UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ____
Commission file number 1-11240
MAFCO CONSOLIDATED GROUP INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 02-0424104
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 EAST 62ND STREET, NEW YORK, NEW YORK 10021
(Address of principal executive offices) (Zip Code)
212-572-8600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
At May 13, 1996, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 23,237,340 shares, of which 19,777,752
were indirectly held by Mafco Holdings Inc.
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTH PERIODS ENDED
--------------------------------
MARCH 31, APRIL 2,
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales ................................................................ $ 66,168 $ 58,353
Cost of sales ............................................................ 38,302 34,549
--------------- ---------------
Gross profit ............................................................. 27,866 23,804
Selling, general and administrative expenses ............................. 12,203 9,585
--------------- ---------------
Operating income ......................................................... 15,663 14,219
Interest expense ......................................................... (6,299) (6,751)
Interest, investment and dividend income ................................. 2,274 102
Amortization of deferred charges and bank fees ........................... (499) (487)
Equity in earnings of PCT ................................................ 1,002 -
Other income (expense), net .............................................. 6 (132)
--------------- ---------------
Income before income taxes ............................................... 12,147 6,951
Provision for income taxes ............................................... (3,836) (2,395)
--------------- ---------------
Net income ............................................................... $ 8,311 $ 4,556
=============== ===============
Earnings per share ....................................................... $ 0.36 $ 0.23
=============== ===============
Weighted average common shares outstanding ............................... 23,327 19,778
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION> MARCH 31, DECEMBER 31,
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 90,782 $ 93,417
Notes and trade receivables, net ............................................... 27,982 25,211
Inventories .................................................................... 87,311 84,494
Prepaid expenses and other ..................................................... 25,374 25,610
--------------- ---------------
Total current assets ........................................................ 231,449 228,732
Property, plant and equipment, net ................................................ 45,464 46,052
Pension asset ..................................................................... 58,983 57,245
Investment in PCT preferred and common stock ...................................... 56,549 55,547
Trademarks, net ................................................................... 31,804 32,021
Intangible assets related to businesses acquired, net ............................. 62,347 62,770
Other assets ...................................................................... 79,543 78,232
=============== ===============
$ 566,139 $ 560,599
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and short term borrowings ................... $ 6,513 $ 10,960
Accounts payable .............................................................. 12,127 9,595
Accrued expenses and other .................................................... 56,803 55,515
--------------- ---------------
Total current liabilities .................................................. 75,443 76,070
Long-term debt ................................................................... 215,290 218,678
Other liabilities ................................................................ 163,666 162,130
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
Accumulated deficit .......................................................... (27,294) (35,605)
Currency translation adjustment .............................................. 1,585 1,877
Treasury stock at cost (1,484,850 shares) .................................... (29,903) (29,903)
--------------- ---------------
Total stockholders' equity ................................................ 111,740 103,721
=============== ===============
$ 566,139 $ 560,599
=============== ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTH PERIODS ENDED
-------------------------------
MARCH 31, APRIL 2,
1996 1995
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 8,311 $ 4,556
-------------- ---------------
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization .......................................... 2,540 2,538
Earnings of affiliates greater than distributions ...................... - (175)
Equity in earnings of PCT .............................................. (1,002) -
Deferred income ........................................................ 51) (51)
Changes in assets and liabilities:
Increase in notes and trade receivable ............................. (1,640) (3,261)
(Increase) decrease in inventories ................................. (3,043) 1,072
Increase (decrease) in accounts payable ............................ 2,564 (1,146)
(Decrease) increase in accrued expenses and other, net ............. (2,195) 982
-------------- ---------------
(2,827) (41)
-------------- ---------------
Net cash flows from operating activities ..................................... 5,484 4,515
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ......................................................... (900) (615)
Other, net ................................................................... - (7)
-------------- ---------------
Net cash flows from investing activities ..................................... (900) (622)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings ...................................................... (7,821) (1,363)
Due to affiliates and other borrowings ....................................... 642 (447)
-------------- ---------------
Net cash flows from financing activities ..................................... (7,179) (1,810)
-------------- ---------------
Effect of exchange rate changes on cash ...................................... (40) 97
-------------- ---------------
Net (decrease) increase in cash and cash equivalents ......................... (2,635) 2,180
Cash and cash equivalents at beginning of period ............................. 93,417 9,323
-------------- ---------------
Cash and cash equivalents at end of period ................................... $ 90,782 $ 11,503
============== ===============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid .......................................................... $ 6,109 $ 6,525
Income taxes paid, net of refunds ...................................... $ 1,538 $ 1,535
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Mafco Consolidated
Group Inc. ("MC Group" or the "Company") have been prepared in accordance with
generally accepted accounting principles and accordingly include all
adjustments (consisting only of normal recurring accruals) which, in the
opinion of management, are necessary for a fair statement of the operations
for the periods presented. 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 three month
periods ended March 31, 1996 and April 2, 1995 are not necessarily indicative
of the results for the entire year.
