to approval of the stockholders of PCT and the satisfaction
of certain other conditions. The purchase price to be paid, which is subject to
adjustment depending on the level of the net assets at closing, is expected to
be approximately $200.5 million in cash (subject to adjustment) and the
assumption of certain liabilities related to PCT's aerospace business. If the
proposed sale is completed, the cash would be retained by PCT to permit its
investment over time in one or more operating businesses. The transaction is
expected to close in April 1996.
4. PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information gives effect to the Merger,
beginning January 1, 1994, and reflects an increase in administrative expenses;
the increase in estimated net pension income related to the
F-11
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PRO FORMA FINANCIAL INFORMATION--(CONTINUED)
overfunded pension plan and other post-retirement benefits expense related to
the other post-retirement benefit plans retained by the Company after the
Merger; interest accretion related to certain liabilities assumed by
MC Group in connection with the Merger; dividend income on the PCT Preferred
Stock; the tax effect of the pro forma adjustments; and the issuance of
approximately 24.7 million shares of MC Group Common Stock. The pro forma
financial information does not necessarily reflect the results of operations of
the Company and its subsidiaries that actually would have resulted had the
Merger and related transactions been consummated on January 1, 1994.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Net sales....................................................................... $261,126 $226,879
Income before extraordinary item................................................ 24,013 13,735
Net income...................................................................... 24,013 11,068
Income before extraordinary item per share...................................... 1.00 0.56
Net income per share............................................................ 1.00 0.45
</TABLE>
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials..................................................................... $59,742 $58,721
Work-in-progress.................................................................. 1,988 1,790
Finished goods.................................................................... 22,764 24,945
------- -------
$84,494 $85,456
------- -------
------- -------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................................. $ 2,259 $ 2,232
Buildings........................................................................ 19,814 18,980
Machinery and equipment.......................................................... 47,888 45,691
Furniture and fixtures........................................................... 2,190 1,994
Leasehold improvements........................................................... 276 276
Construction-in-progress......................................................... 640 250
-------- --------
73,067 69,423
Accumulated depreciation......................................................... (27,015) (21,440)
-------- --------
$ 46,052 $ 47,983
-------- --------
-------- --------
</TABLE>
Depreciation expense was $5.5 million, $5.5 million and $4.8 million for
the years ended December 31, 1995, 1994 and 1993, respectively.
F-12
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Employee benefits, severance and other compensation............................... $21,614 $ 7,207
Interest.......................................................................... 4,737 5,475
Taxes............................................................................. 219 1,557
Indemnification and other tax reserve (see Note 9)................................ 11,500 --
Other............................................................................. 17,445 5,127
------- -------
$55,515 $19,366
------- -------
------- -------
</TABLE>
8. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Casualty reserves (see Note 15).................................................. $ 11,583 --
Employee benefits and other compensation......................................... 72,916 --
Indemnification and other tax reserve (see Note 9)............................... 15,900 --
Other............................................................................ 61,731 $14,149
-------- -------
$162,130 $14,149
-------- -------
-------- -------
</TABLE>
9. INCOME TAXES
Information pertaining to consolidated income before income taxes and
extraordinary item and the applicable provision for income taxes, excluding
amounts related to the extraordinary item, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before income taxes:
Domestic............................................................... $13,437 $ 8,567 $ 4,677
Foreign (includes Puerto Rico)......................................... 19,357 15,246 10,810
------- ------- -------
$32,794 $23,813 $15,487
------- ------- -------
------- ------- -------
Provision (benefit) for income taxes:
Current:
Federal.............................................................. $ 2,827 $ 3,477 $ 3,624
State and local...................................................... 1,442 809 747
Foreign.............................................................. 1,941 2,036 1,321
------- ------- -------
6,210 6,322 5,692
Deferred:
Federal.............................................................. 2,794 963 (605)
State and local...................................................... 108 174 (92)
Foreign.............................................................. 591 19 528
------- ------- -------
$ 9,703 $ 7,478 $ 5,523
------- ------- -------
------- ------- -------
</TABLE>
F-13
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
The effective tax rate on consolidated income before income taxes and
extraordinary item varies from the current statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate.................................................................... 35.0% 35.0% 35.0%
Foreign income not subject to statutory tax rate.................................. (7.7) (7.4) (9.8)
U.S. loss without benefit......................................................... -- -- 4.4
Non-deductible amortization....................................................... 1.9 2.7 3.3
State and local taxes, net........................................................ 2.8 3.0 2.9
Realization of valuation allowance................................................ (1.7) (2.5) --
Other, net........................................................................ (0.7) 0.6 (0.1)
---- ---- ----
29.6% 31.4% 35.7%
---- ---- ----
---- ---- ----
</TABLE>
Deferred taxes result from temporary differences in the recognition of
income and expenses for financial and income tax reporting purposes and
differences between the fair value of assets acquired in business combinations
accounted for as purchases and their tax bases. The approximate effect of the
temporary differences that gave rise to deferred tax balances were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:..............................................................
Accounts receivable............................................................. $ 2,078 $ 1,827
Inventory....................................................................... 466 931
Prepaid and other............................................................... 2,914 478
Property, plant and equipment................................................... 933 1,237
Long term investments and other................................................. 4,277 --
Pension liability............................................................... 607 608
Accrued expenses................................................................ 7,116 1,144
Employee benefits and other compensation........................................ 25,108 --
Other long term liabilities..................................................... 5,384 1,033
Net operating loss carryforwards................................................ 4,900 1,119
------- -------
Total deferred tax asset..................................................... 53,783 8,377
Valuation allowance............................................................. -- (2,622)
------- -------
Total deferred tax asset net of valuation allowance.......................... 53,783 5,755
------- -------
Deferred tax liabilities..........................................................
Property, plant and equipment................................................... 3,474 3,682
Pension asset................................................................... 20,035 --
Unremitted foreign earnings..................................................... 2,179 1,452
Other........................................................................... 403 326
------- -------
Total deferred tax liability................................................. 26,091 5,460
------- -------
Net deferred tax asset....................................................... $27,692 $ 295
------- -------
------- -------
</TABLE>
Of the total valuation allowance of $2.6 million at December 31, 1994,
approximately $2.0 million was accounted for as a reduction in goodwill during
1995, and $600,000 was recorded as a reduction of the provision.
As a result of the pension plan merger discussed in Note 10, a deferred tax
asset in the amount of $2.4 million which was related to the unfunded pension
liability at the date of the 1993 Acquisition was recorded with a resulting
reduction of goodwill.
F-14
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
As a result of the Merger, MC Group and its domestic subsidiaries (the
'Mafco Group') have, for federal income tax purposes, become members of an
affiliated group of corporations of which Mafco Holdings is the common parent
(the 'Holdings Group'). Accordingly, the Mafco Group will be included in the
consolidated federal income tax returns and, to the extent permitted by
applicable law, any combined state or local income tax returns filed on behalf
of the Holdings Group. Mafco Holdings and MC Group are parties to a tax sharing
agreement pursuant to which MC Group will pay to Mafco Holdings with respect to
each taxable year an amount equal to the consolidated federal and state and
local income taxes that would have been incurred by the Mafco Group had it not
been included in the consolidated federal and any combined state or local income
tax returns filed by the Holdings Group for such period. Prior to the Merger,
Consolidated Cigar and Mafco Worldwide were party to tax sharing agreements with
Mafco Holdings pursuant to which Consolidated Cigar and Mafco Worldwide were
required to pay to Mafco Holdings with respect to each taxable year an amount
equal to the consolidated federal and state and local income taxes that would
have been incurred by Consolidated Cigar and Mafco Worldwide had they not been
included in the consolidated federal and any combined state and local income tax
returns filed by Mafco Holdings. For all periods presented, federal and state
income taxes are provided as if the Company filed its own income tax returns.
The Company has not provided for taxes on undistributed foreign earnings of
approximately $7.7 million and $6.6 million at December 31, 1995 and 1994,
respectively, since the Company intends to permanently reinvest these earnings
in the future growth of the business. Determination of the amount of the
unrecognized deferred U.S. income tax liability is not practical because of the
complexities associated with its hypothetical calculation.
The Company's foreign income primarily consists of Puerto Rico income.
Pursuant to a grant of industrial tax exemption which expires in 2002, 90% of
the income earned from the manufacture of cigars in Puerto Rico is exempt from
Puerto Rico income taxes. The remaining 10% of such income is taxed at a maximum
surtax rate of 45%, resulting in an effective income tax rate of approximately
4.5%. The benefit to the Company amounted to approximately $5.1 million, $3.5
million and $3.1 million during 1995, 1994 and 1993.
Funds repatriated to the Company from its Puerto Rico subsidiary are
subject to a maximum Puerto Rico tollgate tax of 10%. Legislation enacted in
Puerto Rico in 1993 included a provision for prepaying a portion of these
tollgate taxes effective for the 1993 fiscal year and subsequent periods.
Income earned from Puerto Rico operations is generally exempt from federal
income tax. Section 936 of the Internal Revenue Code allows a 'possessions tax
credit' against U.S. income tax attributable to the Puerto Rico taxable
earnings. As part of the Omnibus Budget Reconciliation Act ('OBRA') of 1993, the
Internal Revenue Service has limited this exemption based upon a percentage of
qualified wages in Puerto Rico, plus certain amounts of depreciation. The
Company believes that it qualified for the possessions tax credit during 1995,
1994 and 1993. Failure to receive the 936 exemption or possessions tax credit
attributable to the Company's Puerto Rico operations, could have a material
adverse effect on the Company.
During 1995, proposed legislation was introduced before the U.S. Senate
House Committee on Ways and Means regarding tax reform and the possible repeal
of Section 936 of the Internal Revenue Code. The proposal, as outlined in
September 1995 called for the repeal for taxable years beginning after December
31, 1995, however, a credit would be granted for an additional 10 year phase in
period under a special grandfather rule. The credit would be limited to the
average annual income, adjusted for inflation, claimed over three of the last
five most recent years ended before September 13, 1995, excluding the highest
and lowest years. The Company does not believe the effect of the proposal to be
material for the phase in period.
The Company also manufactures in the Dominican Republic pursuant to a 100%
tax exemption which expires in 2010.
F-15
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
In connection with the Merger, MC Group entered into a tax sharing
agreement with its former subsidiary, PCT, pursuant to which MC Group will
indemnify PCT with respect to all taxes applicable to periods prior to June 15,
1995 except for foreign taxes related to PCT's aerospace business.
In connection with the July 16, 1992 distribution of Abex, the predecessor
of MC Group, from its prior parent, The Henley Group, Inc. ('Henley') , Abex
entered into a tax sharing agreement with Henley in which Abex indemnified
Henley for tax liabilities resulting from certain adjustments to the tax
liabilities of Abex entities and for certain tax liabilities of a prior
affiliated company, Wheelabrator Technologies, Inc. for the period May 26, 1986
through December 31, 1988. All federal tax liabilities related to this period
were settled prior to 1995; however, certain state tax liabilities of
approximately $7 milllion remain open as of December 31, 1995.
Abex had been included in the consolidated federal income tax return of
Henley for 1990 and 1991. The Internal Revenue Service has asserted deficiencies
against Henley for these periods of approximately $23 million, plus interest.
The adjustments creating these deficiencies do not relate to Abex entities and
are therefore not liabilities of MC Group as successor to Abex under the tax
sharing agreement. However, if Henley, or its current parent, Koll Real Estate
Group, Inc. ('Koll'), were unable to pay the deficiencies, then the Internal
Revenue Service, in accordance with Treasury Regulation 1.1502-06, could seek
payment from MC Group as successor to Abex as well as from other entities that
were included in the federal consolidated return of Henley for 1990 and 1991.
Koll, as the parent of Henley, has indicated that they will vigorously contest
the deficiencies through the administrative appeals process as well as in court
and that a final conclusion to this matter could take several years.
Management believes that reserves as of December 31, 1995 are adequate for
all tax liabilities associated with these tax sharing agreements as well as any
potential liability asserted by the IRS in accordance with Treasury Regulation
1.1502-06.
10. PENSION PLANS
The Company maintains tax qualified defined benefit pension plans covering
substantially all hourly and salaried employees in the U.S. and Puerto Rico. In
addition, certain employees of Abex's former subsidiaries are covered under
various tax qualified MC Group retirement plans (the 'MC Group Retirement
Plan'). The fair value of the assets and liabilities of the former Abex plans
were recognized in the financial statements of the Company as of June 15, 1995
in connection with the Merger.
Plans covering salaried employees generally provide pension benefits based
on years of service and compensation. Plans covering hourly employees and union
members generally provide stated benefits for each year of service. Plan assets
consist primarily of equity, fixed income, and money market funds.
Effective December 31, 1995, Consolidated Cigar's tax qualified
non-contributory defined benefit pension plans (the 'Cigar Plans') covering
substantially all hourly and salaried employees in the U.S. and Puerto Rico were
merged with and into the MC Group Retirement Plan. The MC Group Retirement Plan
was the surviving plan with all the assets and liabilities of the Cigar Plans
becoming assets and liabilities of the surviving MC Group Retirement Plan.
In addition, certain employees of Abex's former subsidiaries are covered
under a non-qualified executive defined benefit plan (the 'Executive Defined
Benefit Plan') and a defined contribution plan (the 'Executive Defined
Contribution Plan'). Assets of these plans of $26.1 million at December 31, 1995
are held by a rabbi trust and are presented as other assets in the Company's
balance sheet as of December 31, 1995 because they will be available to general
creditors of the Company in the event of the Company's insolvency. The liability
related to the Executive Defined Contribution Plan was $2.6 million at December
31, 1995 and is included in other liabilities.
F-16
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PENSION PLANS--(CONTINUED)
The Company also provides supplemental executive retirement plans for
certain officers which are unfunded.
The following table reconciles the funded status of the Company's
significant defined benefit pension plans:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1994
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation includes vested benefits
of $127,847 and $28,527 in 1995 and $353 and $23,182 in
1994................................................... $ 128,935 $28,535 $ 396 $24,161
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Projected benefit obligation for service rendered to
date................................................... 135,180 28,684 $ 396 $30,510
Less: plan assets at fair value.......................... (195,579) -- (478) (19,264)
----------- ----------- ----------- -----------
Projected benefit obligation in excess of (less than)
plan assets............................................ (60,399) 28,684 (82) 11,246
Unrecognized transition asset (obligation)............... (182) -- 71 (282)
Unrecognized prior service benefit (cost)................ 1 (309) (28) 392
Unrecognized net (loss) gain............................. 5,264 (452) 11 (1,478)
Adjustment for minimum liability......................... -- -- -- 7
----------- ----------- ----------- -----------
Net pension (asset) liability.......................... $ (55,316) $27,923 $ (28) $ 9,885
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Pension liabilities are included in accrued expenses and other liabilities.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7 1/4%-7 1/2% in 1995 and
7%-8 1/4% in 1994. The rate of increase in future compensation levels reflected
in such determination was 4%-5% in 1995 and 1994. The expected long-term rate of
return on assets was 6 1/2%-9% for 1995 and 7%-8 1/4% for 1994. Unrecognized
items are being amortized over the estimated remaining service lives of active
employees. The Company's funding policy is to contribute annually an amount
necessary to satisfy the minimum funding standards pursuant to the Employee
Retirement Income Security Act.
Pension expense includes the following components for the years ended
December 31, 1995, 1994 and 1993 respectively:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period.................. $ 800 $ 893 $ 722
Interest cost on projected benefit obligation................... 7,416 2,194 1,788
Actual return on plan assets.................................... (20,732) (827) (1,434)
Net amortization and deferrals.................................. 11,594 (685) 167
------- ------ ------
Net pension (income) expense.................................. $ (922) $1,575 $1,243
------- ------ ------
------- ------ ------
</TABLE>
In addition, the Company maintains certain 401(k) plans for which the
expense for matching contributions was $273,000, $280,000 and $247,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
F-17
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
MC Group, generally at its sole discretion, provides certain employees of
Abex and its former subsidiaries retiring on or after attaining age 55, who have
rendered at least 10 years of service and who have participated in Abex's
pension plans, with postretirement health care coverage. In 1993, Abex amended
its existing postretirement health care programs primarily to adjust certain
cost sharing provisions. MC Group funds the cost of this benefit on a
claims-paid basis and since the Merger on June 15, 1995, made payments totaling
$2.6 million. The liability related to these benefits was recognized as of June
15, 1995 in connection with the Merger. The plans have no assets.
The accumulated postretirement benefit obligation consists of the following
components at December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees..................................................................... $ 41,800
Fully eligible active plan participants...................................... 1,300
--------------
Postretirement benefit liability............................................... $ 43,100
--------------
--------------
</TABLE>
Unrecognized items at December 31, 1995 were not significant. Net periodic
postretirement benefit costs other than pensions attributable to interest on the
accumulated post-retirement benefit obligation was $1.7 million for the period
from June 15, 1995 to December 31, 1995. For measurement purposes, a 7.5% annual
rate of increase in the per capita cost of covered health care benefits was
assumed for 1996 and thereafter. An increase of 1% in the health care cost trend
rate will not have a significant effect on the amounts reported because of cost
sharing provisions. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25%.
12. STOCK OPTION PLAN
Under the terms of the Company's 1995 stock option plan (the '1995 Stock
Option Plan'), which is subject to approval of the stockholders of the Company
at the next annual shareholders meeting, stock options and stock appreciation
rights may be granted to key employees of the Company. A maximum of 1,250,000
shares of MC Group common stock have been reserved for issuance under the 1995
Stock Option Plan. During 1995, 750,000 options to purchase shares of MC Group
common stock were granted at an exercise price of $17.375. At December 31, 1995,
none of the options granted were exercisable.
F-18
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Mafco Worldwide:
Senior Credit (a):
Tranche A Term Loans............................................. $ 14,000 $ 19,500
Tranche B Term Loans............................................. 19,800 20,000
11 7/8% Senior Subordinated Notes Due 2002 (b)...................... 84,510 84,466
Other................................................................. -- 25
Consolidated Cigar:
Bank Borrowings (c)................................................. 20,600 36,200
Senior Subordinated Notes (d)....................................... 90,000 90,000
-------- --------
228,910 250,191
Less: current portion............................................... (10,232) (8,134)
-------- --------
$218,678 $242,057
-------- --------
-------- --------
</TABLE>
(a) The Mafco Worldwide Senior Credit was originally comprised of $30.0
million in Tranche A Loans, $20.0 million in Tranche B Loans, and $25.0 million
in Revolving Credit Loan commitments (the 'Revolving Credit Loans'). The Tranche
A Loans are repayable in 20 quarterly installments which started on September
30, 1994. The Tranche B Loans are repayable in seven annual installments; (a)
five installments of $200,000 each with the first due on June 30, 1995, and (b)
two installments of $9.5 million each due on June 30, 2000 and 2001. The
Revolving Credit Loans are payable in full by June 30, 1999. At December 31,
1995, the margin on the Tranche A loan was reduced on Base Rate Loans and to
2.25% on Eurodollar loans. At December 31, 1995 no amounts were borrowed under
the Revolving Credit Loans and approximately $2.5 million was reserved for
lender guarantees on outstanding letters of credit. The Mafco Worldwide Senior
Credit requires an additional payment based upon Mafco Worldwide's excess cash
flow as defined in the credit agreement. At December 31, 1995, this amount
equaled $4.0 million and is payable on March 31, 1996. The Mafco Worldwide
Senior Credit permits the Company to choose between various interest rate
options and to specify the interest rate period to which the interest rate
options are to apply, subject to certain parameters. The interest rate options
available are (i) the Base Rate Loans (as defined) plus a borrowing margin of
1 1/4% for the Tranche A Loans and Revolving Credit Loans and 1 3/4% for the
Tranche B Loans and (ii) Eurodollar Loans (as defined) plus a borrowing margin
of 2 1/2% for the Tranche A Loans and Revolving Credit Loans and 3% for the
Tranche B Loans. Upon achievement of specified financial ratios, the borrowing
margins will be reduced. At December 31, 1995, the margin on the Tranche A loan
was reduced to 1.0% on Base Rate Loans and to 2.25% on Eurodollar Loans. At
December 31, 1995, the interest rate was 7.94% on the Tranche A Loans and 8.69%
on the Tranche B Loans. The Mafco Worldwide Senior Credit also provides for a
commitment fee of 1/2% per annum on the unused Revolving Credit Loans.
Obligations under the Mafco Worldwide Senior Credit are secured by pledges of
substantially all of Mafco Worldwide's domestic assets and 66 2/3% of the
capital stock of Mafco Worldwide's wholly owned foreign subsidiaries. The Mafco
Worldwide Senior Credit contains various restrictive covenants which include,
among other things, limitations on indebtedness and liens, minimum interest
coverage and fixed charge coverage ratios, operating cash flow maintenance and
capital expenditure limits and restrictions on dividends.
(b) In November 1992, Mafco Worldwide completed a public offering in which
it sold $85.0 million aggregate principal amount of 11 7/8% Senior Subordinated
Notes due 2002 (the 'Mafco Worldwide Senior Subordinated Notes') at a price of
99.28% of face value. The Mafco Worldwide Senior Subordinated Notes mature on
November 15, 2002, and are not subject to redemption through the operation of a
sinking fund. The Mafco Worldwide Senior Subordinated Notes are subject to
redemption at any time after November 15, 1997, at the option of Mafco
Worldwide, in whole or in part, at redemption prices (expressed as percentages
of the
F-19
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LONG-TERM DEBT--(CONTINUED)
principal amount) for the 12 month period beginning each November 15:
1997-105.95%; 1998-103.96%; 1999-101.98% and 100% there after. Interest is
payable semiannually in May and November.
The Indenture relating to the Mafco Worldwide Senior Subordinated Notes
contains various restrictive covenants, which include restrictions on the
incurrence of additional debt, payments of dividends and transactions with
affiliates. In addition, upon the occurrence of a change in control whereby any
person (as defined in the Indenture) acquires directly or indirectly more than
35% of the total voting power of all classes of the voting stock of Mafco
Worldwide, each holder of the Mafco Worldwide Senior Subordinated Notes has the
right to require Mafco Worldwide, subject to certain restrictions in the Mafco
Worldwide Senior Credit, to repurchase the Mafco Worldwide Senior Subordinated
Notes at 101% of face value. The Mafco Worldwide Senior Subordinated Notes are
subordinate in right of payment to the existing Mafco Worldwide Senior Credit
and all future senior indebtedness of Mafco Worldwide.
(c) Represents borrowings under a credit agreement (the 'Cigar Credit
Agreement') with Chase dated February 23, 1993, providing for a $60.0 million
reducing revolving credit facility (the 'Cigar Revolving Credit Facility') and a
$20.0 million working capital facility (the 'Cigar Working Capital Facility').
The Cigar Revolving Credit Facility and the Cigar Working Capital Facility have
final maturities on April 3, 1999. The Cigar Revolving Credit Facility is
subject to quarterly commitment reductions of $2.5 million during each year of
the term of the facility. The Cigar Credit Agreement is secured by perfected
first priority liens on all of the material assets of Consolidated Cigar and its
domestic subsidiaries and perfected pledges of the stock of all of Consolidated
Cigar's subsidiaries (with certain exceptions for the stock of foreign
subsidiaries). The Cigar Credit Agreement is guaranteed by all of the domestic
subsidiaries of Consolidated Cigar. The guarantee by Cigar Parent is secured by
a pledge of all the outstanding stock of Consolidated Cigar.
The Cigar Credit Agreement establishes interest payments at the option of
Consolidated Cigar based upon the following rates:
<TABLE>
<S> <C> <C>
Base Rate Loans...................................................... Prime plus 1 3/4%
936 Loans............................................................ 936 Rate plus 2 3/4%
Eurodollar Funds..................................................... Eurodollar plus 2 3/4%
</TABLE>
Beginning with the fourth quarter of fiscal 1995, all the rates were
reduced by 1/4% in accordance with the Cigar Credit Agreement.
The average interest rate under the Cigar Credit Agreement was
approximately 8.9% at December 31, 1995. The Cigar Credit Agreement contains
various covenants which govern, among other things, the ability to incur
indebtedness, pay dividends, incur lease rental obligations, make capital
expenditures, use proceeds from asset sales, participate in mergers and other
activities. The Cigar Credit Agreement also requires Cigar to satisfy certain
financial covenants related to net worth, capital expenditures and various
ratios.
The maximum amounts of borrowings that are allowed under the Cigar Credit
Agreement at the end of 1995 through its maturity are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
- --------------------------------------------------------------------- --------------
<S> <C>
1995................................................................. $ 52,500
1996................................................................. 34,887
1997................................................................. 24,887
1998................................................................. 14,887
</TABLE>
Outstanding letters of credit of approximately $1.6 million reduced the
available borrowings under the Cigar Credit Agreement at December 31, 1995.
F-20
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LONG-TERM DEBT--(CONTINUED)
(d) Represents the $90.0 million in principal amount of 10 1/2% Senior
Subordinated Notes Due 2003 (the '10 1/2% Notes') issued in connection with
the 1993 Acquisition. The 10 1/2% Notes bear interest at the rate of
10 1/2% per annum, mature on March 1, 2003 and are redeemable at a premium
prior to maturity starting March 1, 1998. The 10 1/2% Notes are redeemable
at a premium in the event of a change of control. The indenture relating to
the 10 1/2% Notes limits, among other things, dividends and other
distributions, certain types of indebtedness, certain mergers,
consolidations and sales of assets.
The aggregate scheduled amounts of long-term debt maturities in the years
1996 through 2000 are $10.2 million, $6.2 million, $6.3 million, $15.1 million
and $9.5 million, respectively.
The Company entered into two five year interest rate swap agreements in an
aggregate notional amount of $85.0 million. Under the terms of the agreements,
the Company receives a fixed interest rate averaging 5 4/5% and pays a variable
interest rate equal to the six month LIBOR. The Company entered into such
agreements to take advantage of the differential between long-term and
short-term interest rates and effectively converted the interest rate on $85.0
million of fixed-rate indebtedness to a variable rate. From inception of the
agreements through January 1996 the Company has paid $800,000 in settlement,
which occurs at the end of each six month period of the agreements. Had the
Company terminated these agreements, which the Company considers to be held for
other than trading purposes, on December 31, 1995, a combined loss of
approximately $300,000 would have been realized. Future positive or negative
cash flows associated with these agreements will depend upon the trend of
short-term interest rates during the remaining life of the agreements. In the
event of non-performance of the counterparties at anytime during the remaining
lives of these agreements which expire at December 1998 and January 1999, the
Company could lose some or all of any future positive cash flows. However, the
Company does not anticipate non-performance by such counterparties.
The fair value of the Company's long-term debt at December 31, 1995 is
estimated based on the quoted market prices for the same issues or on the
current rates offered to the Company for debt of the same remaining maturities.
The estimated fair value of long-term debt was approximately $6.6 million
greater than the carrying value of $228.9 million. Because judgment is required
in interpreting market data to develop estimates of fair value, the estimates
are not necessarily indicative of the amounts that could be realized or would be
paid in a current market exchange. The effect of using different market
assumptions or estimation methodologies may be material to the estimated fair
value amounts.
14. RELATED PARTY TRANSACTIONS
Employees of affiliates of the Company provide services to the Company in
connection with insurance and legal services, benefit plan administration and
other services and the Company reimburses such affiliates for the allocated
share of the costs related to such employees. In 1995, the amount allocated to
the Company was $436,414. The Company believes that the terms of such allocated
services are at least as favorable to the Company as would be available from
unaffiliated third parties.
The Company performs certain services for a subsidiary of Mafco Holdings.
Revenues for such services were $874,000, $763,000 and $481,000 for the years
ended December 31, 1995, 1994 and 1993.
Included in accrued expenses and other liabilities are payables to Mafco
Holdings and affiliates in the amount of $2.0 million and $544,000 at December
31, 1995 and 1994, respectively.
15. COMMITMENTS AND CONTINGENCIES
Rental expense, which includes rent for facilities, equipment and
automobiles under operating leases expiring through 2001, amounted to $2.3
million, $2.3 million and $1.9 million for the years ended December 31, 1995,
1994 and 1993 respectively. Future minimum rental commitments, which include
obligations related to
F-21
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
former operations of Abex, for operating leases with noncancelable terms in
excess of one year from December 31, 1995, net of sublease payments of $15.3
million, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996................................................................. $ 2,866
1997................................................................. 2,865
1998................................................................. 2,714
1999................................................................. 2,468
2000 and thereafter.................................................. 4,217
--------------
$ 15,130
--------------
--------------
</TABLE>
At December 31, 1995, the Company had obligations to purchase approximately
$17.8 million of raw materials.
The Company had outstanding letters of credit totaling $20.4 million and
$4.9 million at December 31, 1995 and 1994, respectively, of which $16.3 are
secured by restricted cash at December 31, 1995.
Under the Transfer Agreement between PCT and a subsidiary of MC Group, MC
Group will reimburse PCT for amounts spent in excess of $1.5 million during each
of the years 1995 (after June 15), 1996, 1997 and 1998 in connection with
certain public company costs. The amount spent for such costs by PCT in the 1995
period did not exceed $1.5 million; therefore, no reimbursement was made.
On February 5, 1996, MC Group entered into a reimbursement agreement with
Chemical Bank and PCT, through its wholly owned subsidiary Pneumo Abex
Corporation ('Pneumo Abex'). The agreement provides for letters of credit
totaling $20.8 million covering certain environmental issues, not related to the
aerospace business of PCT. In connection with such agreement, MC Group pledged
the PCT Preferred Stock and its ownership of 5,939,400 shares of PCT Common
Stock.
At March 25, 1996, 19,777,752 shares, or approximately 85% of the Company's
stock were pledged to secured indebtedness of a subsidiary of Mafco Holdings.
During 1995, the Company entered into a three year employment arrangement
with James R. Maher, the Company's Chief Executive Officer. Mr. Maher's
arrangement provides for, among other things, a bonus of up to $4.0 million to
be paid in connection with certain transactions and a special payment right of
up to approximately $5.5 million which is deferred and is dependent upon the
overall performance of the Company's Common Stock. At December 31, 1995, the
Company has accrued the earned and vested portion of the employment arrangement.
Certain of Abex's former subsidiaries have been named parties in several
government enforcement and private actions seeking cleanup costs and/or damages
for personal injury or property damage under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
('CERCLA') and related federal and state laws. In addition, certain of these
subsidiaries have been identified by governmental authorities as being
potentially responsible for cleanup costs and/or natural resource damages or
have received inquiries from governmental authorities regarding their possible
involvement with hazardous waste sites. One such site in Portsmouth, Virginia,
which was formerly operated by Abex and a portion of which is owned by MC Group,
has been placed on the National Priorities List under CERCLA. The potential
costs related to such matters and the possible impact thereof on future
operations are uncertain due to, among other factors, the following: uncertainty
regarding the extent of prior pollution; the complexity of laws and regulations
and their interpretations; the varying costs and effectiveness of alternative
cleanup technologies and methods; and the questionable and varying degrees of
responsibility and/or involvement by Abex subsidiaries.
Under applicable state and federal law, including CERCLA, each potentially
responsible party ('PRP') can be held jointly and severally liable for all
cleanup and related costs at each site. For the reasons noted above, it is
F-22
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
impossible to predict the extent to which remediation will be required at a
particular site and the ultimate cost thereof. However, the aggregate cost of
cleanup and related expenses with respect to sites at which Abex and its
subsidiaries, together with numerous other third parties, have been named PRPs
could exceed $200 million, including approximately $20 million in remedial
action costs, as estimated by the EPA, in respect of the Portsmouth, Virginia
site.
As a result of the Transfer, MC Group will indemnify PCT with respect to
all environmental matters associated with Abex's former operations to the extent
not paid by third party indemnitors or insurers, other than the operations
relating to PCT's aerospace business as currently conducted. Pursuant to the
Stock Purchase Agreement, dated April 28, 1988, as amended, between Pneumo Abex
and Whitman Corporation ('Whitman') and the related Settlement Agreement, dated
September 23, 1991, between Pneumo Abex and Whitman (collectively, the 'Whitman
Agreements'), Whitman is obligated to indemnify Pneumo Abex for costs, expenses
and liabilities relating to environmental and natural resource matters to the
extent attributable to the operation of the businesses acquired from Whitman
prior to their acquisition in 1988, subject to certain conditions and
limitations principally relating to compliance with notice, cooperation and
other procedural requirements. Generally, known and unknown liabilities arising
after the 1988 Whitman acquisition that relate to PCT's current facilities will
be the responsibility of PCT. Whitman is generally discharging the related
liabilities in the ordinary course. In addition to the remedial action costs for
the Portsmouth, Virginia site, as to which Whitman has acknowledged its
indemnification responsibilities, Pneumo Abex is party to a number of cases
involving tort claims concerning such site alleging exposure to lead for which
Whitman has declined to accept responsibility. MC Group and Whitman are
currently sharing equally the defense costs for such cases, subject to a
reservation of their respective rights. Whitman is actively managing a
significant number of indemnified matters, including the potential cleanup of
the Portsmouth, Virginia site, and MC Group's involvement varies and is limited
for those matters being managed by Whitman.
Based upon MC Group's experience to date (including the existence of the
indemnification arrangements referred to above), the cost of compliance with
environmental laws is not expected to have a material adverse effect on MC
Group's earnings, liquidity or competitive position. However, future events,
such as changes in existing laws or enforcement policies, may give rise to
additional compliance and/or other costs which could have a material adverse
effect on MC Group's financial condition or results of operations.
MC Group has not recognized any liability in its financial statements for
environmental matters occurring prior to the 1988 Whitman acquisition which are
covered by Whitman's indemnification obligations under the Whitman Agreements.
Management of MC Group considers these obligations to be Whitman's and monitors
the financial position of Whitman to determine the level of uncertainty
associated with Whitman's ability to satisfy its obligations. Based upon
Whitman's active management of indemnifiable matters, its discharging of the
related liabilities when required, and its financial position based upon
publicly filed financial statements, MC Group believes that the likelihood of
Whitman failing to satisfy its obligations is remote.
A predecessor of Pneumo Abex, a wholly owned subsidiary of PCT, has been
named as a defendant in personal injury lawsuits claiming damages relating to
asbestos-containing friction products formerly manufactured by such predecessor.
The predecessor, which discontinued the manufacture and sale of asbestos-
containing friction products in the United States in 1987, has never been found
liable in any such case. As of January 31, 1996, Pneumo Abex or the predecessor
has been named as a defendant in approximately 38,000 pending claims, typically
with 10 to 30 or more co-defendants.
Pursuant to the Whitman Agreements, Whitman has retained ultimate
responsibility for all asbestos-related claims made through August 1998 and for
certain asbestos-related claims asserted thereafter. In connection with the sale
by Abex in December 1994 of its Friction Products Division (the 'Friction
Products Sale'), a subsidiary of Cooper Industries, Inc. ('Cooper') assumed
responsibility for substantially all of the asbestos-related claims made after
August 1998 and therefore no longer subject to the Whitman indemnity. Pneumo
Abex maintained
F-23
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
product liability insurance covering substantially all of the period during
which asbestos-containing products were manufactured and both the Company and
Whitman have the benefit of such insurance. Pursuant to court rulings and
interim agreements reached with certain insurance carriers, Pneumo Abex is being
reimbursed for approximately 90% of the aggregate defense and settlement costs
associated with such claims, and continues to seek recovery of the remaining
amount of unreimbursed costs from its carriers in an ongoing insurance coverage
litigation commenced by Abex in 1982. As of December 31, 1995, the Company has
approximately $4.6 million in unreimbursed costs pending receipt from the
insurance carriers or Whitman.
MC Group is unable to forecast with precision the amount of future defense
and settlement costs associated with asbestos litigation, but consistent with
Abex's historical treatment, MC Group has not recognized any liability in its
financial statements for asbestos-related claims as substantially all of these
costs are expected to be insured and, to the extent not insured entirely, are
covered by Whitman's indemnifications under the Whitman Agreements or by Cooper.
Although PCT retains ultimate responsibility and indemnifies MC Group for
such matters under the Transfer Agreement, a subsidiary of MC Group undertakes
administrative and funding obligations with respect to such matters, including
as to such unreimbursed costs subject to certain termination events as described
below. PCT's obligation to make reimbursement for the amounts so funded will be
limited to amounts received by PCT under related indemnification and insurance
arrangements. The Company's administrative and funding obligations would be
terminated in the case of a bankruptcy of Pneumo Abex or PCT or, following an
exhaustion of available insurance, either a bankruptcy of Whitman or Cooper or
Whitman or Cooper failing to make required indemnification payments other than
for reasons primarily caused by actions or inactions taken by MC Group.
Various legal proceedings, claims and investigations are pending against MC
Group and its subsidiaries related to commercial transactions, product
liability, safety and health matters and other matters relating to MC Group,
including those for which MC Group assumed responsibility under the Transfer
Agreement. Most of these legal proceedings are related to matters covered by
insurance, subject to deductibles and maximum limits, and by third party
indemnities. MC Group does not believe, based on currently available
information, that the outcome of these other matters, irrespective of insurance
coverage and third party indemnities, will have a material adverse effect on its
financial position or results of operations.
In connection with the 1992 distribution of Abex common stock to the Henley
stockholders (the 'Distribution'), Abex assumed certain liabilities of Henley
related to existing and former businesses and assets and liabilities of
predecessors for certain tax matters and a self-insurance program. Abex's
balance sheet reflects adequate reserves for these matters. The tax matters,
including the expected timing of payments, is discussed further in Note 9-Income
Taxes. The timing of payments under the self-insurance program is not known,
however, management believes that cash on hand and cash generated by operations
will be adequate to satisfy such obligations when required.
Abex and Koll agreed that, following the Distribution, each company would
be responsible for liabilities relating to its existing and certain previously
owned assets and businesses of Henley Group and certain of its predecessors and
will indemnify the other in respect thereof. Abex guaranteed certain contingent
obligations of Koll relating to a pension plan and environmental liabilities of
Henley Group and certain of its predecessors and Koll agreed to indemnify Abex
in respect thereof. MC Group's exposure with respect to these liabilities is in
the nature of a guarantee in favor of third parties of Koll's primary
obligations, which Koll has been and continues to discharge. MC Group has no
reason to believe its past dispute with Koll concerning Koll's tax sharing
obligation reflects either an inability on Koll's part to discharge its
obligation or a repudiation by Koll of responsibility for its environmental or
pension liabilities. MC Group believes that the likelihood of its being required
to perform on the guarantees is remote.
F-24
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SIGNIFICANT CUSTOMER
Philip Morris accounted for approximately 10%, 11% and 11% of the Company's
consolidated net sales during the years ended December 31, 1995, 1994 and 1993,
respectively.
17. GEOGRAPHIC INFORMATION
Information related to the Company's geographic areas are presented below
with the following definitions:
Operating profit, as indicated below, represents net sales less operating
expenses, amortization of identifiable goodwill, foreign currency transaction
income (loss) and other income (expense).
Identifiable assets are those used by each geographic area. Corporate
assets are principally cash, restricted cash, deferred charges and the assets
acquired in connection with the Merger and Libra Purchase.
GEOGRAPHIC AREAS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales (a)
Domestic--U.S.................................................... $217,394 $187,513 $166,145
--Export................................................ 26,032 25,425 23,747
Foreign.......................................................... 17,700 13,941 12,686
-------- -------- --------
$261,126 $226,879 $202,578
-------- -------- --------
-------- -------- --------
Operating Profit:
Domestic......................................................... $ 63,536 $ 50,656 $ 41,826
Foreign (b)...................................................... 3,476 2,506 2,114
Corporate........................................................ (9,427) -- --
-------- -------- --------
57,585 53,162 43,940
Net expense and financing charges.................................. (24,791) (29,349) (28,453)
-------- -------- --------
Income from continuing operations before income taxes............ $ 32,794 $ 23,813 $ 15,487
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Identifiable assets:
Domestic (c)........................................................ $237,303 $246,952
Foreign............................................................. 18,919 17,934
Corporate........................................................... 304,377 17,965
-------- --------
$560,599 $282,851
-------- --------
-------- --------
</TABLE>
- ------------------
(a) The Company had no intercompany sales from their U.S. businesses to their
foreign businesses in 1995 and 1994, while in 1993 they had sales of $84.
Sales from their foreign businesses to their U.S. businesses were $23,084,
$17,473 and $15,097 for the years ended December 31, 1995, 1994 and 1993,
respectively. Such amounts are excluded from the above table.
(b) Includes foreign currency transaction gain of $40, $215 and $17 in 1995,
1994 and 1993, respectively.
(c) Includes assets located in foreign countries of $14,071, $15,133 and $15,186
at December 31, 1995, 1994 and 1993, respectively.
F-25
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial information for
the quarterly periods in 1995 and 1994:
<TABLE>
<CAPTION>
1995
----------------------------------------
FIRST SECOND THIRD FOUR
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales................................................... $58,353 $68,236 $68,679 $65,858
Gross profit................................................ 23,804 28,210 27,984 27,106
Net income.................................................. 4,556 7,885 4,604 7,368
Net income per share........................................ $ 0.23 $ 0.38 $ 0.20 $ 0.32
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales................................................... $49,532 $57,794 $60,089 $59,464
Gross profit................................................ 19,512 22,927 24,064 24,409
Net income.................................................. 2,074 1,672 5,934 3,988
Net income per share........................................ $ 0.10 $ 0.08 $ 0.30 $ 0.20
</TABLE>
F-26
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 19,248 $ 93,417
Trading securities................................................................ 225,362 190
Notes and trade receivables, net.................................................. 31,299 25,211
Inventories....................................................................... 91,013 84,494
Prepaid expenses and other........................................................ 23,770 25,420
------------- ------------
Total current assets........................................................... 390,692 228,732
Property, plant and equipment, net.................................................. 47,955 46,052
Pension asset....................................................................... 62,475 57,245
Investment in PCT preferred and common stock........................................ 73,481 55,547
Trademarks, net..................................................................... 31,372 32,021
Intangible assets related to businesses acquired, net............................... 61,498 62,770
Other assets........................................................................ 62,250 78,232
------------- ------------
$ 729,723 $560,599
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and short term borrowings....................... $ 11,200 $ 10,960
Accounts payable.................................................................. 14,678 9,595
Accrued expenses and other........................................................ 63,805 55,515
------------- ------------
Total current liabilities...................................................... 89,683 76,070
Long-term debt...................................................................... 209,915 218,678
Deferred income taxes............................................................... 43,462 5,280
Other liabilities................................................................... 152,875 156,850
Commitments and contingencies.......................................................
Stockholders' equity:
Common stock of Mafco Consolidated Group Inc., par value $.01 per share,
250,000,000 shares authorized, 24,722,190 shares issued........................ 247 247
Additional paid-in-capital........................................................ 167,105 167,105
Retained earnings (accumulated deficit)........................................... 94,998 (35,605)
Currency translation adjustment................................................... 1,341 1,877
Treasury stock at cost (1,484,850 shares)......................................... (29,903) (29,903)
------------- ------------
Total stockholders' equity..................................................... 233,788 103,721
------------- ------------
$ 729,723 $560,599
------------- ------------
------------- ------------
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
--------------------------------------
SEPTEMBER 29, 1996 OCTOBER 1, 1995
------------------ ----------------
<S> <C> <C>
Net sales................................................................... $230,380 $195,268
Cost of sales............................................................... 131,868 115,270
------------------ ----------------
Gross profit................................................................ 98,512 79,998
Selling, general and administrative expenses................................ 40,018 37,184
------------------ ----------------
Operating income............................................................ 58,494 42,814
Interest expense............................................................ (19,255) (20,373)
Interest, investment and dividend income.................................... 7,057 2,809
Amortization of deferred charges and bank fees.............................. (1,516) (1,548)
Equity in earnings from continuing operations and preferred dividends of
PCT....................................................................... 2,773 418
Gain on Cigar IPO........................................................... 127,809 --
Other expense, net.......................................................... (759) (241)
------------------ ----------------
Income from continuing operations before income taxes....................... 174,603 23,879
Provision for income taxes.................................................. (59,052) (7,494)
------------------ ----------------
Income from continuing operations........................................... 115,551 16,385
Discontinued operations:
Equity in discontinued operations of PCT, net of income taxes............. 15,052 660
------------------ ----------------
Net income................................................................ $130,603 $ 17,045
------------------ ----------------
------------------ ----------------
Income per share:
Continuing operations..................................................... $ 4.97 $ 0.77
Discontinued operations................................................... 0.65 0.03
------------------ ----------------
$ 5.62 $ 0.80
------------------ ----------------
------------------ ----------------
Weighted average common shares outstanding.................................. 23,237 21,315
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
-----------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 130,603 $ 17,045
------------- ----------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization................................................ 7,736 7,868
Gain on Cigar IPO............................................................ (127,809) --
Equity in earnings of affiliates in excess of distributions.................. (17,934) (272)
Deferred income.............................................................. (153) (154)
Changes in assets and liabilities:
Net increase in trading securities........................................... (225,172) --
Increase in notes and trade receivables...................................... (5,132) (5,547)
(Increase) decrease in inventories........................................... (6,862) 1,039
Increase (decrease) in accounts payable...................................... 5,139 (692)
Increase (decrease) in deferred taxes and other, net......................... 50,838 (1,018)
------------- ----------
(319,349) 1,224
------------- ----------
Net cash flows (used in) provided by operating activities........................... (188,746) 18,269
------------- ----------
Cash flows from investing activities:
Capital expenditures.............................................................. (5,844) (2,059)
Cash acquired in Abex Merger, net of costs........................................ -- 176,505
Purchase of PCT common stock...................................................... -- (33,653)
Other, net........................................................................ (498) 1,855
------------- ----------
Net cash flows (used in) provided by investing activities........................... (6,342) 142,648
------------- ----------
Cash flows from financing activities:
Proceeds from borrowings.......................................................... -- 231
Repayment of borrowings........................................................... (8,535) (10,123)
Purchase of Company common stock and Abex VSRs.................................... -- (30,254)
Net proceeds from Cigar IPO....................................................... 127,809 --
Dividends paid.................................................................... -- (14,000)
Due to affiliates and other borrowings............................................ (459) (386)
Decrease (increase) in restricted deposits........................................ 2,187 (16,467)
------------- ----------
Net cash flows provided by (used in) financing activities........................... 121,002 (70,999)
------------- ----------
Effect of exchange rate changes on cash............................................. (83) 76
------------- ----------
Net (decrease) increase in cash and cash equivalents................................ (74,169) 89,994
Cash and cash equivalents at beginning of period.................................... 93,417 9,323
------------- ----------
Cash and cash equivalents at end of period.......................................... $ 19,248 $ 99,317
------------- ----------
------------- ----------
Supplemental schedule of cash flow information:
Interest paid..................................................................... $ 19,020 $ 20,853
Income taxes paid, net of refunds................................................. $ 3,827 $ 5,153
</TABLE>
See notes to consolidated financial statements
F-29
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Mafco
Consolidated Group Inc. ('MC Group' or the 'Company') have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. The statements
should be read in conjunction with the consolidated financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 1995. All terms used but not defined elsewhere herein have the meanings
ascribed to them in the Company's annual report on Form 10-K. The results of
operations for the nine month period ended October 1, 1995 have been restated to
reflect the discontinued operations of PCT (see Note 3). Certain
reclassifications have been made to conform to the current period's
presentation. The results of operations for the nine month periods are not
necessarily indicative of the results for the entire year.
The Company recognizes gains and losses on sales of subsidiary stock in the
statement of operations.
2. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials and supplies...................................... $65,630 $ 59,742
Work-in-process................................................. 2,681 1,988
Finished goods.................................................. 22,702 22,764
------------- ------------
$91,013 $ 84,494
------------- ------------
------------- ------------
</TABLE>
3. SALE OF PCT OPERATIONS
On April 15, 1996, Power Control Technologies Inc. ('PCT') received the
necessary approval from its stockholders and consummated the sale of its entire
operations, including substantially all its assets, to Parker-Hannifin
Corporation, for aggregate cash consideration of $201,100, before transaction
costs.
Equity in discontinued operations of PCT, net of income taxes, represents
the Company's interest in the discontinued operations of PCT, including the gain
on sale of PCT's aerospace business.
4. INITIAL PUBLIC OFFERING AND PROMISSORY NOTE
On August 21, 1996, MC Group's wholly owned subsidiary, Consolidated Cigar
Holdings Inc. ('Cigar Holdings') completed an initial public offering (the
'Cigar IPO') in which it issued and sold 6,075,000 shares of its Class A Common
Stock for $23.00 per share. The proceeds, net of underwriter's discount and
related fees and expenses, of $127,809, were paid as a dividend to MC Group and
resulted in a gain to the Company of $83,076, net of income taxes of $44,733.
All of the proceeds received from the sale of stock in the Cigar IPO were
treated as gain as the net book value of Cigar Holdings was a deficit at the
time of the Cigar IPO and no allocation of the deficit was made to minority
interest. Minority interest in the earnings of Cigar Holdings subsequent to the
Cigar IPO was not recorded as the book value of Cigar Holdings remained negative
after including Cigar Holdings' net earnings subsequent to the Cigar IPO. The
net proceeds from the Cigar IPO as well as other funds of the Company were
invested in marketable securities, which include U.S. Treasury and agency
securities, mortgage-back securities, corporate debt securities and other debt
securities. These securities are classified as trading securities.
Simultaneously with the Cigar IPO, each of Cigar Holdings' then outstanding
shares of common stock were converted into 24,600 shares of the newly created
Class B Common Stock which totaled 24,600,000 shares. In
F-30
<PAGE>
addition, Cigar Holdings issued a non-interest bearing promissory note (the
'Cigar Note') in an original principal amount of $70,000 to MC Group. The Cigar
Note is payable in quarterly installments of $2,500, beginning March 31, 1997
with the final installment payable on December 31, 2003.
5. SALE OF FLAVORS HOLDINGS TO PCT
On October 23, 1996, MC Group entered into a Stock and VSR Purchase
Agreement (the 'Purchase Agreement'), dated as of October 23, 1996, with PCT and
PCT International Holdings Inc., a Delaware corporation and wholly owned
subsidiary of PCT ('Purchaser'), pursuant to which Purchaser has agreed to
purchase from MC Group, and MC Group has agreed to sell and issue to Purchaser,
all the issued and outstanding shares (the 'Shares') of capital stock of Flavors
Holdings Inc., a Delaware corporation and wholly owned subsidiary of MC Group
('Flavors'), and 23,156,502 Value Support Rights (each a 'VSR' and collectively,
the 'VSRs') to be issued pursuant to the Value Support Rights Agreement (the
'VSR Agreement') to be entered into between MC Group and American Stock Transfer
& Trust Company, as trustee. Flavors, through its wholly owned subsidiary Mafco
Worldwide Corporation, operates MC Group's licorice extract and other flavoring
agents manufacturing and distributing business. The agreement was unanimously
approved by the Boards of Directors of MC Group and PCT and, in the case of PCT,
upon the recommendation of a Special Committee of directors who are not officers
or employees of PCT or its affiliates including MC Group, formed to consider the
transaction. The transaction is expected to close in the fourth quarter of 1996
and is expected to result in a gain to the Company.