2. INVENTORIES
March 31, December 31,
1996 1995
---------------- ---------------
Raw materials $59,886 $59,742
and supplies
Work-in-process 2,564 1,988
Finished goods 24,861 22,764
------- -------
$87,311 $84,494
======= =======
3. OFFER TO PURCHASE AND CONSENT SOLICITATION
On April 17, 1996, C&F Holding Corp. ("C&F"), a subsidiary of MC
Group, (i) offered to purchase for cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase and Consent Solicitation
Statement dated April 17, 1996, all of the outstanding 117/8% Senior
Subordinated Notes due 2002 of Mafco Worldwide at a cash price equal to 108.5%
of the principal amount of $85,000 and all of the outstanding 101/2% Senior
Subordinated Notes Due 2003 of Consolidated Cigar at a cash price equal to
105.5% of the principal amount of $90,000, in each case plus accrued and
unpaid interest to, but not including, the date of payment and (ii) solicited
consents to amend the respective indentures relating to such notes. The offers
and solicitations expire on May 15, 1996 unless extended. If the offers are
consummated, the Company will incur an extraordinary charge related to the
redemption premium, discount and the amortized debt issuance costs related to
the retired debt. The offers are conditioned upon, among other things, C&F
securing the financing to fund the purchase of notes pursuant to the offers.
4. 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, subject to adjustment
and before estimated transaction costs.
5
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
RESULTS OF OPERATIONS
Three month period ended March 31, 1996 compared with the three month period
ended April 2, 1995
Net sales in 1996 and 1995 were $66.2 and $58.4, respectively, an
increase of $7.8 or 13.4%. The increase in net sales reflected an $8.7 or
27.5% increase in sales of cigar products due primarily to an increase in
cigar unit volume and a sales mix shift to higher priced cigars.
Cost of sales were $38.3 and $34.5 in 1996 and 1995, respectively, an
increase of $3.8 or 11.0%. The increase in cost of sales in 1996 was due
primarily to the increase in sales. As a percentage of sales, cost of sales
improved to 57.9% in 1996 from 59.1% primarily due to fixed manufacturing
costs spread over increased unit volume and lower materials costs.
Selling, general and administrative ("SG&A") expenses were $12.2 and
$9.6 in the 1996 and 1995 periods, respectively. As a percentage of net sales,
SG&A expenses were 18.4% in the 1996 period and 16.4% in the 1995 period. The
increase primarily reflects increased marketing and selling expenses and the
inclusion of corporate expenses of MC Group in the 1996 period.
Interest expense was $6.3 and $6.8 in 1996 and 1995, respectively. The
decrease was due to a lower amount of debt outstanding in 1996 partially
offset by interest accretion on certain liabilities assumed in the Merger.
Interest, investment and dividend income was $2.3 and $.1 in 1996 and
1995, respectively. The increase primarily reflects interest income on cash
acquired in connection with the Merger and preferred dividends on the
Company's investment in PCT Preferred Stock.
Equity in earnings of Power Control Technologies Inc. ("PCT")
represents the Company's interest in the common stock of PCT acquired in July
1995.
The provision for income taxes as a percentage of income before income
taxes was 31.6% in the 1996 and 34.5% in 1995. The decrease in the effective
rate is primarily due to tax benefits associated with the Company's operations
in Puerto Rico. Income tax expense in 1996 reflects provisions for federal
income taxes, Puerto Rico tollgate taxes and taxes on Puerto Rico source
income, together with state and franchise taxes. Income tax expense in 1995
reflects a provision for Puerto Rico tollgate taxes and taxes on Puerto Rico
source income, together with minimal state and franchise taxes due to a
domestic taxable loss.