In consideration for the Shares and VSRs, Purchaser has agreed to pay MC
Group cash in the amount of $180,000, before estimated transaction costs of
$7,300. In addition, Purchaser shall pay MC Group deferred cash payments of
$3,700 on June 30, 1997 and $3,500 on December 31, 1997.
It is anticipated that the VSRs will be distributed to all holders of PCT
Common Stock and PCT Preferred Stock promptly following the effectiveness of a
registration statement to be filed by MC Group with the Securities and Exchange
Commission. Each VSR, subject to certain limitations, entitles its holder to
receive a payment, if any, of up to $3.25 per VSR if the 30-Day Average Market
Price (as defined in the VSR Agreement) of PCT Common Stock is below $11.00 per
share on January 1, 1999; provided, however, MC Group has an optional right to
call the VSRs each April 1, July 1, October 1 and January 1 from and including
April 1, 1997 to and including October 1, 1998 (each, an 'Optional Call Date').
If MC Group calls the VSRs on or before January 1, 1998, holders will be
entitled to receive a payment of at least $0.50 and up to $3.25 per VSR if the
30-Day Average Market Price is below $10.25 per share as of such Optional Call
Date. If MC Group calls the VSRs after January 1, 1998, each VSR will entitle
its holder to a payment, if any, of up to $3.25 per VSR if the 30-Day Average
Market Price is below $11.00 per share on such Optional Call Date.
The maximum value of the VSRs will be recorded as a deferred contingent
gain and will reduce the Company's gain on sale of Flavors Holdings accordingly.
At settlement or expiration of this obligation, any additional gain will be
recognized, determined by the difference between the recorded contingent gain
and any payment made.
F-31
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 2
Risk Factors................................... 8
Background and the Disposition................. 14
The Distribution............................... 16
Certain Information Relating to PCT............ 17
Selected Historical Financial Data............. 18
Pro Forma Financial Data....................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 32
Management..................................... 46
Security Ownership of Certain Beneficial Owners
and Management............................... 53
Certain Relationships and Related
Transactions................................. 54
Description of the Value Support Rights and VSR
Notes........................................ 56
Description of Certain Indebtedness............ 65
Certain United States Federal Income Tax
Consequences................................. 66
Legal Matters.................................. 70
Experts........................................ 70
Available Information.......................... 70
Index to Consolidated Financial
Statements................................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
23,156,502
VALUE SUPPORT RIGHTS
MAFCO CONSOLIDATED GROUP INC.
------------------------
PROSPECTUS
------------------------
DECEMBER , 1996
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the VSRs
are estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................................... $22,805.65
New York Stock Exchange................................................................... *
Blue Sky Fees............................................................................. *
Printing and Engraving Expenses........................................................... *
Legal Fees and Expenses................................................................... *
Accounting Fees and Expenses.............................................................. *
Transfer Agent and Registrar Fees......................................................... *
Miscellaneous............................................................................. *
----------
Total................................................................................ $ *
----------
----------
</TABLE>
- ------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is empowered by Section 145 of the General Corporation Law
of the State of Delaware (the 'DGCL'), subject to the procedures and limitations
therein, to indemnify any person against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any threatened, pending or completed action,
suit or proceeding in which such person is made a party by reason of such person
being or having been a director, officer, employee or agent of the Registrant.
The statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Amended and Restated By-laws of the Registrant provide for
indemnification by the Registrant of its directors and officers to the fullest
extent permitted by the DGCL.
The foregoing statements are subject to the detailed provisions of the
DGCL, the Registrant's Amended and Restated Certificate of Incorporation and the
Registrant's Amended and Restated By-laws.
Article XI of the Registrant's Amended and Restated By-laws allow the
Registrant to maintain director and officer liability insurance on behalf of any
person who is or was a director or officer of the Registrant or such person who
serves or served as a director, officer, agent or employee, at another
corporation, partnership or other enterprise at the request of the Registrant.
Pursuant to Section 102(b)(7) of the DGCL and Article Thirteenth of the
Amended and Restated Certificate of Incorporation of the Registrant provides
that no director of the Registrant shall be personally liable to the Registrant
or its stockholders for monetary damages for any breach of his fiduciary duty as
a director; provided, however, that such clause shall not apply to any liability
of a director (1) for any breach of his duty of loyalty to the Registrant or its
stockholders, (2) for acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of the law, (3) under Section 174
of the DGCL, or (4) for any transaction from which the director derived an
improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Other than the sale of the VSRs to PCT International pursuant to the
Purchase Agreement, there have been no sales of unregistered securities by the
Registrant within the past three years. The sale of the VSRs to PCT
International was made in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act for transactions not involving a public
offering.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
**2.1 -- Stock and VSR Purchase Agreement, dated as of October 23, 1996 (the 'Purchase Agreement'), by and
among the Registrant, Power Control Technologies Inc. and PCT International Holdings Inc. The
Registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon
request.
3.1 (a) -- Restated Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 4.1
to the Registrant's Current Report on Form 8-K dated June 30, 1995).
3.1 (b) -- Amendment to Restated Certificate of Incorporation of the Registrant (incorporated by reference
from Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996).
3.2 -- By-Laws of the Registrant (incorporated by reference from Exhibit 4.2 to the Registrant's Current
Report on Form 8-K dated June 30, 1995).
4.1 -- Value Support Rights Agreement, dated as of November 25, 1996, between the Registrant and American
Stock Transfer & Trust Company (incorporated by reference from Exhibit 4.1 to Form 8-K of the
Registrant filed on November 27, 1996).
*4.2 -- Draft form of Indenture for the VSR Notes.
***5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to legality regarding the Value Support
Rights.
*8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters.
10.1 -- Credit Agreement between Consolidated Cigar Corporation and The Chase Manhattan Bank, N.A., dated
as of February 23, 1993 (incorporated by reference from Exhibit 10.2 to Amendment No. 2 of
Consolidated Cigar Corporation's Registration Statement on Form S-1 (Registration No. 33-56902)).
10.2 (a) -- Amendment No. 1 to the Credit Agreement, dated as of March 2, 1993 (incorporated by reference from
Exhibit 10.2(a) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.2 (b) -- Amendment No. 2 to the Credit Agreement, dated as of March 12, 1993 (incorporated by reference from
Exhibit 10.2(b) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.2 (c) -- Amendment No. 3 to the Credit Agreement, dated as of March 17, 1993 (incorporated by reference from
Exhibit 10.2(c) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.2 (d) -- Amendment No. 4 to the Credit Agreement, dated as of April 5, 1993 (incorporated by reference from
Exhibit 10.2(d) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.2 (e) -- Amendment No. 5 to the Credit Agreement, dated as of June 15, 1993 (incorporated by reference from
Exhibit 10.2(e) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.2 (f) -- Amendment No. 6 to the Credit Agreement, dated as of September 12, 1994 (incorporated by reference
from Exhibit 10.2(f) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.2 (g) -- Amendment No. 7 to the Credit Agreement, dated as of May 31, 1995 (incorporated by reference from
Exhibit 10.2(g) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.2 (h) -- Amendment No. 8 to the Credit Agreement, dated as of October 18, 1995 (incorporated by reference
from Exhibit 10.2(h) to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.2 (i) -- Amendment No. 9 to the Credit Agreement, dated as of March 13, 1996 (incorporated by reference from
Exhibit 10.2(i) of Amendment No. 1 of Consolidated Cigar Holdings Inc.'s Registration Statement on
Form S-1 (Registration No. 333-6819)).
10.2 (j) -- Amendment No. 10 to the Credit Agreement, dated as of July 31, 1996 (incorporated by reference from
Exhibit 10.3 of Amendment No. 2 of Consolidated Cigar Holdings Inc.'s Registration Statement on
Form S-1 (Registration No. 333-6819)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.3 -- Indenture by and between Consolidated Cigar Corporation and Continental Bank, National Association,
as Trustee, relating to the Senior Subordinated Notes due 2003 (incorporated by reference from
Exhibit 10.2(j) of Amendment No. 2 of Consolidated Cigar Holdings Inc.'s Registration Statement on
Form S-1 (Registration No. 333-6819)).
10.4 (a) -- Guarantee and Security Agreement, dated as of March 3, 1993, between the Registrant and The Chase
Manhattan Bank, N.A. (incorporated by reference from Exhibit 10.16(a) of Amendment No. 2 of
Consolidated Cigar Holdings Inc.'s Registration Statement on Form S-1 (Registration No. 333-6819)).
10.4 (b) -- First Amendment to Guarantee and Security Agreement, dated as of July 31, 1996 (incorporated by
reference from Exhibit 10.16(b) of Amendment No. 2 of Consolidated Cigar Holdings Inc.'s
Registration Statement on Form S-1 (Registration No. 333-6819)).
*10.5 -- Promissory Note issued by Consolidated Cigar Holdings Inc. to the Registrant.
10.6 (a) -- Employment Agreement effective July 1, 1995 between the Registrant and James R. Maher (incorporated
by reference from Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.6 (b) -- Amendment dated March 15, 1996 to the Employment Agreement effective July 1, 1995 between the
Registrant and James R. Maher (incorporated by reference from Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.7 (a) -- Employment Agreement, dated as of July 1, 1995 between the Registrant and Theo W. Folz
(incorporated by reference from Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.7 (b) -- First Amendment, dated February 29, 1996, to the Employment Agreement, dated July 1, 1995, between
the Registrant and Theo W. Folz (incorporated by reference from Exhibit 10.35 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.7 (c) -- Second Amendment, dated August 1, 1996, to the Employment Agreement, dated July 1, 1995, between
the Registrant and Theo W. Folz (incorporated by reference from Exhibit 10.4(c) of Amendment No. 2
of Consolidated Cigar Holdings Inc.'s Registration Statement on Form S-1 (Registration No.
333-6819)).
10.8 -- Executive Employment Agreement, dated as of August 1, 1996, between Consolidated Cigar Corporation
and Theo W. Folz (incorporated by reference from Exhibit 10.17 of Amendment No. 2 of Consolidated
Cigar Holdings Inc.'s Registration Statement on Form S-1 (Registration No. 333-6819)).
*10.9 -- Employment Agreement, dated as of August 15, 1996, between Consolidated Cigar Corporation and Gary
R. Ellis.
10.10 -- Mafco Consolidated Group Inc. 1995 Stock Option Plan (incorporated by reference from Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.11 -- Performance Bonus Plan (included within and incorporated by reference to the Employment Agreement
effective July 1, 1995 between the Registrant and James R. Maher filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.12 -- Chief Executive Officer Transaction Bonus Plan (included within and incorporated by reference to
the Employment Agreement effective July 1, 1995 between the Registrant and James R. Maher filed as
Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.13 -- Tobacco Products Group Performance Bonus Plan (incorporated by reference from Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.14 -- Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated by reference from Exhibit 10.12 of
Amendment No. 2 of Consolidated Cigar Holdings Inc.'s Registration Statement on Form S-1
(Registration No. 333-6819)).
10.15 -- Pension Plan Merger Agreement into Abex Retirement Plan (incorporated by reference from Exhibit
10.1 to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.16 -- Agreement and Plan of Merger dated as of January 6, 1995, as amended, between the Registrant and
Mafco Holdings Inc. (incorporated by reference from Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated June 30, 1995).
10.17 -- Separation Agreement, dated as of June 15, 1995, by and between Fisher Scientific International
Inc. and C&F Merger Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated June 30, 1995).
10.18 -- Transfer Agreement dated as of June 15, 1995 among Power Control Technologies Inc., MCG
Intermediate Holdings Inc., Pneumo Abex Corporation and PCT International Holdings Inc.
(incorporated by reference from Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
June 30, 1995).
10.19 -- Securities Purchase Agreement, dated as of June 26, 1995 between Libra Invest and Trade Ltd. and
the Registrant (incorporated by reference from Exhibit 10.3 to the Registrant's Current Report on
Form 8-K dated June 30, 1995).
10.20 -- Letter Agreement dated as of June 26, 1995 between the Registrant and Power Control Technologies
Inc. (incorporated by reference from Exhibit 10.4 to the Registrant's Current Report on Form 8-K
dated June 30, 1995).
10.21 -- Letter Agreement, dated as of February 5, 1996, between the Registrant and Power Control
Technologies Inc. (incorporated by reference to Exhibit 6 to Amendment No. 2 to the Schedule 13D
dated February 8, 1996 filed by Mafco Holdings Inc., Mafco Consolidated Holdings Inc. and the
Registrant in connection with Power Control Technologies Inc.'s capital stock).
*10.22 -- Registration Rights Agreement, dated as of August 21, 1996, between the Registrant and Consolidated
Cigar Holdings Inc.
10.23 -- Registration Rights Agreement dated as of June 15, 1995 between the Registrant and Abex Inc.
(incorporated by reference from Exhibit 2 to the Registrant's Schedule 13D dated June 26, 1995).
10.24 -- Registration Rights Agreement, dated as of June 15, 1995, between the Registrant and Mafco
Consolidated Holdings Inc. (incorporated by reference to Exhibit 2 to the Schedule 13D dated June
26, 1995 filed by Mafco Holdings Inc. and Mafco Consolidated Holdings Inc. in connection with the
Registrant's capital stock).
10.25 -- Tax Sharing Agreement between Abex Inc. and Power Control Technologies Inc. dated June 15, 1995
(incorporated by reference from Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.26 -- Tax Sharing Agreement entered into as of June 15, 1995 by Mafco Holdings Inc. and the Registrant
(incorporated by reference from Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.27 -- Amended and Restated Tax Sharing Agreement entered into as of June 15, 1995 by and among Mafco
Holdings Inc., the Registrant, Consolidated Cigar Holdings Inc. and Consolidated Cigar Corporation
and its subsidiaries (incorporated by reference from Exhibit 10.7(a) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
10.28 -- Second Amended and Restated Tax Allocation Agreement entered into as of June 15, 1995 by and among
Mafco Holdings Inc., the Registrant, Flavors (Parent) Holdings Inc., Flavors Holdings Inc. and
Mafco Worldwide Corporation and its subsidiaries (incorporated by reference from Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.29 -- Stock Purchase Agreement, dated April 28, 1988, between Pneumo Abex Corporation and Whitman
Corporation (incorporated by reference to Exhibit 2.1 to Pneumo Abex's Registration Statement on
Form S-1 (Registration No. 33-22725)), as amended by an Amendment, dated as of August 29, 1988, and
a Second Amendment and related Settlement Agreement, dated September 23, 1991 (incorporated by
reference to Exhibit 10.04 to Abex Inc.'s Annual Report on Form 10-K for the year ended December
31, 1992).
10.30 -- Asset Purchase Agreement, dated as of May 15, 1993, between Pneumo Abex Corporation and The BF
Goodrich Company (incorporated by reference to Exhibit 2.1 to Abex Inc.'s Current Report on Form
8-K dated June 10, 1993).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.31 -- Asset Purchase Agreement, dated November 21, 1994, by and between Pneumo Abex Corporation and
Wagner Electric Corporation (incorporated by reference to Exhibit 1 to Abex Inc.'s Current Report
on Form 8-K dated November 21, 1994).
10.32 -- Lease Agreement, dated as of June 15, 1995, between Liberty Lane Real Estate, Inc. and Fisher
Scientific International Inc. (incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.33 -- Option Agreement, dated as of June 15, 1995, between Liberty Lane Real Estate, Inc. and Fisher
Scientific (incorporated by reference to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.34 -- Mortgage and Security Agreement, dated as of June 15, 1995, between Liberty Lane Real Estate, Inc.
and Fisher Scientific International Inc. (incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.35 -- Agreement and Plan of Merger, dated as of March 26, 1992, by and among Koll Real Estate Group, Inc.
(formerly Henley Properties, Inc.), HP Merger Co. and The Henley Group, Inc. (incorporated by
reference to Exhibit 2.01 to Abex Inc.'s Registration Statement on Form S-1 (Registration No.
33-48521)).
10.36 -- Transition Agreement, dated as of July 16, 1992, among Abex Inc., The Henley Group, Inc. and Koll
Real Estate Group, Inc. (incorporated by reference to Exhibit 10.02 to Abex Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1992).
10.37 -- Amendment No. 1 to the Transition Agreement, dated as of April 1, 1993 between Abex Inc. and Koll
Real Estate Group, Inc. (incorporated by reference to Exhibit 10.18 to Abex Inc.'s Registration
Statement on Form S-4, Commission File No. 33-92188).
10.38 -- Tax Sharing Agreement, dated as of June 10, 1992, between Abex Inc. and The Henley Group
(incorporated by reference to Exhibit 10.03 to Abex Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1992).
10.39 -- Letter Agreement, dated as of July 15, 1992, between Abex Inc. and the Pension Benefit Guaranty
Corporation (incorporated by reference to Exhibit 10.16 to Abex Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1992).
10.40 -- Letter Agreement, dated as of July 15, 1992, made by The Henley Group in favor of PBGC
(incorporated by reference to Exhibit 10.17 to Abex Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1992).
10.41 -- Pension Agreement, dated as of July 16, 1992, among Koll Real Estate Group, Inc., The Henley Group,
Inc. and Abex Inc. (incorporated by reference to Exhibit 10.18 to Abex Inc.'s Annual Report on Form
10-K for the year ended December 31, 1992).
10.42 -- Conditional Guarantee, dated as of July 9, 1992, among Abex Inc., The Henley Group, Inc., Koll Real
Estate Group, Inc. and Allied-Signal Inc. (incorporated by reference to Exhibit 10.19 to Abex
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
10.43 -- Reimbursement Agreement, dated as of July 16, 1992, among The Henley Group, Inc., Koll Real Estate
Group, Inc. and Abex Inc. (incorporated by reference to Exhibit 10.20 to Abex Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1992).
10.44 -- Tax Sharing Agreement, dated as of December 31, 1988, between Wheelabrator Technologies Inc. and
Koll Real Estate Group, Inc. (incorporated by reference to Exhibit 10.02 to Amendment No. 3 on Form
8 to Koll Real Estate Group, Inc.'s Registration Statement on Form 10 (Registration No. 0-17189)).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.45 -- Modification Agreement, dated as of August 24, 1989, among Wheelabrator Technologies Inc., Resco
Holdings Inc., The Henley Group, Inc. Waste Management of North America, Inc. and a subsidiary of
The Henley Group, Inc. (incorporated by reference to Exhibit 10.32 to The Henley Group, Inc.'s
Registration Statement on Form 10, Registration No. 0-18004), as amended by the Assignment,
Assumption and Release Agreement, dated as of December 18, 1989 (incorporated by reference to
Exhibit 10.69 to Wheelabrator Technologies Inc.'s Registration Statement on Form S-4 (Registration
No. 33-36118), as amended by Termination and Amendment Agreement, dated as of December 31, 1991,
among The Henley Group, Inc., Koll Real Estate Group, Inc., Wheelabrator Technologies Inc., and
Resco Holdings Inc., (incorporated by reference to Exhibit 10.39 to The Henley Group Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1991 (Registration No. 0-18004)).
10.46 -- Environmental Expenditures Agreement, dated as of July 28, 1989, among Koll Real Estate Group,
Inc., Wheelabrator Technologies Inc., New Hampshire Oak, Inc. and Fisher Scientific Group Inc.
(incorporated by reference to Exhibit 10(a) to Henley Properties' Quarterly Report on Form 10-Q for
the quarter ended June 30, 1989 (Registration No. 0-17189)), as amended by Assignment and
Assumption Agreement, dated as of January 1, 1990, among Koll Real Estate Group, Inc., The Henley
Group, Inc., New Hampshire Oak Inc., Fisher Scientific Group Inc., Wheelabrator Technologies Inc.,
and Henley Holdings, Inc. (incorporated by reference to Exhibit 10.34 to The Henley Group, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1989 (Registration No. 0-18004)).
10.47 -- Restated Environmental Matters Agreement, dated as of July 28, 1989, among Allied-Signal, Inc.,
Koll Real Estate Group, Inc., Wheelabrator Technologies Inc., New Hampshire Oak Inc. and Fisher
Scientific Group Inc. (incorporated by reference to Exhibit 10(b) to Henley Properties' Quarterly
Report on Form 10-Q for the quarter ended June 30, 1989 (Registration No. 0-17189)), amended by the
Assignment, Assumption and Indemnification Agreement, dated as of December 21, 1989, among The
Henley Group, Inc., Henley Properties, New Hampshire Oak Inc., Fisher Scientific Group Inc.,
Wheelabrator Technologies Inc. and Allied-Signal Inc. (incorporated by reference to Exhibit 10.35
to The Henley Group, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1989
(Registration No. 0-18004)).
10.48 -- Tax Sharing Agreement, dated as of February 26, 1986, between Allied-Signal Inc. and Wheelabrator
Technologies Inc., (incorporated by reference to Exhibit 10E to WTI's Registration Statement on
Form 10 (Registration No. 0-114246)).
10.49 -- Guarantee Agreement, dated as of June 10, 1993, between Abex Inc. and BF Goodrich Company
(incorporated by reference to Exhibit 2.2 to Abex Inc.'s Current Report on Form 8-K dated June 10,
1993).
10.50 -- Mutual Guaranty Agreement, dated as of December 30, 1994, between Abex Inc. and Cooper Industries
Inc. (incorporated by reference to Exhibit 10.29 to Abex Inc.'s Registration Statement on Form S-4
(Registration No. 33-92188)).
**12 -- Computation of Ratio of Earnings to Fixed Charges.
**21 -- List of Subsidiaries
*23.1 -- Consent of Ernst & Young LLP.
*23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in the opinions filed as Exhibits 5.1
and 8.1 hereto).
**24 -- Powers of Attorney.
*25.1 -- Form T-1 with respect to the eligibility of American Stock Transfer & Trust Company, as Trustee
under the VSR Agreement.
*99.1 -- Report of Independent Public Accountants of Arthur Andersen LLP
</TABLE>
- ------------------
* Filed herewith.
** Filed on October 31, 1996.
*** To be filed by amendment.
II-6
<PAGE>
(b) Financial Statement Schedules:
Schedule I--Condensed Financial Information of Registrant
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes, that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on December 10, 1996.
MAFCO CONSOLIDATED GROUP INC.
By: /s/ GLENN P. DICKES
----------------------------------
Glenn P. Dickes
Vice President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
* Chairman of the Board of Directors December 10, 1996
- ------------------------------------------
Ronald O. Perelman
* Vice Chairman and Director December 10, 1996
- ------------------------------------------
Howard Gittis
* President, Chief Executive Officer and December 10, 1996
- ------------------------------------------ Director (Principal Executive Officer)
James R. Maher
* Executive Vice President and Chief December 10, 1996
- ------------------------------------------ Financial Officer (Principal Financial
Irwin Engelman Officer)
* Vice President and Controller December 10, 1996
- ------------------------------------------ (Principal Accounting Officer)
Laurence Winoker
* Director December 10, 1996
- ------------------------------------------
Philip E. Beekman
* Director December 10, 1996
- ------------------------------------------
Theo W. Folz
* Director December 10, 1996
- ------------------------------------------
Jewel S. LaFontant-Mankarious
* Director December 10, 1996
- ------------------------------------------
Drew Lewis
* Director December 10, 1996
- ------------------------------------------
Robert Sargent Shriver III
</TABLE>
* Joram C. Salig, by signing his name hereto, does hereby execute this Amendment
to the Registration Statement on behalf of the directors and officers of the
Registrant indicated above by asterisks, pursuant to powers of attorney duly
executed by such directors and officers and filed as exhibits to the
Registration Statement.
By: /s/ JORAM C. SALIG
--------------------------------
Joram C. Salig
Attorney-in-Fact
II-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mafco Consolidated Group Inc.
We have audited the consolidated financial statements of Mafco Consolidated
Group Inc. and subsidiaries as of December 31, 1995 and 1994, and for each of
the three years in the period ended December 31, 1995 and have issued our report
thereon dated February 9, 1996 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules listed in
Item 16(b) of this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
We did not audit the financial statements of Power Control Technologies Inc. (a
corporation in which the Company has a 29% common equity interest). We have been
furnished with the report of other auditors with respect to Power Control
Technologies Inc.
In our opinion, based on our audits and the report of other auditors, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 9, 1996
S-1
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (PARENT ONLY)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Investment in PCT preferred and common stock................................................. $ 55,547 --
Investment in subsidiaries including cumulative income and net of distributions.............. 110,863 $(10,800)
-------- --------
$166,410 $(10,800)
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Loans from subsidiary........................................................................ $ 62,689 --
Common stock of Mafco Consolidated Group Inc., par value $.01 per share, 250,000,000 shares
authorized, 24,722,190 issued and outstanding.............................................. 247 --
Common stock of Flavors Holdings, par value $1, 2,000 shares authorized, 1,000 shares issued
and outstanding............................................................................ -- 1
Common stock of Cigar Parent, par value $1, 1,000 shares authorized, issued and
outstanding................................................................................ -- 1
Paid-in-capital.............................................................................. 167,105 43,290
Accumulated deficit.......................................................................... (35,605) (55,018)
Currency translation adjustment.............................................................. 1,877 926
Treasury stock at cost....................................................................... (29,903) --
-------- --------
Total stockholders' equity (deficit)....................................................... 103,721 (10,800)
-------- --------
$166,410 $(10,800)
-------- --------
-------- --------
</TABLE>
S-2
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF EARNINGS (PARENT ONLY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Dividend income................................................................... $ 867 $ -- $ --
Equity in earnings of subsidiaries................................................ 21,652 13,668 9,964
Equity in earnings of PCT......................................................... 1,894
------- ------- ------
Net income...................................................................... $24,413 $13,668 $9,964
------- ------- ------
------- ------- ------
</TABLE>
S-3
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (PARENT ONLY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $24,413 $13,668 $ 9,964
------- ------- -------
Adjustments to reconcile net income to net cash flows from operating activities:
Earnings of affiliates greater than distributions................................... (9,546) (13,668) (9,964)
------- ------- -------
(9,546) (13,668) (9,964)
------- ------- -------
Net cash flows from operating activities................................................. 14,867 -- --
------- ------- -------
Cash flows from investing activities:
Purchase of PCT Common Stock........................................................... (33,653) -- --
------- ------- -------
Net cash flows from investing activities............................................... (33,653) -- --
------- ------- -------
Cash flows from financing activities:
Acquisition of Company's Common Stock.................................................. (29,903)
Dividends paid......................................................................... (14,000)
Loans from subsidiary.................................................................. 62,689 -- --
------- ------- -------
Net cash flows from financing activities................................................. 18,786 -- --
------- ------- -------
Net increase in cash and cash equivalents................................................ -- -- --
Cash and cash equivalents at beginning of period......................................... -- -- --
------- ------- -------
Cash and cash equivalents at end of period............................................... $ -- $ -- $ --
------- ------- -------
------- ------- -------
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- --------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
**2.1 -- Stock and VSR Purchase Agreement, dated as of October 23, 1996 (the 'Purchase
Agreement'), by and among the Registrant, Power Control Technologies Inc. and PCT
International Holdings Inc. The Registrant agrees to furnish supplementally a copy of
any omitted schedule to the Commission upon request.
3.1 (a) -- Restated Certificate of Incorporation of the Registrant (incorporated by reference from
Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated June 30, 1995).
3.1 (b) -- Amendment to Restated Certificate of Incorporation of the Registrant (incorporated by
reference from Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996).
3.2 -- By-Laws of the Registrant (incorporated by reference from Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated June 30, 1995).
4.1 -- Value Support Rights Agreement, dated as of November 25, 1996, between the Registrant
and American Stock Transfer & Trust Company (incorporated by reference from Exhibit 4.1
to Form 8-K of the Registrant filed on November 27, 1996).
*4.2 -- Draft form of Indenture for the VSR Notes.
***5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to legality regarding the Value
Support Rights.
*8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters.
10.1 -- Credit Agreement between Consolidated Cigar Corporation and The Chase Manhattan Bank,
N.A., dated as of February 23, 1993 (incorporated by reference from Exhibit 10.2 to
Amendment No. 2 of Consolidated Cigar Corporation's Registration Statement on Form S-1
(Registration No. 33-56902)).
10.2 (a) -- Amendment No. 1 to the Credit Agreement, dated as of March 2, 1993 (incorporated by
reference from Exhibit 10.2(a) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993).
10.2 (b) -- Amendment No. 2 to the Credit Agreement, dated as of March 12, 1993 (incorporated by
reference from Exhibit 10.2(b) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993).
10.2 (c) -- Amendment No. 3 to the Credit Agreement, dated as of March 17, 1993 (incorporated by
reference from Exhibit 10.2(c) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993).
10.2 (d) -- Amendment No. 4 to the Credit Agreement, dated as of April 5, 1993 (incorporated by
reference from Exhibit 10.2(d) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993).
10.2 (e) -- Amendment No. 5 to the Credit Agreement, dated as of June 15, 1993 (incorporated by
reference from Exhibit 10.2(e) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993).
10.2 (f) -- Amendment No. 6 to the Credit Agreement, dated as of September 12, 1994 (incorporated
by reference from Exhibit 10.2(f) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- --------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
10.2 (g) -- Amendment No. 7 to the Credit Agreement, dated as of May 31, 1995 (incorporated by
reference from Exhibit 10.2(g) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.2 (h) -- Amendment No. 8 to the Credit Agreement, dated as of October 18, 1995 (incorporated by
reference from Exhibit 10.2(h) to Consolidated Cigar Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.2 (i) -- Amendment No. 9 to the Credit Agreement, dated as of March 13, 1996 (incorporated by
reference from Exhibit 10.2(i) of Amendment No. 1 of Consolidated Cigar Holdings Inc.'s
Registration Statement on Form S-1 (Registration No. 333-6819)).
10.2 (j) -- Amendment No. 10 to the Credit Agreement, dated as of July 31, 1996 (incorporated by
reference from Exhibit 10.3 of Amendment No. 2 of Consolidated Cigar Holdings Inc.'s
Registration Statement on Form S-1 (Registration No. 333-6819)).
10.3 -- Indenture by and between Consolidated Cigar Corporation and Continental Bank, National
Association, as Trustee, relating to the Senior Subordinated Notes due 2003
(incorporated by reference from Exhibit 10.2(j) of Amendment No. 2 of Consolidated
Cigar Holdings Inc.'s Registration Statement on Form S-1 (Registration No. 333-6819)).
10.4 (a) -- Guarantee and Security Agreement, dated as of March 3, 1993, between the Registrant and
The Chase Manhattan Bank, N.A. (incorporated by reference from Exhibit 10.16(a) of
Amendment No. 2 of Consolidated Cigar Holdings Inc.'s Registration Statement on Form
S-1 (Registration No. 333-6819)).
10.4 (b) -- First Amendment to Guarantee and Security Agreement, dated as of July 31, 1996
(incorporated by reference from Exhibit 10.16(b) of Amendment No. 2 of Consolidated
Cigar Holdings Inc.'s Registration Statement on Form S-1 (Registration No. 333-6819)).
*10.5 -- Promissory Note issued by Consolidated Cigar Holdings Inc. to the Registrant.
10.6 (a) -- Employment Agreement effective July 1, 1995 between the Registrant and James R. Maher
(incorporated by reference from Exhibit 10.33 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.6 (b) -- Amendment dated March 15, 1996 to the Employment Agreement effective July 1, 1995
between the Registrant and James R. Maher (incorporated by reference from Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996).
10.7 (a) -- Employment Agreement, dated as of July 1, 1995 between the Registrant and Theo W. Folz
(incorporated by reference from Exhibit 10.34 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.7 (b) -- First Amendment, dated February 29, 1996, to the Employment Agreement, dated July 1,
1995, between the Registrant and Theo W. Folz (incorporated by reference from Exhibit
10.35 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1995).
10.7 (c) -- Second Amendment, dated August 1, 1996, to the Employment Agreement, dated July 1,
1995, between the Registrant and Theo W. Folz (incorporated by reference from Exhibit
10.4(c) of Amendment No. 2 of Consolidated Cigar Holdings Inc.'s Registration Statement
on Form S-1 (Registration No. 333-6819)).
10.8 -- Executive Employment Agreement, dated as of August 1, 1996, between Consolidated Cigar
Corporation and Theo W. Folz (incorporated by reference from Exhibit 10.17 of Amendment
No. 2 of Consolidated Cigar Holdings Inc.'s Registration Statement on Form S-1
(Registration No. 333-6819)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
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<S> <C> <C>
*10.9 -- Employment Agreement, dated as of August 15, 1996, between Consolidated Cigar
Corporation and Gary R. Ellis.
10.10 -- Mafco Consolidated Group Inc. 1995 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996).
10.11 -- Performance Bonus Plan (included within and incorporated by reference to the Employment
Agreement effective July 1, 1995 between the Registrant and James R. Maher filed as
Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.12 -- Chief Executive Officer Transaction Bonus Plan (included within and incorporated by
reference to the Employment Agreement effective July 1, 1995 between the Registrant and
James R. Maher filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.13 -- Tobacco Products Group Performance Bonus Plan (incorporated by reference from Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996).
10.14 -- Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated by reference from
Exhibit 10.12 of Amendment No. 2 of Consolidated Cigar Holdings Inc.'s Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.15 -- Pension Plan Merger Agreement into Abex Retirement Plan (incorporated by reference from
Exhibit 10.1 to Consolidated Cigar Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.16 -- Agreement and Plan of Merger dated as of January 6, 1995, as amended, between the
Registrant and Mafco Holdings Inc. (incorporated by reference from Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated June 30, 1995).
10.17 -- Separation Agreement, dated as of June 15, 1995, by and between Fisher Scientific
International Inc. and C&F Merger Inc. (incorporated by reference to Exhibit 10.1 to
the Registrant's Current Report on Form 8-K dated June 30, 1995).
10.18 -- Transfer Agreement dated as of June 15, 1995 among Power Control Technologies Inc., MCG
Intermediate Holdings Inc., Pneumo Abex Corporation and PCT International Holdings Inc.
(incorporated by reference from Exhibit 10.2 to the Registrant's Current Report on Form
8-K dated June 30, 1995).
10.19 -- Securities Purchase Agreement, dated as of June 26, 1995 between Libra Invest and Trade
Ltd. and the Registrant (incorporated by reference from Exhibit 10.3 to the
Registrant's Current Report on Form 8-K dated June 30, 1995).
10.20 -- Letter Agreement dated as of June 26, 1995 between the Registrant and Power Control
Technologies Inc. (incorporated by reference from Exhibit 10.4 to the Registrant's
Current Report on Form 8-K dated June 30, 1995).
10.21 -- Letter Agreement, dated as of February 5, 1996, between the Registrant and Power
Control Technologies Inc. (incorporated by reference to Exhibit 6 to Amendment No. 2 to
the Schedule 13D dated February 8, 1996 filed by Mafco Holdings Inc., Mafco
Consolidated Holdings Inc. and the Registrant in connection with Power Control
Technologies Inc.'s capital stock).
*10.22 -- Registration Rights Agreement, dated as of August 21, 1996, between the Registrant and
Consolidated Cigar Holdings Inc.
10.23 -- Registration Rights Agreement dated as of June 15, 1995 between the Registrant and Abex
Inc. (incorporated by reference from Exhibit 2 to the Registrant's Schedule 13D dated
June 26, 1995).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
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<S> <C> <C>
10.24 -- Registration Rights Agreement, dated as of June 15, 1995, between the Registrant and
Mafco Consolidated Holdings Inc. (incorporated by reference to Exhibit 2 to the
Schedule 13D dated June 26, 1995 filed by Mafco Holdings Inc. and Mafco Consolidated
Holdings Inc. in connection with the Registrant's capital stock).
10.25 -- Tax Sharing Agreement between Abex Inc. and Power Control Technologies Inc. dated June
15, 1995 (incorporated by reference from Exhibit 10.5 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.26 -- Tax Sharing Agreement entered into as of June 15, 1995 by Mafco Holdings Inc. and the
Registrant (incorporated by reference from Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
10.27 -- Amended and Restated Tax Sharing Agreement entered into as of June 15, 1995 by and
among Mafco Holdings Inc., the Registrant, Consolidated Cigar Holdings Inc. and
Consolidated Cigar Corporation and its subsidiaries (incorporated by reference from
Exhibit 10.7(a) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.28 -- Second Amended and Restated Tax Allocation Agreement entered into as of June 15, 1995
by and among Mafco Holdings Inc., the Registrant, Flavors (Parent) Holdings Inc.,
Flavors Holdings Inc. and Mafco Worldwide Corporation and its subsidiaries
(incorporated by reference from Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.29 -- Stock Purchase Agreement, dated April 28, 1988, between Pneumo Abex Corporation and
Whitman Corporation (incorporated by reference to Exhibit 2.1 to Pneumo Abex's
Registration Statement on Form S-1 (Registration No. 33-22725)), as amended by an
Amendment, dated as of August 29, 1988, and a Second Amendment and related Settlement
Agreement, dated September 23, 1991 (incorporated by reference to Exhibit 10.04 to Abex
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
10.30 -- Asset Purchase Agreement, dated as of May 15, 1993, between Pneumo Abex Corporation and
The BF Goodrich Company (incorporated by reference to Exhibit 2.1 to Abex Inc.'s
Current Report on Form 8-K dated June 10, 1993).
10.31 -- Asset Purchase Agreement, dated November 21, 1994, by and between Pneumo Abex
Corporation and Wagner Electric Corporation (incorporated by reference to Exhibit 1 to
Abex Inc.'s Current Report on Form 8-K dated November 21, 1994).
10.32 -- Lease Agreement, dated as of June 15, 1995, between Liberty Lane Real Estate, Inc. and
Fisher Scientific International Inc. (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.33 -- Option Agreement, dated as of June 15, 1995, between Liberty Lane Real Estate, Inc. and
Fisher Scientific (incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.34 -- Mortgage and Security Agreement, dated as of June 15, 1995, between Liberty Lane Real
Estate, Inc. and Fisher Scientific International Inc. (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995).
10.35 -- Agreement and Plan of Merger, dated as of March 26, 1992, by and among Koll Real Estate
Group, Inc. (formerly Henley Properties, Inc.), HP Merger Co. and The Henley Group,
Inc. (incorporated by reference to Exhibit 2.01 to Abex Inc.'s Registration Statement
on Form S-1 (Registration No. 33-48521)).
10.36 -- Transition Agreement, dated as of July 16, 1992, among Abex Inc., The Henley Group,
Inc. and Koll Real Estate Group, Inc. (incorporated by reference to Exhibit 10.02 to
Abex Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
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<S> <C> <C>
10.37 -- Amendment No. 1 to the Transition Agreement, dated as of April 1, 1993 between Abex
Inc. and Koll Real Estate Group, Inc. (incorporated by reference to Exhibit 10.18 to
Abex Inc.'s Registration Statement on Form S-4, Commission File No. 33-92188).
10.38 -- Tax Sharing Agreement, dated as of June 10, 1992, between Abex Inc. and The Henley
Group (incorporated by reference to Exhibit 10.03 to Abex Inc.'s Annual Report on Form
10-K for the year ended December 31, 1992).
10.39 -- Letter Agreement, dated as of July 15, 1992, between Abex Inc. and the Pension Benefit
Guaranty Corporation (incorporated by reference to Exhibit 10.16 to Abex Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1992).
10.40 -- Letter Agreement, dated as of July 15, 1992, made by The Henley Group in favor of PBGC
(incorporated by reference to Exhibit 10.17 to Abex Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1992).
10.41 -- Pension Agreement, dated as of July 16, 1992, among Koll Real Estate Group, Inc., The
Henley Group, Inc. and Abex Inc. (incorporated by reference to Exhibit 10.18 to Abex
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
10.42 -- Conditional Guarantee, dated as of July 9, 1992, among Abex Inc., The Henley Group,
Inc., Koll Real Estate Group, Inc. and Allied-Signal Inc. (incorporated by reference to
Exhibit 10.19 to Abex Inc.'s Annual Report on Form 10-K for the year ended December 31,
1992).
10.43 -- Reimbursement Agreement, dated as of July 16, 1992, among The Henley Group, Inc., Koll
Real Estate Group, Inc. and Abex Inc. (incorporated by reference to Exhibit 10.20 to
Abex Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
10.44 -- Tax Sharing Agreement, dated as of December 31, 1988, between Wheelabrator Technologies
Inc. and Koll Real Estate Group, Inc. (incorporated by reference to Exhibit 10.02 to
Amendment No. 3 on Form 8 to Koll Real Estate Group, Inc.'s Registration Statement on
Form 10 (Registration No. 0-17189)).
10.45 -- Modification Agreement, dated as of August 24, 1989, among Wheelabrator Technologies
Inc., Resco Holdings Inc., The Henley Group, Inc. Waste Management of North America,
Inc. and a subsidiary of The Henley Group, Inc. (incorporated by reference to Exhibit
10.32 to The Henley Group, Inc.'s Registration Statement on Form 10, Registration No.
0-18004), as amended by the Assignment, Assumption and Release Agreement, dated as of
December 18, 1989 (incorporated by reference to Exhibit 10.69 to Wheelabrator
Technologies Inc.'s Registration Statement on Form S-4 (Registration No. 33-36118), as
amended by Termination and Amendment Agreement, dated as of December 31, 1991, among
The Henley Group, Inc., Koll Real Estate Group, Inc., Wheelabrator Technologies Inc.,
and Resco Holdings Inc., (incorporated by reference to Exhibit 10.39 to The Henley
Group Inc.'s Annual Report on Form 10-K for the year ended December 31, 1991
(Registration No. 0-18004)).
10.46 -- Environmental Expenditures Agreement, dated as of July 28, 1989, among Koll Real Estate
Group, Inc., Wheelabrator Technologies Inc., New Hampshire Oak, Inc. and Fisher
Scientific Group Inc. (incorporated by reference to Exhibit 10(a) to Henley Properties'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 (Registration No.
0-17189)), as amended by Assignment and Assumption Agreement, dated as of January 1,
1990, among Koll Real Estate Group, Inc., The Henley Group, Inc., New Hampshire Oak
Inc., Fisher Scientific Group Inc., Wheelabrator Technologies Inc., and Henley
Holdings, Inc. (incorporated by reference to Exhibit 10.34 to The Henley Group, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1989 (Registration No.
0-18004)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- --------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
10.47 -- Restated Environmental Matters Agreement, dated as of July 28, 1989, among
Allied-Signal, Inc., Koll Real Estate Group, Inc., Wheelabrator Technologies Inc., New
Hampshire Oak Inc. and Fisher Scientific Group Inc. (incorporated by reference to
Exhibit 10(b) to Henley Properties' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989 (Registration No. 0-17189)), amended by the Assignment, Assumption and
Indemnification Agreement, dated as of December 21, 1989, among The Henley Group, Inc.,
Henley Properties, New Hampshire Oak Inc., Fisher Scientific Group Inc., Wheelabrator
Technologies Inc. and Allied-Signal Inc. (incorporated by reference to Exhibit 10.35 to
The Henley Group, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1989 (Registration No. 0-18004)).
10.48 -- Tax Sharing Agreement, dated as of February 26, 1986, between Allied-Signal Inc. and
Wheelabrator Technologies Inc., (incorporated by reference to Exhibit 10E to WTI's
Registration Statement on Form 10 (Registration No. 0-114246)).
10.49 -- Guarantee Agreement, dated as of June 10, 1993, between Abex Inc. and BF Goodrich
Company (incorporated by reference to Exhibit 2.2 to Abex Inc.'s Current Report on Form
8-K dated June 10, 1993).
10.50 -- Mutual Guaranty Agreement, dated as of December 30, 1994, between Abex Inc. and Cooper
Industries Inc. (incorporated by reference to Exhibit 10.29 to Abex Inc.'s Registration
Statement on Form S-4 (Registration No. 33-92188)).
**12 -- Computation of Ratio of Earnings to Fixed Charges.
**21 -- List of Subsidiaries
*23.1 -- Consent of Ernst & Young LLP.
*23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in the opinions filed as
Exhibits 5.1 and 8.1 hereto).
**24 -- Powers of Attorney.
*25.1 -- Form T-1 with respect to the eligibility of American Stock Transfer & Trust Company, as
Trustee under the VSR Agreement.
*99.1 -- Report of Independent Public Accountants of Arthur Andersen LLP
</TABLE>
- ------------------
* Filed herewith.
** Filed on October 31, 1996.
*** To be filed by amendment.
<PAGE>
CERTAIN PROVISIONS OF THIS FORM OF INDENTURE HAVE NOT YET BEEN DETERMINED;
ACCORDINGLY, THIS FORM OF INDENTURE IS SUBJECT TO COMPLETION.
================================================================================
MAFCO CONSOLIDATED GROUP INC.
____% Senior Notes Due ___________
---------------
INDENTURE
Dated as of _________, 199_
---------------
[--------------------------------]
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS*
Page
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions....................................... 1
Section 1.2 Compliance and Opinions........................... 5
Section 1.3 Form of Documents Delivered to
Trustee...................................... 6
Section 1.4 Acts of Holders................................... 7
Section 1.5 Notices, etc., to Trustee and
Company...................................... 8
Section 1.6 Notice to Holders; Waiver......................... 8
Section 1.7 Conflict with Trust Indenture Act................. 9
Section 1.8 Effect of Headings and Table of
Contents..................................... 9
Section 1.9 Successors and Assigns............................ 9
Section 1.10 Benefits of Indenture............................ 9
Section 1.11 Governing Law.................................... 10
Section 1.12 Legal Holidays................................... 10
Section 1.13 Separability Clause.............................. 10
Section 1.14 No Recourse Against Others....................... 10
ARTICLE 2
SECURITY FORMS
Section 2.1 Forms Generally................................... 10
Section 2.2 Registrable Form.................................. 11
Section 2.3 Execution, Authentication, Delivery
and Dating................................... 11
Section 2.4 Temporary Securities.............................. 12
Section 2.5 Registration, Registration of
Transfer and Exchange........................ 12
Section 2.6 Mutilated, Destroyed, Lost and Stolen
Securities................................... 14
Section 2.7 Presentation of Security.......................... 15
Section 2.8 Persons Deemed Owners............................. 15
Section 2.9 Cancellation...................................... 15
Section 2.10 Defaulted Interest............................... 15
SECTION 2.11 CUSIP Numbers.................................... 16
- --------
* Note: This table of contents shall not, for any purpose, be deemed to be
a part of this Indenture.
i
<PAGE>
Page
ARTICLE 3
REDEMPTION
Section 3.1 Notices to Trustee................................ 16
Section 3.2 Selection of Securities To Be
Redeemed..................................... 17
Section 3.3 Notice of Redemption.............................. 17
Section 3.4 Effect of Notice of Redemption.................... 18
Section 3.5 Deposit of Redemption Price....................... 18
Section 3.6 Securities Redeemed in Part....................... 19
ARTICLE 4
THE TRUSTEE
Section 4.1 Certain Duties and Responsibilities............... 19
Section 4.2 Certain Rights of Trustee......................... 20
Section 4.3 Not Responsible for Recitals or
Issuance of Securities....................... 22
Section 4.4 May Hold Securities............................... 22
Section 4.5 Money Held in Trust............................... 22
Section 4.6 Compensation and Reimbursement.................... 22
Section 4.7 Disqualification; Conflicting
Interests.................................... 23
Section 4.8 Corporate Trustee Required;
Eligibility.................................. 23
Section 4.9 Resignation and Removal; Appointment
of Successor................................. 24
Section 4.10 Acceptance of Appointment of
Successor.................................... 25
Section 4.11 Merger, Conversion, Consolidation or
Succession to Business....................... 26
Section 4.12 Preferential Collection of Claims
Against Company.............................. 26
ARTICLE 5
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 5.1 Company to Furnish Trustee Names and
Addresses of Holders......................... 27
Section 5.2 Preservation of Information;
Communications to Holders.................... 27
Section 5.3 Reports by Trustee................................ 27
Section 5.4 Reports by Company................................ 28
ii
<PAGE>
Page
ARTICLE 6
AMENDMENTS
Section 6.1 Amendments Without Consent of Holders............. 28
Section 6.2 Amendments with Consent of Holders................ 30
Section 6.3 Execution of Amendments........................... 30
Section 6.4 Effect of Amendments; Notice to Holders........... 31
Section 6.5 Conformity with Trust Indenture Act............... 31
Section 6.6 Reference in Securities to Amendments............. 31
ARTICLE 7
COVENANTS
Section 7.1 Payment of Securities............................. 32
Section 7.2 Maintenance of Office or Agency................... 32
Section 7.3 Money for Security Payments to Be
Held in Trust................................ 33
Section 7.4 Transactions with Affiliates...................... 34
Section 7.5 Statement as to Compliance........................ 34
Section 7.6 Notice of Default................................. 35
ARTICLE 8
REMEDIES OF THE TRUSTEE AND HOLDERS
ON EVENT OF DEFAULT
Section 8.1 Event of Default Defined;
Acceleration of Maturity; Waiver of
Default...................................... 35
Section 8.2 Collection of Indebtedness by
Trustee; Trustee May Prove Debt.............. 37
Section 8.3 Application of Proceeds........................... 39
Section 8.4 Suits for Enforcement............................. 40
Section 8.5 Restoration of Rights on Abandonment
of Proceedings............................... 40
Section 8.6 Limitations on Suits by Holders................... 41
Section 8.7 Unconditional Right of Holders to
Institute Certain Suits...................... 41
Section 8.8 Powers and Remedies Cumulative; Delay
or Omission Not Waiver of Default............ 42
Section 8.9 Control by Holders................................ 42
Section 8.10 Waiver of Past Defaults.......................... 43
Section 8.11 Trustee to Give Notice of Default,
But May Withhold in Certain Circumstances.... 43
iii
<PAGE>
Page
Section 8.12 Right of Court to Require Filing of
Undertaking to Pay Costs..................... 44
ARTICLE 9
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 9.1 Company May Consolidate, etc., on
Certain Terms................................ 44
Section 9.2 Successor Person Substituted...................... 45
Section 9.3 Opinion of Counsel to Trustee..................... 45
ARTICLE 10
DISCHARGE OF INDENTURE; DEFEASANCE
Section 10.1 Discharge of Liability on Securities; Defeasance. 46
Section 10.2 Conditions to Defeasance......................... 47
Section 10.3 Application of Trust Money....................... 48
Section 10.4 Repayment to Company............................. 49
Section 10.5 Indemnity for Government Obligations............. 49
Section 10.6 Reinstatement.................................... 49
Exhibit A - Form of Security
iv
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated
as of ______________ __, 199_.