6
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows provided by operating activities were
$5.5 and $4.5 in 1996 and 1995, respectively. The increase reflects higher net
income partially offset by increased working capital requirements in 1996 as
compared to 1995. The Company's working capital requirements, especially for
inventory, are affected by customer demand, current and prospective supplies
of raw materials and raw material prices. Management expects that inventory
levels will continue to fluctuate in the future as the Company takes advantage
of opportunities to purchase quality inventory at the lowest possible costs
while maintaining its policy of purchasing some raw materials, particularly
licorice root, from all available sources to maintain relationships with its
suppliers and ensure a continuous supply of such raw materials.
Cash flows used for investing activities of $.9 and $.6 in 1996 and
1995, respectively, consist primarily of capital expenditures. These capital
expenditures relate primarily to investments in manufacturing equipment and
are part of the continual maintenance and upgrading of the Company's
manufacturing facilities. Capital expenditures for the remainder of 1996 are
expected to be $6.4. The increase in planned capital expenditures is related
primarily to construction projects at the Company's existing manufacturing
facilities in the Dominican Republic and Honduras and a proposed additional
manufacturing facility, which projects are designed to increase the Company's
manufacturing capacity for hand made premium cigars. The Company currently
expects that its facility expansion projects in the Dominican Republic and
Honduras will be completed by the end of 1996.
Cash flows used for financing activities of $7.2 and $1.8 in 1996 and
1995, respectively, primarily reflect net repayments of borrowings.
Availability for borrowings under Mafco Worldwide's revolving credit
facility was $22.1 at March 31, 1996 and $2.9 of this revolving credit
facility had been reserved to
support lender guarantees for outstanding letters of credit. As of March 30,
1996, there was approximately $22.7 unused and available under Consolidated
Cigar's credit agreement after taking into account approximately $1.0 utilized
to support letters of credit and an unscheduled commitment reduction required
by certain ratios existing at the end of the 1995 fiscal year. Given the
availability of borrowings under these credit agreements and cash flow
generated from operations, the Company does not currently foresee the need to
incur additional indebtedness to meet its ongoing operating needs during 1996.
In 1993 and 1994, Consolidated Cigar entered into two five-year
interest rate swap agreements in an aggregate notional amount of $85.0. Under
the terms of the agreements, Consolidated Cigar receives a fixed interest rate
averaging 5.8% and pays a variable interest rate equal to the six month 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 of fixed-rate indebtedness to a variable
rate. Had Consolidated Cigar terminated these agreements which it considers to
be held for other than trading purposes on April 23, 1996, a combined loss of
approximately $2.0 would have been realized. Future positive or negative cash
flows associated with these contracts 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
7
<PAGE>
lives of these agreements which expire at December 1998 and January 1999,
Consolidated Cigar could lose some or all of any future positive cash flows.
However, Consolidated Cigar does not anticipate non-performance by such
counterparties.
The Company's operating businesses intend to fund future working
capital, capital expenditure and debt service requirements for the foreseeable
future through cash flow generated from operations and borrowings under their
credit agreements. The credit agreements of Consolidated Cigar and Mafco
Worldwide prohibit the payment of dividends and distribution of funds to MC
Group. MC Group is a holding company with no business operations of its own.
MC Group's cash requirements for liabilities assumed in the Merger are
expected to be met from the cash received in the Merger. MC Group may also
acquire additional operating assets and may raise capital through debt or
equity financings or through refinancings of existing indebtedness of its
operating companies. However, there can be no assurance, that any of such
financings or refinancings could be accomplished, or, if accomplished,
effected on terms satisfactory to MC Group.
On April 17, 1996, C&F, (i) offered to purchase for cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase and
Consent Solicitation Statement dated April 17, 1996, all of the outstanding
117/8% Senior Subordinated Notes due 2002 of Mafco Worldwide at a cash price
equal to 108.5% of the principal amount of $85.0 and all of the outstanding
101/2% Senior Subordinated Notes Due 2003 of Consolidated Cigar at a cash
price equal to 105.5% of the principal amount of $90.0, in each case plus
accrued and unpaid interest to, but not including, the date of payment and
(ii) solicited consents to amend the respective indentures relating to such
notes. The offers and solicitations expire on May 15, 1996 unless extended. If
the offers are consummated, the Company will incur an extraordinary charge
related to the redemption premium, discount and the amortized debt issuance
costs related to the retired debt. The offers are conditioned upon, among
other things, C&F securing the financing to fund the purchase of notes
pursuant to the offers.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAFCO CONSOLIDATED GROUP INC.