Trust Indenture Act Section Indenture Section
ss.310(a)(1).................................. 4.9
(a)(2) ................................ 4.9
(a)(3) ................................ Not Applicable
(a)(4) ................................ Not Applicable
(b).................................... 4.7, 4.9
ss.311(a)..................................... 4.13(a)
(b).................................... 4.13(b)
(b)(2) ................................ 5.3(a)(2), 5.3(b)
ss. 312(a)................................... 5.1, 5.2(a)
(b).................................... 5.2(b)
(c).................................... 5.2(c)
ss.313(a).................................... 5.3(a)
(b).................................... 5.3(b)
(c).................................... 5.3(a), 5.3(b)
(d).................................... 5.3(c)
ss.314(a).................................... 5.4
(b).................................... Not Applicable
(c)(1)................................. 1.2
(c)(2)................................. 1.2
(c)(3)................................. Not Applicable
(d).................................... Not Applicable
(e).................................... 1.2
ss.315(a).................................... 4.1(a)
(b).................................... 8.11, 5.3(a)(6)
(c).................................... 4.1(b)
(d).................................... 4.1(c)
(d)(1)................................. 4.1(a)(1)
(d)(2)................................. 4.1(c)(2)
(d)(3)................................. 4.1(c)(3)
(e).................................... 8.1, 8.12
ss.316(a).................................... 1.1
(a)(1)(A).............................. 8.9
(a)(1)(B).............................. 8.10
(a)(2)................................. Not Applicable
(b).................................... 8.7
ss.317(a)(1)................................. 8.2
(a)(2)................................. 8.2
(b).................................... 7.3
ss. 318(a)................................... 1.7
- ---------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
v
<PAGE>
INDENTURE, dated as of __________, ____, among MAFCO CONSOLIDATED
GROUP INC., a Delaware corporation (the "Company"), and ________________, as
trustee (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the creation of an issue of
__% Senior Notes due _________ (the "Securities"), of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, all things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder, the
valid obligations of the Company, and to make this Indenture a valid Indenture
of the Company, all in accordance with their and its terms.
NOW, THEREFORE, it is mutually covenanted and agreed, for the equal
and proportionate benefit of all Holders (as defined below) of the Securities,
as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all accounting terms used herein and not expressly defined
herein shall have the meanings assigned to such terms in accordance with
generally accepted accounting principles, and the term "generally accepted
accounting principles" means such accounting principles as are generally
accepted as of the date of this Indenture;
(c) all other terms used herein which are defined in the
Trust Indenture Act (as defined herein),
<PAGE>
either directly or by reference therein, have the meanings assigned to them
therein; and
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified
in Section 1.4.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors of the Company and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Business Day" means any day (other than a Saturday or a Sunday) on
which banking institutions in The City of New York, New York are not authorized
or obligated by law or executive order to close and, if the Securities are
listed on a national securities exchange, such exchange is open for trading.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act (as defined herein), or
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Company" means the Person (as defined herein) named as the
"Company" in the first paragraph of this Indenture, until a successor Person
shall have become such pursuant to the applicable provisions of this Indenture,
and thereafter "Company" shall mean such successor Person. To
2
<PAGE>
the extent necessary to comply with the requirements of the provisions of Trust
Indenture Act ss.ss. 310 through 317 as they are applicable to the Company, the
term "Company" shall include any other obligor with respect to the Securities
for the purposes of complying with such provisions.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by the chairman of the Board of
Directors or the president or any vice president, the controller or assistant
controller and the treasurer or assistant treasurer or the secretary or any
assistant secretary, and delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at ______________________________________________________________________.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Default Amount" has the meaning specified in Section 8.1.
"Event of Default" has the meaning specified in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended pursuant to the applicable
provisions hereof.
"Officers' Certificate," when used with respect to the Company,
means a certificate signed by the chairman of the Board of Directors or the
president or any vice president, the controller or assistant controller and the
treasurer or assistant treasurer or the secretary or any assistant secretary of
the Company and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company.
3
<PAGE>
"Outstanding" when used with respect to Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) From and after a redemption date or maturity date,
Securities for the payment of which money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such Securities;
and
(c) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this Indenture,
other than any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such Securities are held
by a bona fide purchaser in whose hands the Securities are valid obligations of
the Company;
provided, however, that in determining whether the Holders of the requisite
Outstanding Securities have given any request, demand, direction, consent or
waiver hereunder, Securities owned by the Company or any Affiliate of the
Company, whether held as treasury stock or otherwise, shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, direction, consent
or waiver, only Securities which the Trustee knows to be so owned shall be so
disregarded.
"Paying Agent" has the meaning specified in Section 7.2.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
"Responsible Officer" when used with respect to the Trustee means
any officer assigned to the Corporate Trust Office and also means, with respect
to any particular corporate trust matter, any other officer of the Trustee to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
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"Security Register" and "Security Registrar" have the respective
meanings specified in Section 2.5.
"Subsidiary" means each Person more than 50% of the outstanding
Voting Securities of which is owned, directly or indirectly, by the Company
and/or one or more Subsidiaries.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"vice president" when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title of "vice president."
"Voting Securities" means securities having ordinary voting power to
elect a majority of the directors irrespective of whether or not stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency.
Section 1.2 Compliance and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that, in the opinion of the
signor, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he or she has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.3 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel. Any such certificate or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company.
Any certificate, statement or opinion of an officer of the Company
or of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company. Any certificate
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or opinion of any independent firm of public accountants filed with the Trustee
shall contain a statement that such firm is independent.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.4 Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 4.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section. The Company may set
a record date for purposes of determining the identity of Holders entitled to
vote or consent to any action by vote or consent authorized or permitted under
this Indenture. If not set by the Company prior to the first solicitation of a
Holder of Securities made by any Person in respect of any such action, or, in
the case of any such vote, prior to such vote, the record date for such action
shall be the later of 10 days prior to the first solicitation of such consent or
the date of the most recent list of Holders furnished to the Trustee pursuant to
Section 5.1 of this Indenture prior to such solicitation. If a record date is
fixed, those Persons who were Holders of securities at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
take such action by vote or consent or, except with respect to clause (d) below,
to revoke any vote or consent previously given, whether or not such Persons
continue to be Holders after such record date. No such vote or consent shall be
valid or effective for more than 120 days after such record date.
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(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the
Security Register. Neither the Company nor the Trustee nor any agent of the
Company or the Trustee shall be affected by any notice to the contrary.
(d) At any time prior to (but not after) the evidencing to the
Trustee, as provided in this Section 1.4, of the taking of any action by the
Holders of the Securities specified in this Indenture in connection with such
action, any Holder of a Security the serial number of which is shown by the
evidence to be included among the serial numbers of the Securities the Holders
of which have consented to such action may, by filing written notice at the
Corporate Trust Office and upon proof of holding as provided in this Section
1.4, revoke such action so far as concerns such Security. Any request, demand,
authorization, direction, notice, consent, waiver or other action by the Holder
of any Security shall bind every future Holder of the same Security or the
Holder of every Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, suffered or
omitted to be done by the Trustee, any Paying Agent or the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
Section 1.5 Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed, in
writing, to or with the Trustee at ___________________________________________;
or
(b) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder if in writing and mailed, first-class
postage prepaid, to the Company addressed to it at 35 East 62nd Street, New
York, New York 10021, Attention: General Counsel, or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.6 Notice to Holders; Waiver.
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Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at his address as it appears in the Security Register,
not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.7 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control.
Section 1.8 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 1.9 Successors and Assigns.
All covenants and Indentures in this Indenture by the Company shall
bind their respective successors and assigns, whether so expressed or not.
Section 1.10 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto and their successors
hereunder, any Paying
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Agent and the Holders) any benefit or any legal or equitable right, remedy or
claim under this Indenture or under any covenant or provision herein contained,
all such covenants and provisions being for sole benefit of the parties hereto
and their successors and of the Holders.
Section 1.11 Governing Law.
This Indenture and the Securities shall be governed by and construed
in accordance with the laws of the State of New York.
Section 1.12 Legal Holidays.
In the event that a payment date shall not be a Business Day, then
(notwithstanding any provision of this Indenture or the Securities to the
contrary) payment on the Securities need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the payment date, and no interest shall accrue for the intervening
period.
Section 1.13 Separability Clause.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 1.14 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company or the Trustee under the Securities or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. By
accepting a Security, each Holder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
ARTICLE 2
SECURITY FORMS
Section 2.1 Forms Generally.
The Securities and the Trustee's certificate of authentication shall
be in substantially the form of Exhibit A (which is hereby incorporated in and
expressly made a part of this Indenture), with such appropriate inser-
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tions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may be
required by law or any rule or regulation pursuant thereto, all as may be
determined by the officers executing such Securities, as evidenced by their
execution of the Securities. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Security. The terms of the Securities set forth in Exhibit A are part of
the terms of this Indenture.
The definitive Securities shall be printed, lithographed or engraved
on steel engraved borders or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
Section 2.2 Registrable Form.
The Securities shall be issuable only in registered form.
Section 2.3 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
chairman of the Board of Directors or its president or any vice president or its
treasurer, but need not be attested. The signature of any of these officers on
the Securities may be manual or facsimile. The Company's seal shall be
impressed, affixed, imprinted or reproduced on the Securities and may be in
facsimile form.
Securities bearing the manual or facsimile signatures of individuals
who were at the time of execution the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authen-
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ticate and deliver such Securities as provided in this Indenture and not
otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and that the Holder is entitled to the benefits of this Indenture.
Section 2.4 Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order, the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, substantially of the tenor of the definitive Securities
in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Securities may determine with the concurrence of the Trustee. Temporary
Securities may contain such reference to any provisions of this Indenture as may
be appropriate. Every temporary Security shall be executed by the Company and be
authenticated by the Trustee upon the same conditions and in substantially the
same manner, and with like effect, as the definitive Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 7.2, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
amount of definitive Securities. Until so exchanged the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
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Section 2.5 Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the office of
________________________________ a register (the register maintained in such
office and in any other office or agency designated pursuant to Section 7.2
being herein sometimes referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers of Securities. ______ is
hereby initially appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender, for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 7.2, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities
representing the same aggregate principal amount represented by the Security so
surrendered that is to be transferred and the Company shall execute and the
Trustee shall authenticate and deliver, in the name of the transferor, one or
more new Securities represented by principal amount that is not to be
transferred.
At the option of the Holder, Securities may be exchanged for other
Securities that represent in the aggregate the same principal amount as the
Securities surrendered at such office or agency. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
rights, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
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No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 2.4 or 6.6 not involving any transfer.
The Company shall not be required to make and the Security Registrar
need not register transfers or exchanges of (i) Securities selected for
redemption (except, in the case of Securities to be redeemed in part, the
portion thereof not to be redeemed) or (ii) for a period of 15 days before a
selection of Securities to be redeemed, any Securities.
Section 2.6 Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee, or (b)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon delivery of a Company Order the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is to become due and payable within 15 days, the Company in its
discretion may, instead of issuing a new Security, pay to the holder of such
Security on such payment date all amounts due and payable with respect thereto.
Upon the issuance of any new Securities under this Section, the
Company shall pay any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and
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shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 2.7 Presentation of Security.
Payment of any amounts pursuant to the Securities shall be made only
upon presentation by the Holder thereof, at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York,
and at any other office or agency maintained by the Company for such purpose in
such coin or currency of the United States of America as at the time is legal
tender for the payment of public and private debts. However, the Company may pay
such amounts by its check payable in such money.
Section 2.8 Persons Deemed Owners.
Prior to the time of due presentment for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Section 2.9 Cancellation.
All Securities surrendered for payment, registration of transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly cancelled
by the Trustee. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of as directed by a Company Order.
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Section 2.10 Defaulted Interest.
If the Company defaults in a payment of interest on the Securities,
the Company shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) in any lawful manner. The Company may pay the
defaulted interest to the Persons who are Holders on a subsequent special record
date, which date shall be at least five Business Days prior to the payment date.
The Company shall fix or cause to be fixed any such special record date and
payment date, and at least 15 days before any such special record date, the
Company shall mail to the Trustee and each Holder a notice that states the
special record date, the payment date and the amount of defaulted interest to be
paid. At the Company's request and upon the delivery of a Company Order, the
Trustee shall give the notice contemplated by this Section 2.10 in the Company's
name and at the Company's expense. In such event, the Company shall provide the
Trustee with the information required by this Section.
SECTION 2.11 CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if
then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided, however, that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of a redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE 3
REDEMPTION
Section 3.1 Notices to Trustee.
If the Company elects to redeem Securities pursuant to paragraph 5
of the Securities, it shall notify the Trustee in writing of the redemption
date, the principal amount of Securities to be redeemed and the paragraph of the
Securities pursuant to which the redemption will occur. The Company shall give
the notice provided for in this paragraph to the Trustee at least 60 days before
the redemption date unless the Trustee consents to a shorter period. Such notice
shall be accompanied by an Officers' Certificate to
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the effect that such redemption will comply with the conditions herein.
If fewer than all the Securities are to be redeemed, the record date
relating to such redemption for determining the Holders to whom notice of
redemption will be sent pursuant to Section 3.3 shall be selected by the Company
and given to the Trustee, which record date shall be not less than 15 days after
the date of notice to the Trustee unless the Trustee consents to a shorter
period.
Section 3.2 Selection of Securities To Be Redeemed.
If fewer than all the Securities are to be redeemed, the Trustee in
its discretion shall select the Securities to be redeemed pro rata or by lot or
by a method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee considers fair and appropriate and in
accordance with methods generally used at the time of selection by fiduciaries
in similar circumstances. The Trustee shall make the selection from Outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations larger than $1,000. Securities and portions of them the Trustee
selects shall be in original principal amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
Section 3.3 Notice of Redemption.
At least 30 days but not more than 60 days before a date for
redemption of Securities, the Company shall mail a notice of redemption by
first-class mail to each Holder of Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
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(5) if fewer than all the Outstanding Securities are to be redeemed,
the identification of the particular Securities to be redeemed as well as
the aggregate principal amount of Securities to be redeemed and, if any
Security is being redeemed in part, the portion of the principal amount of
such Security to be redeemed and that after the redemption date and upon
surrender of such Security a new Security or Securities will be issued
having a principal amount equal to the principal amount of the Security
surrendered less the principal amount of the portion of the Security
redeemed;
(6) that, unless the Company defaults in making such redemption
payment, interest on the Securities (or portion thereof) called for
redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request and upon the delivery of a Company Order,
the Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. In such event, the Company shall provide the Trustee with the
information required by this Section.
Section 3.4 Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date and at the redemption
price stated in the notice. Upon surrender to the Paying Agent, such Securities
shall be paid at the redemption price stated in the notice, plus accrued and
unpaid interest, if any, to the redemption date. Failure to give notice or any
defect in the notice to any Holder shall not affect the validity of the notice
to any other Holder. Any notice when mailed with proper postage to a Holder
shall be conclusively deemed to have been received by such Holder whether or not
actually received by such Holder.
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Section 3.5 Deposit of Redemption Price.
On or prior to the redemption date, the Company shall deposit with
the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of and
accrued and unpaid interest on all Securities to be redeemed on that date other
than Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation.
Section 3.6 Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company
shall execute and the Trustee shall authenticate for the Holder (at the
Company's expense) a new Security having a principal amount equal to the
principal amount of the Security surrendered less the principal amount of the
portion of the Security so redeemed.
ARTICLE 4
THE TRUSTEE
Section 4.1 Certain Duties and Responsibilities.
(a) With respect to the Holders of Securities issued, the
Trustee, prior to the occurrence of an Event of Default with respect to the
Securities and after the curing or waiving of all Events of Default which may
have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants shall be read
into this Indenture against the Trustee. In case an Event of Default with
respect to the Securities has occurred (which has not been cured or waived), the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) In the absence of bad faith on its part, prior to the
occurrence of an Event of Default and after the curing or waiving of all such
Events of Default which may have occurred, the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; but in the case of any such certificates
or opinions which by any provision hereof are specifically
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required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) this Subsection (c) shall not be construed to limit
the effect of Subsections (a) and (b) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent facts;
(3) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it; and
(4) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders pursuant to Section 8.9 relating to the time,
method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
Section 4.2 Certain Rights of Trustee.
Subject to the provisions of Section 4.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or docu-
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ment believed by it to be genuine and to have been signed or presented by the
proper party or parties and the Trustee need not investigate any fact or matter
stated in any such document;
(b) any request or direction or order of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company Order,
and any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution, and the Trustee shall not be liable for any action it takes or
omits to take in good faith reliance thereon;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate, and the Trustee shall not be
liable for any action it takes or omits to take in good faith reliance thereon
or an Opinion of Counsel;
(d) the Trustee may consult with counsel, and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by the Trustee hereunder in good faith and in accordance with such advice or
opinion of counsel;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee shall not
be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, appraisal, bond, debenture, note, coupon,
security, or other paper or document, but the Trustee in its discretion may make
such further inquiry or investigation into such facts or matters as it may see
fit, and if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney;
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(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be liable for any action taken,
suffered or omitted to be taken by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture.
Section 4.3 Not Responsible for Recitals or Issuance of Securities.
The Trustee shall not be accountable for the Company's use of the
Securities or the proceeds from the Securities. The recitals contained herein
and in the Securities, except the Trustee's certificates of authentication,
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities.
Section 4.4 May Hold Securities.
The Trustee, any Paying Agent, Security Registrar or any other agent
of the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities, and, subject to Sections 4.7 and 4.12, may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Paying Agent, Security Registrar or such other agent.
Section 4.5 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder.
Section 4.6 Compensation and Reimbursement.
The Company agrees
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
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(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(c) to indemnify the Trustee and each of its agents, officers,
directors and employees (each an "indemnitee") for, and to hold it harmless
against, any loss, liability or expense (including attorneys fees and expenses)
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust and the
performance of its duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The obligations of the
Company hereunder shall constitute additional indebtedness hereunder. To secure
the Company's payment obligations in this Section, the Trustee shall have a lien
prior to the Securities on all money or property held or collected by the
Trustee other than money or property held in trust to pay particular Securities.
The Company's payment obligations pursuant to this Section shall survive the
termination of this Indenture. When the Trustee incurs expenses after the
occurrence of an Event of Default specified in Section 8.1(c) or 8.1(d) with
respect to the Company, the expenses are intended to constitute expenses of
administration under bankruptcy laws.
Section 4.7 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire any conflicting interest within
the meaning of the Trust Indenture Act, it shall, within 90 days after
ascertaining that it has such conflicting interest, either eliminate such
conflicting interest or resign to the extent and in the manner provided by, and
subject to the provisions of, the Trust Indenture Act and this Indenture. The
Company shall take prompt steps to have a successor appointed in the manner
provided in this Agreement.
Section 4.8 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation that is eligible pursuant to
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the Trust Indenture Act to act as such and has a combined capital and surplus of
at least $10,000,000. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of a supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
Section 4.9 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 4.10.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may resign at any time by giving written notice thereof to the
Company. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the
Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 4.7
after written request therefor by the Company or by any Holder who has
been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section
4.8 and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or
of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs
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for the purpose of rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) the Holder of any Security who has been a bona fide Holder of a Security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after any removal by Holders of a
majority in principal amount of the Outstanding Securities, a successor Trustee
shall be appointed by Act of the Holders of a majority in principal amount of
the Outstanding Securities delivered to the Company and the retiring Trustee,
the successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with Section 4.10, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of the
Securities and accepted appointment within 60 days after the retiring Trustee
tenders its resignation or is removed, the retiring Trustee may, or, the Holder
of any Security who has been a bona fide Holder for at least six months may on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office. If the Company fails to send such notice
within ten days after acceptance of appointment by a successor Trustee, it shall
not be a default hereunder but the successor Trustee shall cause the notice to
be mailed at the expense of the Company.
Section 4.10 Acceptance of Appointment of Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the
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retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, upon request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee, and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder. Upon
request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 4.11 Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and such certificate shall have the full force which it is anywhere in the
Securities or in this Indenture provided that the certificate of the Trustee
shall have; provided that the right to adopt the certificate of authentication
of any predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
Section 4.12 Preferential Collection of Claims Against Company.
If and when the Trustee shall be or shall become a creditor of the
Company (or any other obligor upon the
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Securities) the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of claims against the Company (or any
such other obligor).
ARTICLE 5
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 5.1 Company to Furnish Trustee Names and Addresses of
Holders.
The Company will furnish or cause to be furnished to the Trustee (i)
semiannually, not later than June 30 and December 31 of each year, a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the Holders as of such date, and (ii) at such times as the Trustee may request
in writing, within 30 days after receipt by the Company of any such request, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of a date not more than 15 days prior to the time
such list is furnished; provided, however, that if and so long as the Trustee
shall be the Security Registrar, no such list need be furnished.
Section 5.2 Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 5.1 and the names
and addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 5.1 upon receipt of a new list so furnished.
(b) The rights of the Holders to communicate with other
Holders with respect to their rights under this Indenture and the corresponding
rights and privileges of the Trustee shall be as provided by the Trust Indenture
Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee shall be deemed to be in violation of law or held accountable by reason
of the disclosure of any such information as to the names and addresses of the
Holders made pursuant to the Trust Indenture Act.
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Section 5.3 Reports by Trustee.
(a) Within 60 days after December 31 of each year commencing
with the first December 31 after the first issuance of Securities, the Trustee
shall transmit to all Holders such reports concerning the Trustee and its
actions under this Indenture as may be required pursuant to the Trust Indenture
Act at the time and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to the Holders, be filed by the Trustee with each stock exchange
upon which the Securities are listed, with the Commission and also with the
Company. The Company will promptly notify the Trustee when the Securities are
listed on any stock exchange.
Section 5.4 Reports by Company.
The Company shall:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if
the Company is not required to file information, documents or reports pursuant
to either of said Sections, then it shall file with the Trustee quarterly and
annual financial information which would be required pursuant to Section 13 of
the Exchange Act in respect of a security listed and registered on a national
securities exchange, as may be prescribed from time to time in such rules and
regulations; and
(b) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Company pursuant to subsection (a) of this
Section as may be required by rules and regulations prescribed from time to time
by the Commission.
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ARTICLE 6
AMENDMENTS
Section 6.1 Amendments Without Consent of Holders.
Without the consent of any Holders, the Company and the Trustee, at
any time and from time to time, may enter into one or more amendments hereto or
to the Securities, for any of the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the
Trustee as security for the Securities any property or assets; or
(b) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of the
Company herein and in the Securities; or
(c) to add to the covenants of the Company such further
covenants, restrictions, conditions or provisions as its Board of
Directors and the Trustee shall consider to be for the protection of the
Holders of Securities, and to make the occurrence, or the occurrence and
continuance, of a default in any such additional covenants, restrictions,
conditions or provisions an Event of Default permitting the enforcement of
all or any of the several remedies provided in this Indenture as herein
set forth; provided that in respect of any such additional covenant,
restriction, condition, condition or provision such amendment may provide
for a particular period of grace after default (which period may be
shorter or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such an Event of Default or may
limit the remedies available to the Trustee upon such an Event of Default
or may limit the right of the Holders of a majority of the Securities to
waive such an Event of Default; or
(d) to cure any ambiguity, or to correct or supplement any
provision herein or in the Securities which may be defective or
inconsistent with any other provision herein; provided that such
provisions shall not materially reduce the benefits of this Indenture or
the Securities to the Holders; or
(e) to make any other provisions with respect to matters or
questions arising under this
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Indenture; provided that such provisions shall not adversely affect the
interests of the Holders; or
(f) to make any amendments or changes necessary to comply or
maintain compliance with the Trust Indenture Act.
Promptly following any amendment of this Indenture or the Securities
in accordance with this Section 6.1, the Trustee shall notify the Holders of the
Securities of such amendment; provided that any failure so to notify the Holders
shall not affect the validity of such amendment.
Section 6.2 Amendments with Consent of Holders.
With the consent of the Holders of a majority in principal amount of
the Outstanding Securities, by Act of said Holders delivered to the Company and
the Trustee, the Company (when authorized by a Board Resolution) and the Trustee
may enter into one or more amendments hereto or to the Securities for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or to the Securities or of modifying in any
manner the rights of the Holders under this Indenture or to the Securities;
provided, however, that no such amendment shall, without the consent of the
Holder of each Outstanding Security affected thereby:
(a) extend the maturity of the Securities or reduce the amounts
payable in respect of the Securities or modify any other payment term, interest
rate or payment date;
(b) reduce the principal amount of the Outstanding Securities, the
consent of whose Holders is required for any such amendment; or
(c) modify any of the provisions of this Section or Section 8.10,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Security affected thereby.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such Act shall approve the substance thereof.
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Section 6.3 Execution of Amendments.
In executing any amendment permitted by this Article, the Trustee
shall be entitled to receive, indemnity reasonably satisfactory to it and
(subject to Section 4.1) shall be fully protected in relying upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Indenture. The Trustee shall execute any amendment authorized pursuant
to this Article VI if the amendment does not adversely affect the Trustee's own
rights, duties or immunities under this Indenture or otherwise. Otherwise, the
Trustee may, but need not, execute such amendment.
Section 6.4 Effect of Amendments; Notice to Holders.
Upon the execution of any amendment under this Article, this
Indenture and the Securities shall be modified in accordance therewith, and such
amendment shall form a part of this Indenture and the Securities for all
purposes; and every Holder of Securities theretofore or thereafter authenticated
and delivered hereunder shall be bound thereby.
Promptly after the execution by the Company and the Trustee of any
amendment pursuant to the provisions of this Article, the Company shall mail a
notice thereof by first class mail to the Holders of Securities at their
addresses as they shall appear on the Security Register, setting forth in
general terms the substance of such amendment. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such amendment.
Section 6.5 Conformity with Trust Indenture Act.
Every amendment executed pursuant to this Article shall conform to
the requirements of the Trust Indenture Act.
Section 6.6 Reference in Securities to
Amendments.
If an amendment changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee. Securities
authenticated and delivered after the execution of any amendment pursuant to
this Article may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such amendment. If the
Company shall so determine, new Securities so modified as to conform, in the
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opinion of the Trustee and the Board of Directors, to any such amendment may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
ARTICLE 7
COVENANTS
Section 7.1 Payment of Securities.
The Company will duly and punctually pay the principal of and
interest on the Securities in accordance with the terms of the Securities and
this Indenture. Principal and interest shall be considered paid on the date due
if on such date the Trustee or the Paying Agent holds in accordance with this
Indenture money sufficient to pay all principal and interest then due.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
then on and after that date such Securities (or portions thereof) cease to be
Outstanding and interest on them ceases to accrue.
Section 7.2 Maintenance of Office or Agency.
As long as any of the Securities remain Outstanding, the Company
will maintain in the Borough of Manhattan, The City of New York, an office or
agency (i) where Securities may be presented or surrendered for payment (the
"Paying Agent"), (ii) where Securities may be surrendered for registration of
transfer or exchange and (iii) where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The office of the
Trustee at __________________________ shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company or any of its Subsidiaries
may act as Paying Agent, registrar or transfer agent; provided that such Person
shall take appropriate actions to avoid the commingling of funds. The Company
will
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give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes, and may from time
to time rescind such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in the Borough of Manhattan, The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such office or
agency.
Section 7.3 Money for Security Payments to Be Held in Trust.
If the Company or any of its Subsidiaries shall at any time act as
the Paying Agent, it will, on or before a redemption date or the payment date,
as the case may be, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the amounts becoming due on such date
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before a redemption date or the payment date, as the
case may be, deposit with a Paying Agent a sum in same day funds sufficient to
pay the amount becoming due on such date; such sum to be held in trust for the
benefit of the Persons entitled to such amount, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
(A) such Paying Agent will hold all sums held by it for the payment of any
amount payable on Securities in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed of
as
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herein provided and (B) that it will give the Trustee notice of any failure by
the Company (or by any other obligor on the Securities) to make any payment on
the Securities when the same shall be due and payable.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of principal or interest on any
Security and remaining unclaimed for one year after a redemption date or the
payment date, as the case may be, shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money shall thereupon
cease.
Section 7.4 Transactions with Affiliates.
For so long as any of the Securities remain Outstanding, the Company
will not enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service,
with any Affiliate, unless (i) such transaction is upon terms which are fair and
reasonable and no less favorable to the Company than it would obtain in
comparable arm's length transactions with a Person that is not an Affiliate and
(ii) if such transaction is material, the Company adopts a Board Resolution
stating that the Board of Directors has determined that such transaction meets
the requirements specified in clause (i) of this Section.
Section 7.5 Statement as to Compliance.
The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, commencing with the fiscal year ending
in the year during which the Securities are first issued hereunder (but in no
event more than one year from such issuance), a written statement signed by the
Chairman of the Board, president or other principal executive officer or vice
president of the Company and by the treasurer or other principal financial
officer or principal accounting officer of the Company, stating, as to each
signer thereof, that
(a) a review of the activities of the Company during such year
and of performance under this Indenture has been made under his supervision, and
(b) to the best of his knowledge, based on such review, the
Company has fulfilled all of its obligations under this Indenture throughout
such year, or,
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if there has been a default in the fulfillment of any such obligation,
specifying each such default known to him and the nature and status thereof.
Section 7.6 Notice of Default.
The Company shall file with the Trustee written notice of the
occurrence of any Event of Default or other default under this Indenture within
five business days of its becoming aware of any such default or Event of
Default.
ARTICLE 8
REMEDIES OF THE TRUSTEE AND HOLDERS
ON EVENT OF DEFAULT
Section 8.1 Event of Default Defined; Acceleration of Maturity;
Waiver of Default.
"Event of Default" with respect to Securities, means each one of the
following events which shall have occurred and be continuing (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of the principal of any Security
when the same becomes due and payable at its stated maturity, upon redemption,
upon declaration or otherwise; or
(b) default in any payment of interest on any Security when
the same becomes due and payable and such default continues for a period of 30
days; or
(c) failure to comply with Article 9; or
(d) default in the performance, or breach, of any covenant or
warranty of the Company in respect of the Securities (other than a covenant or
warranty in respect of the Securities, a default in whose performance or whose
breach is elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities, a written
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notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(e) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Company or for any
substantial part of its property or ordering the winding up or liquidation of
its affairs, and such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or
(f) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consent to the entry of an order for relief in an involuntary case
under any such law, or consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar
official) of the Company or for any substantial part of its property, or make
any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in
Section 8.1(e) or (f)) occurs and is continuing, the Trustee by notice to the
Company or the Holders of at least 25% in principal amount of the Outstanding
Securities by notice to the Company and the Trustee may declare the principal
amount of and accrued interest on all the Securities as of the date of such
declaration (collectively, the "Default Amount") to be due and payable
immediately. If an Event of Default specified in Section 8.1(e) or (f) occurs,
the Default Amount on all the Securities as of the date of such Event of Default
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders.
The foregoing provisions, however, are subject to the condition that
if, at any time after the Securities shall have been so declared due and
payable, and before any judgment or decree for the payment of the moneys due
shall have been obtained or entered as hereinafter provided, the Company shall
pay or shall deposit with the Trustee a sum sufficient to pay all amounts which
shall have become due otherwise than by acceleration (with interest upon such
overdue amount at the rate specified therefor in the Securities Rate to the date
of such payment or deposit) and such amount as shall be sufficient to cover
reasonable compensation to the Trustee, its agents, attorneys and
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counsel, and all other expenses and liabilities incurred and all advances made,
by the Trustee except as a result of negligence or bad faith, and if any and all
Events of Default under this Indenture, other than the non-payment of the
amounts which shall have become due by acceleration, shall have been cured,
waived or otherwise remedied as provided herein, then and in every such case the
Holders of a majority in principal amount of all the Securities then
Outstanding, by written notice to the Company and to the Trustee, may waive all
defaults with respect to the Securities and rescind and annul such declaration
and its consequences, but no such waiver or rescission and annulment shall
extend to or shall affect any subsequent default or shall impair any right
consequent thereof.
Section 8.2 Collection of Indebtedness by Trustee; Trustee May Prove
Debt.
The Company covenants that in case default shall be made in the
payment of all or any part of the Securities when the same shall have become due
and payable, then upon demand of the Trustee, the Company will pay to the
Trustee for the benefit of the Holders of the Securities the whole amount that
then shall have become due and payable on all Securities (with interest from the
date due and payable to the date of such payment upon the overdue amount at the
rate specified therefor in the Securities); and in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including reasonable compensation to the Trustee and each
predecessor Trustee, their respective agents, attorneys and counsel, and any
expenses and liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee except as a result of its negligence or bad faith.
The Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other remedy.
In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law or
in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceedings to judgment or final decree, and may enforce any
such judgment or final decree against the Company or other obligor upon such
Securities and collect in the manner provided by law out of
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the property of the Company or other obligor upon such Securities, wherever
situated, the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the Company
or an other obligor upon the Securities under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Company or their respective property or such other
obligor, or in case of any other comparable judicial proceedings relative to the
Company or other obligor upon the Securities, or to the creditors or property of
the Company or such other obligor the Trustee, irrespective of whether the
principal of any Securities shall then be due and payable as herein expressed or
otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered,
(but shall have no obligation) by intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount
owing and unpaid in respect of the Securities, and to file such other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for reasonable compensation to the Trustee and each
predecessor Trustee, and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee, except as a result of negligence or
bad faith) and of the Holders allowed in any judicial proceedings relative to
the Company or other obligor upon the Securities, or to their respective
property;
(b) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders in any election of a trustee or a standby trustee
in arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings or person performing similar functions in comparable proceedings;
and
(c) to collect and receive any moneys or other property
payable or deliverable on any such claims, and to distribute all amounts
received with respect to the claims of the Holders and of the Trustee on their
behalf; and any trustee, receiver, or liquidator, custodian or other similar
official is hereby authorized by each of the Holders to make payments to the
Trustee, and, in the event that the Trustee shall consent to the making of
payments directly to
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the Holders, to pay to the Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Trustee, each predecessor Trustee and their
respective agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of negligence or bad faith and all other amounts due to the
Trustee or any predecessor Trustee pursuant to Section 4.6. To the extent that
such payment of reasonable compensation, expenses, disbursements, advances and
other amounts out of the estate in any such proceedings shall be denied for any
reason, payment of the same shall be secured by a lien on, and shall be paid out
of, any and all distributions, dividends, moneys, securities and other property
which the Holders may be entitled to receive in such proceedings, whether in
liquidation or under any plan or reorganization or arrangements or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities, or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
person.
All rights of action and of asserting claims under this Indenture,
or under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities or the production thereof and any trial or
other proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the
Holders, and it shall not be necessary to make any Holders of such Securities
parties to any such proceedings.
Section 8.3 Application of Proceeds.
Any moneys collected by the Trustee pursuant to this Article in
respect of any Securities shall be applied in the following order at the date or
dates fixed by the Trustee upon presentation of the several Securities in
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respect of which monies have been collected and stamping (or otherwise noting)
thereon the payment in exchange for the presented Securities if only partially
paid or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses in respect of which
monies have been collected, including reasonable compensation to the
Trustee and each predecessor Trustee and their respective agents and
attorneys and of all expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith, and all other amounts due to the Trustee or any
predecessor Trustee pursuant to Section 4.6;
SECOND: To the payment of the whole amount then owing and unpaid
upon all the Securities, with interest at the rate specified therefor in
the Securities on all such amounts, and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid upon the
Securities, then to the payment of such amounts without preference or
priority of any Security over any other Security, ratably to the aggregate
of such amounts due and payable; and
THIRD: To the payment of the remainder, if any, to the Company or
any other person lawfully entitled thereto.
Section 8.4 Suits for Enforcement.
In case an Event of Default has occurred, has not been waived and is
continuing, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either at law or in equity or in bankruptcy or otherwise, whether for
the specific enforcement of any covenant or Indenture contained in this
Indenture or in aid of the exercise of any power granted in this Indenture or to
enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 8.5 Restoration of Rights on Abandonment of Proceedings.
In case the Trustee or any Holder shall have proceeded to enforce
any right under this Indenture and such proceedings shall have been discontinued
or abandoned for any reason, or shall have been determined adversely to the
Trustee or to such Holder, then and in every such case the Company and the
Trustee and the Holders shall be restored
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respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the Holders shall continue
as though no such proceedings had been taken.
Section 8.6 Limitations on Suits by Holders.
No Holder of any Security shall have any right by virtue or by
availing of any provision of this Indenture to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise upon or under or
with respect to this Indenture, or for the appointment of a trustee, receiver,
liquidator, custodian or other similar official or for any other remedy
hereunder, unless such Holder previously shall have given to the Trustee written
notice of default and of the continuance thereof, as hereinbefore provided, and
unless also the Holders of not less than 25% in principal amount of the
Securities then Outstanding shall have made written request upon the Trustee to
institute such action or proceedings in its own name as trustee hereunder and
shall have offered to the Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or thereby
and the Trustee for 60 days after its receipt of such notice, request and offer
of indemnity shall have failed to institute any such action or proceeding and no
direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 8.9; it being understood and intended, and being
expressly covenanted by the taker and Holder of every Security with every other
taker and Holder and the Trustee, that no one or more Holders of Securities
shall have any right in any manner whatever by virtue or by availing of any
provision of this Indenture to effect, disturb or prejudice the rights of any
other such Holder of Securities, or to obtain or seek to obtain priority over or
preference to any other such Holder or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all Holders of Securities. For the protection and enforcement
of the provisions of this Section, each and every Holder and the Trustee shall
be entitled to such relief as can be given either at law or in equity.
Section 8.7 Unconditional Right of Holders to Institute Certain
Suits.
Notwithstanding any other provision in this Indenture and any
provision of any Security, the right of any Holder of any Security to receive
payment of the amounts payable in respect of such Security on or after the
respective due dates expressed in such Security, or to institute suit for the
enforcement of any such payment on or after
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such respective dates, shall not be impaired or affected without the consent of
such Holder.
Section 8.8 Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default.
Except as provided in Section 8.6, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
No delay or omission of the Trustee or of any Holder to exercise any
right or power accruing upon any Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and, subject to
Section 8.6, every power and remedy given by this Indenture or by law to the
Trustee or to the Holders may be exercised from time to time, and as often as
shall be deemed expedient, by the Trustee or by the Holders.
Section 8.9 Control by Holders.
The Holders of a majority in principal amount of the Securities at
the time Outstanding shall have the right to direct the time, method, and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee with respect to the
Securities by this Indenture; provided that such direction shall not be
otherwise than in accordance with law and the provisions of this Indenture; and
provided further that (subject to the provisions of Section 4.1) the Trustee
shall have the right to decline to follow any such direction if the Trustee,
being advised by counsel, shall determine that the action or proceeding so
directed may not lawfully be taken or if the Trustee in good faith by its board
of directors, the executive committee, or a trust committee of directors or
responsible officers of the Trustee shall determine that the action or
proceedings so directed would involve the Trustee in personal liability or if
the Trustee in good faith shall so determine that the actions or forebearances
specified in or pursuant to such direction would be unduly prejudicial to the
interests of Holders of the Securities not joining in the giving of said
direction, it being understood that (subject to Section 4.1) the Trustee shall
have no duty to ascertain whether or not
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such actions or forebearances are unduly prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the Trustee in
its discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction or directions by Holders.
Section 8.10 Waiver of Past Defaults.
Prior to the declaration of the acceleration of the maturity of the
Securities as provided in Section 8.1, in the case of a default or an Event of
Default specified in clause (c), (d), (e) or (f) of Section 8.1, the Holders of
a majority in principal amount of all the Securities then Outstanding may waive
any such default or Event of Default, and its consequences except a default in
respect of a covenant or provisions hereof which cannot be modified or amended
without the consent of the Holder of each Security affected. In the case of any
such waiver, the Company, the Trustee and the Holders of the Securities shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
Upon any such waiver, such default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
Section 8.11 Trustee to Give Notice of Default, But May Withhold in
Certain Circumstances.
The Trustee shall transmit to the Holders, as the names and
addresses of such Holders appear on the Security Register, notice by mail of all
defaults which have occurred and are known to the Trustee, such notice to be
transmitted within 90 days after the occurrence thereof, unless such defaults
shall have been cured before the giving of such notice (the term "default" or
"Defaults" for the purposes of this Section being hereby defined to mean any
event or condition which is, or with notice or lapse of time or both would
become, an Event of Default); provided that, except in the case of default in
the payment of principal and interest payable in respect of any of the
Securities, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee of
directors or trustees and/or Responsible Officers of the Trustee in good faith
determines that the
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withholding of such notice is in the interests of the Holders.
Section 8.12 Right of Court to Require Filing of Undertaking to Pay
Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including attorneys' fees, against any
party litigant in such suit, having due regard to the merits and good faith or
the claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder or group of Holders holding in the aggregate more than
10% in principal amount of the Securities Outstanding or to any suit instituted
by any Holder for the enforcement of the payment of any Security on or after the
due date expressed in such Security.
ARTICLE 9
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 9.1 Company May Consolidate, etc., on Certain Terms.
The Company covenants that it will not merge or consolidate with or
into any other Person or sell or convey all or substantially all of its assets
to any Person, unless (i) the Company shall be the continuing corporation, or
the successor Person or the Person which acquires by sale or conveyance
substantially all the assets of the Company shall be a Person organized under
the laws of the United States of America or any State thereof and shall
expressly assume by an instrument supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the Securities, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed or observed by the Company, supplemental agreement
satisfactory to the Trustee, executed and delivered to the Trustee by such
Person, and (ii) the Company or such successor Person, as the case may be, shall
not, immediately after such merger or consolidation, or such
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sale or conveyance, be in default in the performance of any such covenant or
condition; provided, however, that nothing herein shall prohibit or restrict the
ability of the Company to merge or consolidate with or into, or to sell all or
substantially all of its assets to, any Subsidiary of the Company.
Section 9.2 Successor Person Substituted.
In case of any such consolidation, merger, sale or conveyance, and
following such an assumption by the successor Person, such successor Person
shall succeed to and be substituted for the Company, with the same effect as if
it had been named herein. Such successor Person may cause to be signed, and may
issue either in its own name or in the name of the Company prior to such
succession any or all of the Securities issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the Trustee; and,
upon the order of such successor corporation instead of the Company and subject
to all the terms, conditions and limitations in this Indenture prescribed, the
Trustee shall authenticate and shall deliver any Securities which previously
shall have been signed and delivered to the Trustee for authentication, and any
Securities which such successor corporation thereafter shall cause to be signed
and delivered to the Trustee for that purpose. All of the Securities so issued
shall in all respects have the same legal rank and benefit under this Indenture
as the Securities theretofore or thereafter issued in accordance with the terms
of this Indenture as though all of such Securities had been issued at the date
of the execution hereof.
In case of any such consolidation, merger, sale or conveyance, such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a conveyance
by way of lease) the Company or any Person which shall theretofore have become
such in the manner described in this Article shall be discharged from all
obligations and covenants under this Indenture and the Securities and may be
liquidated and dissolved.
Section 9.3 Opinion of Counsel to Trustee.
The Trustee, subject to the provisions of Sections 4.1 and 4.2,
shall receive an Opinion of Counsel, prepared in accordance with Sections 1.3
and 1.4, as conclusive evidence that any such consolidation, merger, sale or
conveyance, and any such assumption, and any such
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liquidation or dissolution, complies with the applicable provisions of this
Indenture.
ARTICLE 10
DISCHARGE OF INDENTURE; DEFEASANCE
Section 10.1 Discharge of Liability on Securities; Defeasance.
(a) When (i) the Company delivers to the Trustee all Outstanding
Securities (other than Securities replaced pursuant to Section 2.6) for
cancellation or (ii) all Outstanding Securities have become due and payable and
the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity all Outstanding Securities, including interest thereon (other than
Securities replaced pursuant to Section 2.6), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Sections 10.1(c) and 10.6, cease to be of further effect. The Trustee
shall acknowledge satisfaction and discharge of this Indenture upon delivery to
the Trustee of a Company Order accompanied by an Officers' Certificate and an
Opinion of Counsel and at the cost and expense of the Company.
(b) Subject to Sections 10.1(c), 10.2 and 10.6, the Company at any
time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Section 7.4
and the operation of Section 8.1(d) ("covenant defeasance option"). The Company
may exercise its legal defeasance option notwithstanding its prior exercise of
its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Section 8.1(d).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.5, 2.6, 4.6, 4.9, 4.10, 5.1, 7.2, 7.3, 10.4, 10.5 and
10.6 shall survive until the Securities have been paid in full. Thereafter, the
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Company's obligations in Sections 4.6, 10.4 and 10.5 shall survive.
Section 10.2 Conditions to Defeasance.
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no default specified in Section 8.1(e) or (f) occurs which is
continuing at the end of the period;
(4) no default specified in Section 8.1 has occurred and is
continuing on the date of such deposit and after giving effect thereto;
(5) the deposit does not constitute a default under any other
agreement binding on the Company;
(6) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(7) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders will not recognize income, gain or loss for
Federal income tax
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purposes as a result of such defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance had not occurred;
(8) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(9) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
10 have been complied with.
Notwithstanding the foregoing provisions of this Section, the
conditions set forth in the foregoing paragraphs (2), (3), (4), (5), (6), (7)
and (8) need not be satisfied so long as, at the time the Company makes the
deposit described in paragraph (1), (i) no Default under Sections 8.1(a), (b),
(e) or (f) has occurred and is continuing on the date of such deposit and after
giving effect thereto and (ii) either (x) a notice of redemption has been mailed
pursuant to Section 3.3 providing for redemption of all the Securities 30 days
after such mailing and the provisions of Section 3.1 with respect to such
redemption shall have been complied with or (y) the final maturity of the
Securities will occur within 30 days. If the conditions in the preceding
sentence are satisfied, the Company shall be deemed to have exercised its
covenant defeasance option.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
Section 10.3 Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 10. It shall apply the deposited
money and the money from U.S. Government Obligations through the Paying Agent
and in accordance with this Indenture to the payment of principal of and
interest on the Securities.
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Section 10.4 Repayment to Company.
The Trustee and the Paying Agent shall promptly turn over to the
Company upon request any excess money or Securities held by them at any time.
Section 10.5 Indemnity for Government Obligations.
The Company shall pay and shall indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against deposited U.S.
Government Obligations or the principal and interest received on such U.S.
Government Obligations.
Section 10.6 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 10 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to this Article 10
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with this Article 10;
provided, however, that, if the Company has made any payment of interest on or
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
* * * * *
This Indenture shall be signed in any number of counterparts with
the same effect as if the signatures to each counterpart were upon a single
instrument, and all such
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counterparts together shall be deemed an original of this Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
MAFCO CONSOLIDATED GROUP INC.
By:______________________________________
Name:
Title:
[ ], as Trustee
By:______________________________________
Name:
Title:
50
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On the ____ day of __________, ____ before me personally came
_____________________, to me known, who, being by me duly sworn, did depose and
say that s/he is ______________________ of Mafco Consolidated Group Inc., one of
the corporations described in and which executed the above instrument; and that
s/he signed her/his name thereto pursuant to authority of the Board of Directors
of such corporation.
(NOTARIAL SEAL)
_____________________________
Notary Public
51
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On the ____ day of __________, ____ before me personally came
_____________________, to me known, who, being by me duly sworn, did depose and
say that s/he is ______________________ of ________________, one of the
corporations described in and which executed the above instrument; and that s/he
signed her/his name thereto pursuant to authority of the Board of Directors of
such corporation.
(Notarial Seal)
_____________________________
52
<PAGE>
EXHIBIT A
[FORM OF FACE OF SECURITY]
No.
MAFCO CONSOLIDATED GROUP INC.
___% Senior Note due ____
$_______________
Mafco Consolidated Group Inc., a Delaware corporation, promises to
pay to _______________, or registered assigns, the principal sum of Dollars on
________________, ____.
Interest Payment Dates: ____________ and _____________.
Record Dates: ____________ and _____________.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated:
MAFCO CONSOLIDATED GROUP INC.
by________________________________
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
__________________________
as Trustee, certifies [Seal]
that this is one of
the Securities referred
to in the Indenture.
by_____________________________
Authorized Signatory
53
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
MAFCO CONSOLIDATED GROUP INC.
___% Senior Note due ____
1. Interest
Mafco Consolidated Group Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The Company
will pay interest semiannually on ___________ and ___________ of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance of the Securities. Interest will be computed on the basis of a
360-day year of twelve 30-day months. The Company shall pay interest on overdue
principal at the rate borne by the Securities plus 1% per annum, and it shall
pay interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
The Company will pay interest referred to in paragraph 1 above
(except defaulted interest) on the Securities to the persons who are registered
holders of Securities at the close of business on the ________ and _______ next
preceding the interest payment date even if Securities are cancelled after the
record date and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts. However, the Company
may pay principal and interest, if any, by check payable in such money. The
Company may, at its option, mail a check representing payment of interest to a
Holder's registered address.
1
<PAGE>
3. Paying Agent and Security Registrar
Initially, ___________________ will act as Paying Agent and Security
Registrar. The Company may appoint and change any Paying Agent or Security
Registrar without notice. The Company or any of its domestically incorporated
Subsidiaries may act as Paying Agent or Security Registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
________ , ____ ("Indenture"), between the Company and _________________ (the
"Trustee"). The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture
(the "Act"). Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Holders are referred to the Indenture and the Act for a
statement of those terms. This Security is one of the Securities referred to in
the Indenture.
5. Optional Redemption
The Company may redeem the Securities in whole at any time or in
part from time to time at a redemption price equal to ____% of the principal
amount, plus accrued and unpaid interest, if any, to the redemption date.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of all Securities (or portions thereof)
to be redeemed on the redemption date is deposited with the Paying Agent (or, if
the Company or a Subsidiary acts as the Paying Agent, it segregates the money
held by it as Paying Agent and holds it as a separate trust fund) on or before
the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
2
<PAGE>
7. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange (i) any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or (ii) for a
period of 15 days before a selection of Securities to be redeemed, any
Securities.
8. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes.
9. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for one year, the Trustee or Paying Agent shall pay the money back to the
Company at its request. After any such payment, Holders entitled to the money
must look only to the Company and not to the Trustee or the Paying Agent for
payment.
10. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount Outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount Outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Holder, the Company and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, defect or inconsistency, or
to comply with Article 9 of the Indenture, or to secure the Securities, or to
add to the covenants of the Company, or to make any change necessary to comply
or maintain compliance with the Act, or to make any change that does not
adversely affect the interests of the Holders.
3
<PAGE>
11. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption, upon declaration or
otherwise; (iii) failure by the Company to comply with other agreements in the
Indenture or the Securities, in certain cases subject to notice and lapse of
time; or (iv) certain events of bankruptcy or insolvency with respect to the
Company. If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Outstanding Securities may
declare the Default Amount of all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Default Amount of the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the
Outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders notice of any continuing default
(except a default in payment of principal or interest) if it determines that
withholding notice is in their interest.
12. Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with the Company with the same
rights it would have if it were not Trustee.
4
<PAGE>
14. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company or the Trustee under the Securities or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. By
accepting a Security, each Holder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
15. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the other side
of this Security.
16. Abbreviations
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
[17. CUSIP Numbers*
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.]
The Company will furnish to any Holder upon written request and without charge
to the Holder a copy of the Indenture which has in it the text of this Security
in larger type. Requests may be made to: Mafco Consolidated Group Inc., 35 East
62nd Street, New York, New York 10021, Attention of Secretary.
- ----------
* This paragraph to be added if the Company so elects pursuant to Section
2.11 of the Indenture.
5
<PAGE>
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _________________ agent to transfer this
Security on the books of the Company. The agent may substitute
another to act for him.
Date: ___________________ Your Signature: _____________________________________
- --------------------------------------------------------------------------------
<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
December 6, 1996
Mafco Consolidated Group Inc.