-----------------------------
(Registrant)
By: /s/ Irwin Engelman
------------------------------
May 13, 1996 Irwin Engelman
Executive Vice President and
Chief Financial Officer
/s/ Laurence Winoker
------------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
9
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1* Amendment dated May 13, 1996 to the Company's Restated
Certificate of Incorporation.
10.1* Amendment dated March 15, 1996 to Employment Agreement
effective July 1, 1995 between the Company and
James R. Maher.
10.2* The Company's 1995 Stock Option Plan.
10.3 The Company's Performance Bonus Plan (included within and
incorporated by reference to the Employment Agreement
effective July 1, 1995 between the Company and James R.
Maher, filed as Exhibit 10.33 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.4 The Company's Chief Executive Officer Transaction Bonus Plan
(included within and incorporated by reference to the
Employment Agreement effective July 1, 1995 between the
Company and James R. Maher, filed as Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.5* The Company's Tobacco Products Group Performance Bonus Plan.
27* Financial Data Schedule
- -----------------------------
* filed herein
(b) Reports on Form 8-K
None
10
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
MAFCO CONSOLIDATED GROUP INC.
-----------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-----------------------------------------
Mafco Consolidated Group Inc., a Delaware corporation
(hereinafter called the "Corporation"), does hereby certify as follows:
FIRST: Article EIGHTH of the Corporation's Restated
Certificate of Incorporation is hereby amended to read in its entirety as set
forth below:
(a) Except as may be provided pursuant to resolutions of the Board of
Directors, adopted pursuant to the provisions of this Certificate of
Incorporation, establishing any series or class of Common Stock or
Preferred Stock and granting to holders of shares of such series or
class of Common Stock or Preferred Stock rights to elect additional
directors under specified circumstances, the number of directors of
the Corporation shall be determined from time to time in the manner
described in the By-Laws. No director need be a stockholder.
(b) Except as otherwise provided in a resolution of the
Board of Directors, adopted pursuant to the provisions of this
Certificate of Incorporation, establishing a series or class of
Common Stock or Preferred Stock and creating in the holders of shares
of such series or class rights to elect
<PAGE>
directors under specified circumstances, newly created directorships
resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum of the Board of Directors, or by
a sole remaining director. Any director elected in accordance with the
preceding sentence shall hold office until the annual meeting of
stockholders, and until such director's successor shall have been duly
elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director."
SECOND: Article THIRTEENTH of the Corporation's Restated
Certificate of Incorporation shall be amended in its entirety to read as set
forth below:
"THIRTEENTH: The Board of Directors may from time to time
make, amend, supplement or repeal the By-Laws; provided, however,
that the stockholders may change or repeal any By-Law adopted by the
Board of Directors; and provided further that no amendment or
supplement to the By-Laws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement adopted by the
stockholders."
THIRD: Articles NINTH and TENTH of the Corporation's
Restated Certificate of Incorporation shall be deleted in their entirety and
Articles ELEVENTH, TWELFTH, THIRTEENTH, FOURTEENTH, FIFTEENTH, SIXTEENTH,
SEVENTEENTH AND EIGHTEENTH of the Corporation's Restated Certificate of
Incorporation shall be renumbered accordingly.
FOURTH: The foregoing amendment was duly adopted in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed in its corporate name this 13th day of May,
1996.
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Joram C. Salig
-----------------------
Name: Joram C. Salig
Title: Assistant Secretary
3
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
AGREEMENT made as of March 15, 1996 between MAFCO
CONSOLIDATED GROUP INC., a Delaware corporation (the "Company"), and James R.
Maher (the "Executive").
WHEREAS, the Executive is employed by the Company as its
President and Chief Executive Officer pursuant to an employment agreement
executed effective July 1, 1995 (the "Agreement") and
WHEREAS, the parties desire to amend the Agreement in
certain respects.
NOW, THEREFORE, in consideration of the foregoing, the
parties hereby agree as follows:
1. Capitalized Terms. Capitalized terms used
herein shall, unless otherwise defined herein, have the meanings ascribed to
such terms in the Agreement.