35 East 62nd Street
New York, New York 10021
Re: Mafco Consolidated Group Inc.
Registration Statement on Form S-1
No. 333-15257
----------------------------------
Dear Ladies and Gentlemen:
We have acted as special counsel to Mafco Consolidated Group Inc.
(the "Company"), in connection with Registration Statement on Form S-1 No.
333-15257, as amended (the "Registration Statement"), filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, respecting
the issuance by the Company of Value Support Rights (the "VSRs") pursuant to the
Value Support Rights Agreement, dated as of November 25, 1996 (the "VSR
Agreement") between the Company and the American Stock Transfer & Trust Company
as Trustee (the "Trustee"). Capitalized terms used herein and not otherwise
defined herein have the meanings assigned to them in the Registration Statement.
In this connection, we have examined and relied upon the
Registration Statement filed with the Securities and Exchange Commission (the
"SEC") on October 31, 1996 and Amendment No. 1 thereto, filed with the SEC on
December 11, 1996, including (i) the Prospectus included therein (the
"Prospectus"), (ii) the VSR Agreement, (iii) the form of Indenture for the VSR
Notes between the Company and the Trustee, and (iv) such other documents as we
have deemed necessary or appropriate as a basis for the opinion set forth below,
and we have assumed (i) that such documents will not be amended and (ii) that
the parties to such documents will comply with the terms thereof.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all docu-
<PAGE>
Mafco Consolidated Group Inc.
December 6, 1996
Page 2
ments submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts material
to the opinions expressed herein which were not independently established or
verified, we have relied upon statements, representations, and certifications of
officers and other representatives of the Company.
In rendering our opinion, we have also considered and relied upon
the Internal Revenue Code of 1986, as amended, and administrative rulings,
judicial decisions, regulations, and such other authorities as we have deemed
appropriate, all as in effect as of the date hereof. The statutory provisions,
regulations, interpretations, and other authorities upon which our opinion is
based are subject to change, and such changes could apply retroactively. In
addition, there can be no assurance that positions contrary to those stated in
our opinion will not be taken by the Internal Revenue Service.
We express no opinions as to the laws of any jurisdiction other than
the federal laws of the United States of America to the extent specifically
referred to herein.
Based upon and subject to the foregoing, we are of the opinion that
the statements in the Prospectus under the heading "Certain United States
Federal Income Tax Consequences," subject to the qualifications set forth
therein, accurately describe the material U.S. federal income tax consequences
to Initial Holders of the VSRs, under existing law and the assumptions stated
therein.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to our being named in the Prospectus.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
2
<PAGE>
PROMISSORY NOTE
$70,000,000.00 New York, New York
August 21, 1996
FOR VALUE RECEIVED, the undersigned, Consolidated Cigar Holdings
Inc., a Delaware corporation ("Maker"), hereby promises to pay to the order of
Mafco Consolidated Group Inc., a Delaware corporation ("MCG"), the sum of
seventy million dollars ($70,000,000.00), in twenty-eight consecutive equal
quarterly installments of two million five hundred thousand dollars
($2,500,000.00) each. Said installments shall be due and paid on March 31, June
30, September 30 and December 31 of each calendar year, with the first
installment due and payable on March 31, 1997 and the final installment due and
payable on December 31, 2003. Each such installment shall be paid in lawful
money of the United States of America in immediately available funds without
deduction for or on account of any present or future taxes, duties or other
charges levied or imposed on this Note or the proceeds or holder hereof by the
government of the United States of America or any political subdivision or
taxing authority thereof. This Note shall not bear interest.
1. Events of Default. The occurrence of any of the following events shall
constitute a default under this Note (each an "Event of Default"):
(a) the failure by Maker to pay all or any part of the indebtedness
evidenced by this Note when and as the same becomes due and payable and the
continuance of such failure for 60 days;
(b) the entry by a court having jurisdiction in the premises of (i)
a decree or order for relief in respect of Maker or Consolidated Cigar in an
involuntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree or order
adjudging Maker or Consolidated Cigar bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of Maker or Consolidated Cigar under any applicable
federal or state law, or appointing a custodian, receiver, liquida-
<PAGE>
tor, assignee, trustee, sequestrator or other similar official of Maker or
Consolidated Cigar or of any substantial part of their respective property, or
ordering the winding up or liquidation of affairs, and the continuance of any
such decree or order for relief or any such other decree or order unstayed and
in effect for a period of 90 consecutive days; or
(c) the commencement by Maker or Consolidated Cigar of a voluntary
case or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated bankrupt or insolvent, or the consent to the entry of a decree or
order for relief in respect of Maker or Consolidated Cigar in an involuntary
case or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against Maker or Consolidated Cigar, or the filing
of a petition or answer or consent seeking reorganization or relief under any
applicable federal or state law, or the consent to the filing of such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of Maker
or Consolidated Cigar or of any substantial part of their respective property,
or the making of an assignment for the benefit of creditors, or the admission in
writing of inability to pay debts generally as they become due, or the taking of
corporate action by Maker or Consolidated Cigar in furtherance of any such
action.
2. Acceleration Upon Event of Default. Upon the occurrence and continuance
of any Event of Default, the holder may, at its option, declare the remaining
principal amount of this Note to be immediately due and payable upon written
notice to Maker.
3. Prepayment Right. Maker shall have the right to prepay this Note, in
whole or in part, at any time or from time to time without penalty or premium,
any such prepayment to be applied to the remaining installments of indebtedness
in the order of their maturities or as otherwise directed by Maker.
2
<PAGE>
4. Subordination. (a) The holder, by its acceptance of this Note, agrees
that the indebtedness evidenced by this Note is subordinate and junior in right
of payment to (i) all indebtedness of Maker for money borrowed; (ii) all
obligations of Maker evidenced by a bond, note, debenture, or similar
instrument; (iii) all direct or indirect obligations of Maker in respect of
letters of credit or other similar instruments whether contingent or otherwise;
(iv) all obligations of Maker to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business; (v) all obligations of Maker as lessee under any lease of property
which is reflected on Maker's balance sheet as a capitalized lease; (vi) all
indebtedness of others secured by a lien on any asset of Maker; (vii) to the
extent not otherwise included, all obligations under currency swap agreements,
interest rate swap agreements, interest rate hedge agreements, equity hedge
contracts, foreign exchange contracts and other similar agreements; (viii) all
indebtedness of others described in the preceding clause (i) which Maker has
guaranteed or for which it is otherwise liable; (ix) all obligations of Maker
pursuant to the U.S. Underwriting Agreement, dated August 15, 1996, among the
Company and Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and Chase Securities Inc., as
representatives of the several U.S. underwriters named therein, and the
International Underwriting Agreement, dated August 15, 1996, among the Company
and Goldman Sachs International, Merrill Lynch International, Morgan Stanley &
Co. International Limited and Chase Manhattan International Limited, as
representatives of the several international underwriters named therein, and all
obligations of Maker arising in connection with the offer and sale of securities
of Maker after the date of this Note; (x) all obligations of Maker upon which
interest charges are customarily paid; (xi) all obligations of Maker under
conditional sale or other title retention agreements relating to property
purchased by Maker (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property); (xii) all obligations of Maker to purchase, redeem, retire,
defease or otherwise acquire for value any securities of Maker; (xiii) any
deferral, amendment, renewal, extension, supplement or refunding of any
liability of the kind described in any of the preceding clauses (i) through
(xii); and (xiv) all obligations of the kind described in any of the preceding
clauses (i) through (xii) created,
3
<PAGE>
incurred, assumed or guaranteed after the date hereof (the foregoing
indebtedness of Maker to which this Note is subordinate and junior being
hereinafter referred to as the "senior indebtedness"). Except as set forth in
the preceding sentence, the indebtedness evidenced by this Note is not
subordinate and junior in right of payment to any indebtedness that by its terms
or by operation of law is subordinated to or on a parity with this Note.
(b) The holder further agrees, by its acceptance of this Note, that
if any default or event of default with respect to indebtedness of the type
described in Section 4.03(b)(1) or (2) of the Indenture, dated as of March 1,
1993 (as in effect on the date of this Note without regard to whether such
Indenture is then in effect or any indebtedness is outstanding thereunder),
between Consolidated Cigar Corporation and First Trust of Illinois, National
Association, as trustee, has occurred and is continuing (i) no payment or
distribution may be made by or on behalf of Maker on account of or with respect
to indebtedness outstanding under this Note and (ii) no action may be taken to
accelerate the maturity of this Note, in each case, until such default or event
of default shall have been cured or waived or have ceased to exist or such
indebtedness shall have been paid in full.
(c) The holder further agrees, by its acceptance of this Note (i)
that upon acceleration of any senior indebtedness or any distribution of assets
of Maker, upon any dissolution, winding up, total or partial liquidation or
reorganization of Maker, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or similar proceeding or upon assignment for the
benefit of creditors, the holders of all senior indebtedness shall first be
entitled to receive payments in full (or to have such payment duly provided for)
of all other amounts payable in respect thereof, before the holder is entitled
to receive any payment on account of amounts due and payable under this Note
and, in such case, any payment or distribution of any kind or character either
in cash, property or securities which shall be payable or deliverable upon or in
respect of the indebtedness evidenced by this Note shall be paid or delivered
direct to the holders of the senior indebtedness for application in payment of
the amounts then due on the senior indebtedness until the senior indebtedness
shall have been paid in full; and (ii) to hold in trust for the holders of the
senior indebtedness and immediately remit to the holders
4
<PAGE>
of the senior indebtedness any payment or distribution received by the holder in
contravention of the foregoing.
(d) The foregoing provisions as to subordination are solely for the
purpose of defining the relative rights of the holders of the senior
indebtedness on the one hand, and the holder of the Note on the other than, and
none of such provisions shall impair, as between Maker and the holder, the
obligations of Maker, which is unconditional and absolute, to pay to the holder
the indebtedness evidenced by this Note in accordance with the terms of this
Note, nor shall any such provisions prevent the holder of this Note from
exercising all remedies otherwise permitted by applicable law or under the terms
of this Note upon default, subject to the rights under the foregoing provisions
of holders of senior indebtedness to receive cash, property or securities
otherwise payable or deliverable to the holder of this Note.
5. Waiver. No failure by the holder to exercise, or delay by the holder in
exercising, any right or remedy hereunder shall operate as a waiver thereof or
of any other right or remedy and no single or partial exercise of any right or
remedy shall preclude any other or further exercise thereof or of any other
right or remedy. Acceptance by the holder of any payment after the maturity of
this Note has been accelerated shall not constitute a waiver of such
acceleration.
6. Assignment. Holder may assign to one or more Permitted Assignees all or
a portion of its interests, rights and obligations under this Note. The phase
"Permitted Assignees", as used herein, shall mean MacAndrews & Forbes Holdings
Inc. ("MacAndrews & Forbes") and each corporation, individual, joint stock
company, joint venture, partnership, unincorporated association, trust or other
entity, directly or indirectly, through one or more intermediaries, controlling
or controlled by, or under common control with MacAndrews & Forbes.
7. Meaning of Holder. The word "holder", as used herein, shall mean MCG or
any endorsee of this Note, in accordance with the provisions of Section 6, who
is in possession of it.
8. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
5
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed
by the undersigned officer.
CONSOLIDATED CIGAR HOLDINGS INC.
By: /s/ Glenn P. Dickes
--------------------------------------
Name: Glenn P. Dickes
Title: Vice President
6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
________________________________________________________________________________
________________________________________________________________________________
Name and Address
the within Note and all rights hereunder, hereby irrevocably constituting and
appointing
________________________________________________________________________________
to transfer said Note on the books of Maker, with full power and substitution in
the premisses.
Dated:_______________
By:___________________________
7
<PAGE>
Gary R. Ellis
Executive Employment Agreement
o Term. August 1, 1996 - December 31, 1999.
o End-of-Term. After 12/31/98, Company may give notice of non-renewal; term
extends for 12 months. After 12/31/99, term extends on one-day-at-a-time
basis until notice of non-renewal given; then, term extends for 12 months.
o Base Salary. $217,500 per year; if adjusted upward at sole discretion of
Company, increased amount becomes Base Salary.
o Bonus. If Company achieves the percentage of business plan set forth
below, Employee receives performance bonus of the corresponding percentage
of Base Salary; provision for alternative discretionary bonus.
Percentage of Percentage of
Cigar EBITDA Base Salary
------------- -------------
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
o Death. Base Salary paid until death; prorated performance bonus paid if
otherwise due for the year in which Employee dies.
o Disability. Company may terminate Agreement after six months. Base salary,
reduced by any disability benefits received by Employee, paid until
Company terminates; prorated performance bonus paid if otherwise due for
the year in which Agreement is terminated.
o Benefits. Standard Company officer benefits. Also, term life insurance
aggregating $750,000.
o Cause. Upon gross neglect, conviction of felony, conviction of any crime
relating to Company property, willful misconduct or material breach by
employee or material prejudice to Company, Company can terminate without
further liability.
<PAGE>
o Company Breach. Employee receives Base Salary, performance bonuses and all
benefits for longer of balance of term or 12 months; if end-of-term
provisions are in effect, for balance of 12 month period; prorated
performance bonus paid if otherwise due for balance of term; employee
obligated to mitigate.
o Other Provisions. Protection of confidential information, non-compete
during term, assignment of inventions, legal fees to employee if he
prevails in action for breach or injunction; legal fees to Company if it
prevails in action for injunction.
This summary page is for convenience of reference only. It shall not constitute
a part of the Agreement
<PAGE>
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of August 1, 1996, between
Consolidated Cigar Corporation, a Delaware corporation (the "Company") and Gary
R. Ellis (the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the
Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement;
Accordingly, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render exclusive and
full-time services to the Company as Senior Vice President and Chief Financial
Officer or in such other executive position as may be mutually agreed upon by
the Company and the Executive, and to perform such other duties consistent with
such position as may be assigned to the Executive by the Board of Directors or
any officer of the Company senior to the Executive.
1.2 Acceptance. The Executive hereby accepts such employment
and agrees to render the services described above. During the Term, the
Executive agrees to serve the Company faithfully and to the best of the
Executive's ability, to devote the Executive's entire business time, energy and
skill to such employment, and to use the Executive's best efforts, skill and
ability to promote the Company's interests. The Executive further agrees to
accept election, and to serve during all or any part of the Term, as an officer
or director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in Fort
Lauderdale, Florida, subject to reasonable travel requirements on behalf of the
Company.
2. Term of Employment; Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's
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employment under this Agreement (the "Term") shall commence on August 1, 1996
and shall end on December 31, 1999 or such later date to which the Term is
extended pursuant to Section 2.2.
2.2 End-of-Term Provisions. At any time on or after December
31, 1998 the Company shall have the right to give written notice of non-renewal
of the Term. In the event the Company gives such notice of non-renewal, the Term
automatically shall be extended so that it ends twelve months after the last day
of the month in which the Company gives such notice. From and after January 1,
2000, unless and until the Company gives written notice of non-renewal as
provided in this Section 2.2, the Term automatically shall be extended
day-by-day; upon the giving of such notice by the Company, the Term
automatically shall be extended so that it ends twelve months after the last day
of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall end earlier than the
original December 31, 1999 termination date provided in Section 2.1 or any
extended termination date provided in Section 2.2, in either case if sooner
terminated pursuant to Section 4. Non-extension of the Term shall not be deemed
to be a wrongful termination of the Term or this Agreement by the Company
pursuant to Section 4.4.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $217,500, less such deductions or amounts to be withheld as required
by applicable law and regulations (the "Base Salary"). In the event that the
Company, in its sole discretion, from time to time determines to increase the
Base Salary, such increased amount shall, from and after the effective date of
the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Bonus. In addition to the amounts to be paid to the
Executive pursuant to Section 3.1, the Executive will be eligible to receive a
bonus with respect to each calendar year included within the Term computed in
accordance with the provisions of the next two succeeding sentences. If, with
respect to any calendar year, the Company achieves EBITDA of at least the
percentage set forth in the table below of its business plan for such year, such
bonus shall be the percentage set forth in the table below of Base Salary with
respect to the year for
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which the bonus (any such bonus, a "performance bonus") was earned:
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -------------
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
In the event that the Term or this Agreement is terminated other than pursuant
to Section 4.3, the Executive shall be entitled to receive a prorated
performance bonus (if such a bonus is otherwise payable) with respect to (A) the
year in which the Term or this Agreement terminated or, (B) in the event of a
termination pursuant to Section 4.4, the year in which the Executive was last
entitled to receive any payments of Base Salary, in an amount equal to (x) the
percentage of Base Salary otherwise payable as a performance bonus with respect
to such year multiplied by (y) a fraction, the numerator of which is the number
of whole months elapsed from the beginning of such year to the date as of which
the Term or this Agreement terminated or the last day as of which the Executive
is entitled to receive payments of Base Salary, as applicable and the
denominator of which is 12. A performance bonus or other bonus, if either or
both are earned in accordance with this Agreement, shall be paid no later than
March 31st of the year next following the year with respect to which such bonus
was earned. The maximum bonus payable pursuant to this Section 3.2 shall be
$1,000,000 with respect to any calendar year. The bonus payable hereunder on
account of calendar years commencing after December 31, 1996 shall be subject to
approval by the shareholders of the Company of the bonus plan described herein.
3.3 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the Executive
during the Term in the performance of the Executive's services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers
provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Chairman, the Vice Chairman or the
Chief Executive Officer of the Company.
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3.4 Vacation. During the Term, the Executive shall be entitled
to a vacation period or periods of four (4) weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a year shall be forfeited, except that one week of vacation
pay may be "banked" in accordance with Company policy.
3.5 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, non-qualified benefit restoration plan,
group insurance or other so-called "fringe" benefit plan which the Company
provides to its executive employees generally. Such benefits include the right
to the use of an automobile as is currently available to the Company's executive
employees. During the Term, the Company will provide the Executive with term
life insurance having a death benefit which, when aggregated with the death
benefit provided in the group term life insurance, if any, available to
executive employees of the Company generally, will equal $750,000. In addition,
the Company shall "gross up" the income imputed to the Executive under federal
and any applicable state income tax laws for his personal use of the
Company-furnished automobile and for any life insurance furnished to the
Executive, such that the Executive effectively will suffer no personal cost for
such fringe benefits.
4. Termination.
4.1 Death. If the Executive dies during the Term, the Term
shall terminate forthwith upon the Executive's death and the Company shall have
no obligation hereunder to make any payments to the Executive's beneficiaries on
account of any period of time after such termination. After such termination,
the Executive's beneficiaries shall receive any benefits to which the Executive
or such beneficiaries may be entitled under any fringe benefit program that may
have been provided by the Company pursuant to Section 3.5.
4.2 Disability. If, during the Term the Executive becomes
disabled or incapacitated to the extent he is unable to perform his duties
hereunder ("Totally Disabled") for a period of six (6) consecutive months, the
Company shall have the right at any time thereafter, so long as the Executive is
then still Totally Disabled, to terminate the Term upon sending written notice
of termination to the Executive. If the Company elects to terminate the Term by
reason of the Executive becoming Totally Disabled, the Company shall have no
obligation
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hereunder to make any payments to the Executive on account of any period of time
after such termination. After such termination, the Executive shall receive any
benefits to which he may be entitled under any fringe benefit program that may
have been provided by the Company pursuant to Section 3.5. While the Executive
is Totally Disabled prior to the Term being terminated, Base Salary payable
pursuant to Section 3.1 shall be reduced by any other benefits payable to the
Executive under any disability plan provided for hereunder or otherwise
furnished to the Executive by the Company.
4.3 Cause. In the event of gross neglect by the Executive of
the Executive's duties hereunder, conviction of the Executive of any felony,
conviction of the Executive of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, willful
misconduct by the Executive in connection with the performance of any material
portion of the Executive's duties hereunder, breach by the Executive of any
material provision of this Agreement or any other conduct on the part of the
Executive which would make the Executive's continued employment by the Company
materially prejudicial to the best interests of the Company, the Company may at
any time by written notice to the Executive terminate the Term and, upon such
termination, this Agreement shall terminate and the Executive shall be entitled
to receive no further amounts or benefits hereunder, except any as shall have
been earned to the date of such termination.
4.4 Company Breach. In the event of the breach of any material
provision of this Agreement by the Company, the Executive shall be entitled to
terminate the Term upon 60 days' prior written notice to the Company. Upon such
termination, or in the event the Company terminates the Term or this Agreement
other than pursuant to the provisions of Section 4.2 or 4.3, the Company shall
continue to provide the Executive (i) payments of Base Salary, in the manner and
amount specified in Section 3.1, (ii) performance bonuses, in the manner and
amount specified in Section 3.2 and (iii) fringe benefits and additional
benefits in the manner and amounts specified in Section 3.5 until the end of the
Term (as in effect immediately prior to such termination) or, if the Company has
not then given written notice of non-renewal pursuant to Section 2.2, for a
period of twelve months after the last day of the month in which termination
described in this Section 4.4 occurred, whichever is longer (the "Damage
Period"). The Company's obligations pursuant to this Section 4.4 are subject to
the Executive's duty to mitigate damages by seeking other employment provided,
however, that the Execu-
5
<PAGE>
tive shall not be required to accept a position of lesser importance or of
substantially different character than the position held with the Company
immediately prior to the effective date of termination or in a location outside
of the Fort Lauderdale, Florida metropolitan area. To the extent that the
Executive shall earn compensation during the Damage Period (without regard to
when such compensation is paid), the Base Salary and bonus payments to be made
by the Company pursuant to this Section 4.4 shall be correspondingly reduced.
4.5 Litigation Expenses. Except as provided for in Section
5.7, if the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or proceeding is rendered
in favor of the Executive, the Company shall reimburse the Executive for all
expenses (including reasonable attorneys' fees) incurred by the Executive in
connection with such action, suit or proceeding. Such costs shall be paid to the
Executive promptly upon presentation of expense statements or other supporting
information evidencing the incurrence of such expenses.
5. Protection of Confidential Information; Non-Competition.
5.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by the Executive heretofore or hereafter, and
not to disclose them to anyone outside of the Company, either during or after
the Executive's employment with the Company, except in the course of performing
the Executive's duties hereunder or with the Company's express written consent.
The foregoing prohibitions shall include, without limitation, directly or
indirectly publishing (or causing, participating in, assisting or providing any
statement, opinion or information in connection with the publication of) any
diary, memoir, letter, story, photograph, interview, article, essay, account or
description (whether fictionalized or not) concerning any of the foregoing,
6
<PAGE>
publication being deemed to include any presentation or reproduction of any
written, verbal or visual material in any communication medium, including any
book, magazine, newspaper, theatrical production or movie, or television or
radio programming or commercial; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 During the Term, the Executive shall not, directly or
indirectly, enter the employ of, or render any services to, any person, firm or
corporation engaged in any business competitive with the business of the Company
or of any of its subsidiaries or affiliates; the Executive shall not engage in
such business on the Executive's own account; and the Executive shall not become
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity provided, however, that
nothing contained in this Section 5.2 shall be deemed to prohibit the Executive
from acquiring, solely as an investment, up to five percent (5%) of the
outstanding shares of capital stock of any public corporation.
5.3 If the Executive commits a breach, or threatens to commit
a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of the preceding paragraph, and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
7
<PAGE>
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties agree that the court
making such determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 upon the
courts of any state within the geographical scope of such covenants. In the
event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding in
law or in equity is brought to enforce the covenants contained in Sections 5.1
and 5.2 or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
8
<PAGE>
6. Inventions and Patents.
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the Company,
provided that such Inventions grew out of the Executive's work with the Company
or any of its subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Company or any of its subsidiaries
or affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials. The Executive shall further: (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent and other rights to such Inventions for the
United States and foreign countries; (c) sign all papers necessary to carry out
the foregoing; and (d) give testimony in support of the Executive's
inventorship.
6.2 If any Invention is described in a patent application or
is disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company, it
is to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert
any rights to any Invention as having been made or acquired by the Executive
prior to the date of this Agreement, except for Inventions, if any, disclosed to
the Company in writing prior to the date hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and proceeds
of the Executive's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments, arrangements,
packages, programs and other intellectual properties that the Executive may
acquire, obtain, develop or create in connection with and during the Term, free
and clear of any claims by the Executive (or anyone claiming under the
Executive) of any kind or character whatsoever (other than the Executive's right
to receive payments hereunder). The Executive shall, at the request of the
Company, execute such assignments, certificates or other instruments as the
Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.
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<PAGE>
8. Indemnification.
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred or
sustained by the Executive in connection with any action, suit or proceeding to
which the Executive may be made a party by reason of the Executive being an
officer, director or employee of the Company or of any subsidiary or affiliate
of the Company.
9. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, sent by overnight courier or mailed
first class, postage prepaid, by registered or certified mail (notices mailed
shall be deemed to have been given on the date mailed), as follows (or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith):
If to the Company, to:
Consolidated Cigar Corporation
5900 North Andrews Avenue
Suite 700
Fort Lauderdale, FL 33309-2367
Attn: Chief Executive Officer
If to the Executive, to:
Gary R. Ellis
12588 Classic Drive
Coral Springs, FL 33071
10. General.
10.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
10.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the Executive's employment by the
Company, and supersedes all prior agreements, arrangements and understandings,
written
10
<PAGE>
or oral, relating to the Executive's employment by the Company, including,
without limitation, the Employment Agreement dated as of July 1, 1995 (the
"Prior Agreement") between the Company and the Executive, which Prior Agreement
is deemed terminated hereby and of no further force or effect. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
10.4 This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations, hereunder (i) to any affiliate
or (ii) to third parties in connection with any sale, transfer or other
disposition of all or substantially all of the business or assets of the
Company; in any event the obligations of the Company hereunder shall be binding
on its successors or assigns, whether by merger, consolidation or acquisition of
all or substantially all of its business or assets.
10.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate" shall
mean and include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the corporation or other
business entity in question.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CONSOLIDATED CIGAR CORPORATION
By: /s/ Theo W. Folz
------------------------------
Theo W. Folz
Chief Executive Officer
/s/ Gary R. Ellis
------------------------------
Gary R. Ellis
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of August 21, 1996, between
Consolidated Cigar Holdings Inc., a Delaware corporation (the "Company"), and
Mafco Consolidated Group Inc., a Delaware corporation ("MCG").
WHEREAS, as of the date of this Agreement, MCG owns 24,600,000
shares of the Company's Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock");
WHEREAS, the Company is consummating on the date hereof underwritten
public offerings (the "Offerings") of 6,075,000 shares of the Company's Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock" and together
with the Company's Class B Common Stock, the "Common Stock"); and
WHEREAS, the Board of Directors of the Company has authorized the
officers of the Company to execute and deliver this Agreement in the name and on
behalf of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Holder" means MCG and any other person that owns Registrable
Securities, including their respective successors and assigns who acquire
Registrable Securities, directly or indirectly, from MCG or such other person.
For purposes of this Agreement, the Company may deem and treat the registered
holder of a Registrable Security as the Holder and absolute owner thereof, and
the Company shall not be affected by any notice to the contrary.
<PAGE>
"Registrable Securities" means (a) the Class A Common Stock issuable
upon the conversion of the Class B Common Stock owned by MCG upon the completion
of the Offerings, (b) any Class A Common Stock acquired by MCG in the open
market at a time when MCG is deemed to be an Affiliate (as such term is defined
under Rule 144 under the Securities Act) of the Company so long as (i) such
Common Stock has not been transferred by MCG to a person that is not a Permitted
Transferee (as such term is defined in the Certificate of Incorporation of the
Company) and (ii) MCG or such Permitted Transferee continues to be deemed an
Affiliate of the Company, and (c) any securities issued or issuable in respect
of the Class A Common Stock or Class B Common Stock referred to in clauses (a)
and (b) above, by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, reclassification, merger or
consolidation, and any other securities issued pursuant to any other pro rata
distribution with respect to such Common Stock. For purposes of this Agreement,
a Registrable Security ceases to be a Registrable Security when (x) it has been
effectively registered under the Securities Act and sold or distributed to the
public in accordance with an effective registration statement covering it (and
has not been reacquired in the manner described in clause (b) above), or (y) it
is sold or distributed to the public pursuant to Rule 144 (or any successor or
similar provision) under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
2. Demand Registration. (a) Subject to Section 5 hereof, if at any
time any Holder shall request the Company in writing to register under the
Securities Act all or a part of the Registrable Securities held by such Holder
(a "Demand Registration"), the Company shall use all reasonable efforts to cause
to be filed and declared effective as soon as reasonably practicable (but in no
event later than the 45th day after such Holder's request is made) a
registration statement, on such appropriate form as the Company in its
discretion shall determine, providing for the sale of all such Registrable
Securities by such Holder. The Company agrees to use its
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<PAGE>
reasonable efforts to keep any such registration statement continuously
effective and usable for resale of Registrable Securities for so long as the
Holder whose Registrable Securities are included therein shall request. The
Company shall be obligated to file registration statements pursuant to this
Section 2(a) until all Registrable Securities have ceased to be Registrable
Securities. Each registration statement filed pursuant to this Section 2(a) is
hereinafter referred to as a "Demand Registration Statement."
(b) The Company agrees (i) not to effect any public or private sale,
distribution or purchase of any of its securities which are the same as or
similar to the Registrable Securities, including a sale pursuant to Regulation D
under the Securities Act, during the 15-day period prior to, and during the
45-day period beginning on, the closing date of each underwritten offering under
any Demand Registration Statement, and (ii) to use reasonable efforts to cause
each holder of its securities purchased from the Company, at any time on or
after the date of this Agreement (other than in a registered public offering) to
agree not to effect any public sale or distribution of any such securities
during such period, including a sale pursuant to Rule 144 under the Securities
Act.
(c) The Company may postpone for a reasonable period of time, not to
exceed 30 days, the filing or the effectiveness of any Demand Registration
Statement if the Board of Directors of the Company in good faith determines that
(A) such registration might have a material adverse effect on any plan or
proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction, or (B) the
Company is in possession of material non-public information that, if publicly
disclosed, could result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material
adverse consequences to the Company.
(d) If at any time any Holder of Registrable Securities to be
covered by a Demand Registration Statement desires to sell Registrable
Securities in an underwritten offering, such Holder shall have the right to
select any nationally recognized investment banking firm(s) to administer the
offering, subject to the ap-
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proval of the Company, which approval shall not be unreasonably withheld, and
the Company shall enter into underwriting agreements with the underwriter(s) of
such offering, which agreements shall contain such representations and
warranties by the Company, and such other terms, conditions and indemnities as
are at the time customarily contained in underwriting agreements for similar
offerings.
3. Incidental Registration. Subject to Section 5 hereof and the
other terms and conditions set forth in this Section 3, if the Company proposes
at any time to register any shares of Class A Common Stock (the "Initially
Proposed Shares") under the Securities Act for sale, whether or not for its own
account, pursuant to an underwritten offering, the Company will promptly give
written notice to the Holders of its intention to effect such registration (such
notice to specify, among other things, the proposed offering price, the kind and
number of securities proposed to be registered and the distribution
arrangements, including identification of the underwriter(s)), and the Holders
shall be entitled to include in such registration statement, as a part of such
underwritten offering, such number of shares (the "Holder Shares") to be sold
for the account of the Holders (on the same terms and conditions as the
Initially Proposed Shares) as shall be specified in a request in writing
delivered to the Company within 15 days after the date upon which the Company
gave the aforementioned notice.
The Company's obligations to include Holder Shares in a registration
statement pursuant to this Section 3 is subject to each of the following
limitations, conditions and qualifications:
i) If, at any time after giving written notice of its
intention to effect a registration of any of its shares of Common Stock
and prior to the effective date of any registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register all of such shares, the Company may, at its
election, give written notice of such determination to the Holders and
thereupon it shall be relieved of its obligation to use any efforts to
register any Holder Shares in connection with such aborted registration.
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<PAGE>
ii) If, in the opinion of the managing underwriter(s) of such
offering, the distribution of all or a specified portion of the Holder
Shares would materially interfere with the registration and sale, in
accordance with the intended method thereof, of the Initially Proposed
Shares, then the number of Holder Shares to be included in such
registration statement shall be reduced to such number, if any, that, in
the opinion of such managing underwriter(s), can be included without such
interference. If, as a result of the cutback provisions of the preceding
sentence, the Holders are not entitled to include all of the Holder Shares
in such registration, such Holders may elect to withdraw their request to
include Holder Shares in such registration (a "Withdrawal Election").
If the Company shall so request in writing, each Holder agrees not
to effect any public or private sale or distribution of any Registrable
Securities (other than the Holder Shares) during the 15-day period prior to and
during the 45-day period beginning on, the closing date of any underwritten
public offering of shares of Common Stock made for the Company's own account.
4. Registration Procedures. (a) Whenever the Company is required to
use all reasonable efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to the terms and conditions of
Section 2(a) or 3 (such Registrable Securities being hereinafter referred to as
"Subject Shares"), the Company will use all reasonable efforts to effect the
registration and sale of the Subject Shares in accordance with the intended
method of disposition thereof. Without limiting the generality of the foregoing,
the Company will as soon as practicable:
i) prepare and file with the SEC a registration statement with
respect to the Subject Shares in form and substance satisfactory to the
Holders of the Subject Shares, and use all reasonable efforts to cause
such registration statement to become effective as soon as possible;
5
<PAGE>
ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the applicable period and to comply with the
provisions of the Securities Act with respect to the disposition of all
Subject Shares and other securities covered by such registration
statement;
iii) furnish the Holders covered by such registration
statement, without charge, such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus), such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as such
Holders may reasonably request;
iv) use all reasonable efforts to register or qualify the
Subject Shares covered by such registration statement under the securities
or blue sky laws of such jurisdictions as the managing underwriter(s)
shall reasonably recommend, and do any and all other acts and things which
may be reasonably necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of the Subject Shares
covered by such registration statement, except that the Company shall not
for any such purpose be required to (A) qualify generally to do business
as a foreign corporation in any jurisdiction wherein it is not so
qualified, (B) subject itself to taxation in any jurisdiction wherein it
is not so subject, or (C) consent to general service of process in any
such jurisdiction or otherwise take any action that would subject it to
the general jurisdiction of the courts of any jurisdiction in which it is
not so subject;
v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC;
6
<PAGE>
vi) furnish, at the Company's expense, unlegended certificates
representing ownership of the securities being sold in such denominations
as shall be requested and instruct the transfer agent to release any stop
transfer orders with respect to the Subject Shares being sold;
vii) notify each Holder at any time when a prospectus relating
to the Subject Shares is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included
in such registration statement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein (in the case of the prospectus or any preliminary prospectus, in
light of the circumstances under which they were made) not misleading, and
the Company will, as promptly as practicable thereafter, prepare and file
with the SEC and furnish a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of Subject Shares such
prospectus will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading;
viii) enter into customary agreements (including an
underwriting agreement in customary form in the case of an underwritten
offering) and make such representations and warranties to the sellers and
underwriter(s) as in form and substance and scope are customarily made by
issuers to underwriters in underwritten offerings and take such other
actions as the Holders or the managing underwriter(s) or agent, if any,
reasonably require in order to expedite or facilitate the disposition of
such Subject Shares;
ix) make available for inspection by the Holders, any
underwriter or agent participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other similar
professional advisor retained by any such holders or underwriter
(collectively the "Inspectors"), all pertinent financial and other
records, pertinent corporate documents and properties of the Company
7
<PAGE>
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
registration statement. The Holders agree that Records and other
information which the Company determines, in good faith, to be
confidential and of which determination the Inspectors are so notified
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Records is ordered
pursuant to a subpoena, court order or regulatory or agency request or
(iii) the information in such Records has been generally disseminated to
the public. Each Holder agrees that it will, upon learning that disclosure
of such Record is sought in a court of competent jurisdiction or by a
governmental agency, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
x) obtain for delivery to the Company, the underwriter(s) or
their agent, with copies to the Holders, a "cold comfort" letter from the
Company's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters as
the Holders or the managing underwriter(s) reasonably request;
xi) obtain for delivery to the Holders and the underwriter(s)
or their agent an opinion or opinions from counsel for the Company in
customary form and reasonably satisfactory to the Holder, underwriters or
agents and their counsel;
xii) make available to its security holders earnings
statements, which need not be audited, satisfying the provisions of
Section 11(a) of the Securities Act no later than 90 days after the end of
the 12-month period beginning with the first month of the Company's
first quarter commencing after the effective date of the registration
state-
8
<PAGE>
ment, which earnings statements shall cover said 12-month period;
xiii) make every reasonable effort to prevent the issuance of
any stop order suspending the effectiveness of the registration statement
or of any order preventing or suspending the effectiveness of such
registration statement at the earliest possible moment;
xiv) cause the Subject Shares to be registered with or
approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the sellers thereof or the
underwriters(s), if any, to consummate the disposition of such Subject
Shares;
xv) cooperate with the Holders and the managing
underwriter(s), if any, or any other interested party (including any
interested broker-dealer) in making any filings or submission required to
be made, and the furnishing of all appropriate information in connection
therewith, with the National Association of Securities Dealers, Inc.
("NASD");
xvi) cause its subsidiaries to take action necessary to effect
the registration of the Subject Shares contemplated hereby, including
filing any required financial information;
xvii) effect the listing of the Subject Shares on the New York
Stock Exchange or such other national securities exchange or
over-the-counter market on which shares of the Class A Common Stock shall
then be listed; and
(xviii) take all other steps necessary to effect the
registration of the Subject Shares contemplated hereby.
(b) The Holders shall provide (in writing and signed by the
Holders and stated to be specifically for use in the related registration
statement, preliminary prospectus, prospectus or other document incident
thereto) all such information and materials and take all such action as may be
required in order to permit the Company to comply with all applicable
requirements of the
9
<PAGE>
SEC and any applicable state securities laws and to obtain any desired
acceleration of the effective date of any registration statement prepared and
filed by the Company pursuant to this Agreement.
(c) The Holders shall, if requested by the Company or the
managing underwriter(s) in connection with any proposed registration and
distribution pursuant to this Agreement, (i) agree to sell the Subject Shares on
the basis provided in any underwriting arrangements entered into in connection
therewith and (ii) complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents customary in similar
offerings.
(d) Upon receipt of any notice from the Company that the
Company has become aware that the prospectus (including any preliminary
prospectus) included in any registration statement filed pursuant to Section
2(a) or Section 3, as then in effect, contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, the Holders shall
forthwith discontinue disposition of Subject Shares pursuant to the registration
statement covering the same until the Holders' receipt of copies of a
supplemented or amended prospectus and, if so directed by the Company, deliver
to the Company (at the Company's expense) all copies other than permanent file
copies then in the Holder's possession, of the prospectus covering the Subject
Shares that was in effect prior to such amendment or supplement.
(e) The Company shall pay all out-of-pocket expenses incurred
in connection with any registration statement filed pursuant to Section 2(a) or
Section 3 of this Agreement, including, without limitation, all SEC and blue sky
registration and filing fees (including NASD fees), printing expenses, transfer
agents and registrars' fees, fees and disbursements of the Company's counsel and
accountants and fees and disbursements of experts used by the Company in
connection with such registration statement. Notwithstanding the foregoing, the
Holders shall pay all underwriting discounts, commissions and expenses
attributable to the Subject Shares sold pursuant to any such registration
statement.
10
<PAGE>
(f) In connection with any sale of Subject Shares that are
registered pursuant to this Agreement, the Company and the Holders shall enter
into an agreement providing for indemnification of the Holders by the Company,
and indemnification of the Company by the Holders, on terms customary for such
agreements at that time (it being understood that any disputes arising as to
what is customary shall be resolved by counsel to the underwriter(s)).
5. Condition to Company's Obligations. Notwithstanding any other
provision in this Agreement to the contrary, the Company shall have no
obligation to effect any registration of Registrable Securities pursuant to this
Agreement within 180 days of the date of the prospectus for the Offerings,
unless Goldman, Sachs & Co. shall have given its prior written consent to such
filing.
6. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answerback received), telecopy or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the third business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such communications
shall be:
If to the Company, to:
Consolidated Cigar Holdings Inc.
5900 North Andrews Ave.
Fort Lauderdale, FL 33309-7098
Attn: Gary R. Ellis
Telecopy: (954) 938-7835
11
<PAGE>
If to MCG, to:
General Counsel
MacAndrews & Forbes Holdings Inc.
35 East 62nd Street
New York, New York 10021
Telecopy: (212) 572-5056
If to any other Holder, to such name at such address as such Holder
shall have indicated in a written notice delivered to the other
parties to this Agreement.
Any party hereto may from time to time change its address for notices under this
Section 6 by giving at least 10 days' notice of such changes to the other
parties hereto.
7. Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement hereof shall be deemed to be a
continuing waiver in the future thereof or a waiver of any other provision,
condition or requirement hereof; nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
8. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
9. Successors and Assigns; Amendments. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns, including without limitation and without the need for an express
assignment each subsequent Holder of any Registrable Securities. Except as
provided in this Section 9, neither the Company nor any Holder shall assign this
Agreement or any rights hereunder without the prior written consent of the other
parties hereto. The assignment by a party of this Agreement or any rights
hereunder shall not affect the obligations of such party hereunder. This
Agreement may not be amended except by a written instrument executed by the
parties hereto.
12
<PAGE>
10. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
11. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of laws.
12. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto in respect of the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect to the
subject matter hereof.
13. Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date hereof.
CONSOLIDATED CIGAR HOLDINGS INC.
By:/s/ Joram C. Salig
--------------------------------------
Name: Joram C. Salig
Title: Vice President and
Secretary
MAFCO CONSOLIDATED GROUP INC.
By:/s/ Glenn P. Dickes
--------------------------------------
Name: Glenn P. Dickes
Title: Vice President
14
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 9, 1996, in the Registration Statement (Form
S-1, No. 333-15257) and related Prospectus of Mafco Consolidated Group, Inc. for
the registration of 23,156,502 of Mafco Consolidated Group Inc. Value Support
Rights.
New York, New York ERNST & YOUNG LLP
December 10, 1996
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
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
Detroit, Michigan
December 10, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-3439945
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
40 Wall Street 10005
New York, New York (Zip Code)
(Address of trustee's
principal executive offices)
------------------------------------
MAFCO CONSOLIDATED GROUP INC.
(Exact name of obligor as specified in its charter)
Delaware 02-0424104
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
35 East 62 Street
New York, New York 10021
(Address of principal executive (Zip Code)
offices)
------------------------------------
Value Support Rights
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of the
trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities of
the trustee:
As of December 6th, 1996
- --------------------------------------------------------------------------------
COL. A COL. B
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
Common Shares - par value $600 per share. 1,000 shares
4. Trusteeships under Other Indentures.
None.
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
None.
2
<PAGE>
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
None.
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
None.
8. Securities of the Obligor Owned or Held by the Trustee.
None.
9. Securities of Underwriters Owned or Held by the Trustee.
None.
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
None.
11. Ownership or Holdings by the Trustee of any Securities of a Person Owning
50 Percent or More of the Voting Securities of the Obligor.
None.
12. Indebtedness of the Obligor to the Trustee.
None.
13. Defaults by the Obligor.
None.
14. Affiliations with the Underwriters.
None.
15. Foreign Trustee.
Not applicable.
3
<PAGE>
16. List of Exhibits.
T-1.1 - A copy of the Organization Certificate of American Stock Transfer
& Trust Company, as amended to date including authority to
commence business and exercise trust powers was filed in
connection with the Registration Statement of Live Entertainment,
Inc., File No. 33-54654, and is incorporated herein by reference.
T-1.4 - A copy of the By-Laws of American Stock Transfer & Trust Company,
as amended to date was filed in connection with the Registration
Statement of Live Entertainment, Inc., File No. 33-54654, and is
incorporated herein by reference.
T-1.6 - The consent of the Trustee required by Section 312(b) of the Trust
Indenture Act of 1939. - Exhibit A.
T-1.7 - A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or
examining authority. Exhibit B.
---------------------------------------
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
American Stock Transfer and Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 6th day of December 1996.
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
Trustee
By: /s/ Herb Lemmer
-----------------------------
Vice President
4
<PAGE>
EXHIBIT A
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
and subject to the limitations therein contained, American Stock Transfer &
Trust Company hereby consents that reports of examinations of said corporation
by Federal, State, Territorial or District authorities may be furnished by such
authorities to you upon request therefor.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By /s/ Herb Lemmer
-----------------------------------
Vice President
<PAGE>
FFEIC 034
Page RC-1
Affix the address label in this space. Exhibit B |9|
American Stock Transfer & Trust Co.
- ---------------------------------------
Legal Title of Bank
New York
- ---------------------------------------
City
New York 10005
- ---------------------------------------
State Zip Code
FDIC Certificate Number |_|_|_|_|_|
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for June 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
<TABLE>
<CAPTION>
--------
C100 <-
----------------
Dollar Amounts in Thousands Mil Thou
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions:
----------------
RCON
a. Noninterest-bearing balances and currency and coin (1)(2) ...................................... 0081 216 1.a.
----------------
RCON
b. Interest-bearing balances (3) .................................................................. 0071 1.b.
----------------
2. Securities: ----------------
RCON
a. Held-to-maturity securities (from Schedule RC-B, column A) ..................................... 1754 2.a.
----------------
RCON
b. Available-for-sale securities (from Schedule RC-B, column D) ................................... 1773 5 073 2.b.
----------------
3. Federal funds sold and securities purchased under agreements to resell: ----------------
RCON
a. Federal funds sold (4) ......................................................................... 0276 3.a.
----------------
RCON
b. Securities purchased under agreements to resell (5) ............................................ 0277 3.b.
----------------
4. Loans and lease financing receivables: ----------------
RCON
a. Loans and leases, net of unearned income (from Schedule RC-C) ............ 2122 4.a.
----------------
RCON
b. LESS: Allowance for loan and lease losses ................................ 3123 4.b.
----------------
RCON
c. LESS: Allocated transfer risk reserve .................................... 3128 4.c.
----------------
----------------
d. Loans and leases, net of unearned income, allowance, and reserve RCON
(item 4.a minus 4.b and 4.c) ................................................................... 2125 4.d.
----------------
RCON
5. Trading assets .................................................................................... 3545 5.
----------------
RCON
6. Premises and fixed assets (including capitalized leases) .......................................... 2145 2 950 6.
----------------
RCON
7. Other real estate owned (from Schedule RC-M) ...................................................... 2150 7.
----------------
RCON
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) .......... 2130 8.
----------------
RCON
9. Customers' liability to this bank on acceptances outstanding ...................................... 2155 9.
----------------
RCON
10. Intangible assets (from Schedule RC-M) ............................................................ 2143 10.
----------------
RCON
11. Other assets (from Schedule RC-F) ................................................................. 2160 5 711 11.
----------------
RCON
12. a. Total assets (sum of items 1 through 11) ....................................................... 2170 12.a.
----------------
RCON
b. Losses deferred pursuant to 12 U.S.C. 1823(j) .................................................. 0306 12.b.
----------------
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823(j) (sum of RCON
items 12.a and 12.b) ........................................................................... 0307 13 950 12.c.
----------------
</TABLE>
- -------
(1) Includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M items 3.a and 3.b.
(3) Includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a, "Loans and
leases, net of unearned income," and in Schedule RC-C, part I.
(5) Report securities purchased under agreements to resell that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 3.5, "Federal
funds sold."
<PAGE>
FFIEC 034
Page RC-2
Schedule RC - Continued 10
<TABLE>
<CAPTION>
---------------------
Dollar Amounts in Thousands Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
---------------------
RCON
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) .................. 2200 13.a.
-------------------------------------
RCON
(1) Noninterest-bearing(1) ................................................. 6631 13.a.(1)
----------------
RCON
(2) Interest-bearing ....................................................... 6636 13.a.(2)
----------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ..............................
(1) Noninterest-bearing ....................................................................
(2) Interest-bearing .......................................................................
14. Federal funds purchased and securities sold under agreements to repurchase:
---------------------
RCON
a. Federal funds purchased(2) ................................................................. 0278 14.a.
---------------------
RCON
b. Securities sold under agreements to repurchase(3) .......................................... 0279 14.b.
---------------------
RCON
15. a. Demand notes issued to the U.S. Treasury ................................................... 2840 15.a.
---------------------
RCON
b. Trading liabilities ........................................................................ 3548 15.b.
---------------------
16. Other borrowed money:
---------------------
RCON
a. With a remaining maturity of one year or less .............................................. 2332 16.a.
---------------------
RCON
b. With a remaining maturity of more than one year ............................................ 2333 16.b.
---------------------
RCON
17. Mortgage indebtedness and obligations under capitalized leases ................................ 2910 17.
---------------------
RCON
18. Bank's liability on acceptances executed and outstanding ...................................... 2920 18.
---------------------
RCON
19. Subordinated notes and debentures ............................................................. 3200 19.
---------------------
RCON
20. Other liabilities (from Schedule RC-G) ........................................................ 2930 1 977 20.
---------------------
RCON
21. Total liabilities (sum of items 13 through 20) ................................................ 2948 1 977 21.
---------------------
---------------------
RCON
22. Limited-life preferred stock and related surplus .............................................. 3282 22.
---------------------
EQUITY CAPITAL
---------------------
RCON
23. Perpetual preferred stock and related surplus ................................................. 3838 23.
---------------------
RCON
24. Common stock .................................................................................. 3230 600 24.
---------------------
RCON
25. Surplus (exclude all surplus related to preferred stock) ...................................... 3839 7 590 25.
---------------------
RCON
26. a. Undivided profits and capital reserves ..................................................... 3632 3 617 26.a.
---------------------
RCON
b. Net unrealized holding gains (losses) on available-for-sale securities ..................... 8434 166 26.b.
---------------------
27. Cumulative foreign currency translation adjustments ...........................................
---------------------
RCON
28. a. Total equity capital (sum of items 23 through 27) .......................................... 3210 11 973 28.a.
---------------------
RCON
b. Losses deferred pursuant to 12 U.S.C. 1823(j) .............................................. 0306 28.b.
---------------------
---------------------
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j) RCON
(sum of items 28.a and 28.b) .............................................................. 3559 11 973 28.c.
---------------------
---------------------
29. Total liabilities, limited-life preferred stock, equity capital, and losses RCON
deferred pursuant to 12 U.S.C. 1823(j) (sum of items 21, 22, and 28.c) ...................... 2257 13 950 29.
---------------------
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the
statement below that best describes the most Number
comprehensive level of auditing work performed for the -----------
bank by independent external auditors as of any RCON
date during 1995........................................ 6724 M.1.
-----------
1 =Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 =Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 =Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 =Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 =Review of the bank's financial statements by external auditors
6 =Compilation of the bank's financial statements by external auditors
7 =Other audit procedures (excluding tax preparation work)
8 =No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16, "Other
borrowed money."
(3) Report securities sold under agreements to repurchase that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 14.a, "Federal
funds purchased."
<PAGE>
Exhibit 99.1
Report of Independent Public Accountants
To the Shareholders of Power Control Technologies, Inc.:
We have audited the consolidated balance sheets of Power Control
Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended (not presented separately
herein). These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Power Control
Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Detroit, Michigan
March 11, 1996