2. Amendment to Section 5(b). Section 5(b) of
the Agreement is hereby restated in its entirety as follows:
During the Employment Period Executive shall be eligible to receive a
performance bonus ("Performance Bonus") of Five Hundred Thousand
Dollars ($500,000) with respect to each calendar year that commences
during the Employment Period, pursuant to performance-based
compensation program ("Performance Bonus Plan") which the Company
agrees to adopt prior to, and present to the shareholders for
approval at, the first annual meeting of the Company's shareholders
next following the Effective Date. The Performance Bonus Plan is
intended to be qualified under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Performance Bonus shall be
paid as soon as practicable following the end of each calendar year.
3. Amendment to Section 5(c). Section 5(c) of
the Agreement is hereby amended by substituting the following for the phrase
"Employment Year" the first time it appears therein:
period from July 1 of one year until June 30 of the next following
year during the Employment Period (each such period, an "Employment
Year")
<PAGE>
4. Amendment to Section 9. Section
9(b)(i)(B)(y) is hereby amended by substituting "calendar year" for the phrase
"Employment Year" the first two times it appears therein. Section 9(c)(i)(A) is
hereby amended by substituting "calendar year" for the phrase "Employment Year"
therein. Section 9(c)(ii) is hereby amended by substituting "calendar year" for
the phrase "Employment Year" therein.
5. Amendment to Index of Defined Terms. The
Index of Defined Terms is hereby amended by substituting section reference "ss.
5(c)" for "ss. 5(b)" for the term "Employment Year."
6. Status of Agreement. Except as amended
hereby, the terms and conditions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands and seals as of the day and year first above written.
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Howard Gittis
-------------------------
Howard Gittis
/s/ James R. Maher
-------------------------
James R. Maher
2
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
1995 STOCK OPTION PLAN
1. PURPOSE: RESTRICTIONS ON AMOUNT AVAILABLE UNDER THE PLAN.
This Mafco Consolidated Group Inc. 1995 Stock Option Plan ("Plan") is
intended to encourage stock ownership by employees of Mafco Consolidated Group
Inc. (the "Company") and employees of Affiliated Corporations (as defined in
Section 2(a) hereof), so that they may acquire or increase their proprietary
interest in the Company, and to encourage such employees to remain in the
employ of the Company and to put forth maximum efforts for the success of the
business. It is further intended that options granted by the Committee
pursuant to Section 6 of this Plan shall constitute "incentive stock options"
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as thereafter amended, and the regulations issued
thereunder (the "Code"), and options granted by the Committee pursuant to
Section 7 of this Plan shall constitute "nonqualified stock options"
("Nonqualified Stock Options"). Grants under this Plan may consist of
Incentive Stock Options, Nonqualified Stock Options (collectively, "Options")
or stock appreciation rights ("Rights"), which Rights may be either granted in
conjunction with Options ("Related Rights") or unaccompanied by Options ("Free
Standing Rights"), as hereinafter set forth.
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "AFFILIATE CORPORATION" or "AFFILIATE" shall mean any
corporation, directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with the Company.
(b) "DISABILITY" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of medically determinable physical or
mental impairment that can be expected to result in death or that has
<PAGE>
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
(c) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(d) "FAIR MARKET VALUE" per share as of a particular date shall mean
(i) the closing sales price per share of Common Stock (as defined in Section 5
hereof) on the New York Stock Exchange for the last preceding date on which
there was a sale of such Common Stock on such exchange, or (ii) if the shares
of Common Stock are not then admitted for trading on the New York Stock
Exchange, the closing price for the shares of Common Stock in such other
national securities exchange or interdealer quotation system on which Common
Stock is then traded for the last preceding date on which there was a sale of
such Common Stock in such market, or (iii) if the shares of Common Stock are
not then listed on a national securities exchange or interdealer quotation
system, such value as the Committee in its discretion may determine.
(e) "PARENT CORPORATION" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at
the time of granting an Option, each of such corporations (other than the
Company) owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(f) "RETIREMENT" shall mean an Optionee's termination of employment
in accordance with the provisions of the Company's Employee Retirement Plan on
or after such Optionee's Normal Retirement Date, as defined in such plan.
(g) "SUBSIDIARY CORPORATION" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company
if, at the time of granting an Option, each of such corporations other than
the last corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total
2
<PAGE>
combined voting power of all classes of stock in one of the other corporations
in such chain.
(h) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the time
an Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of its Parent Corporation or Subsidiary Corporations.
3. ADMINISTRATION.
The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board"), which shall
be comprised of not less than the minimum number of persons from time to time
required to comply with Rule 16b-3 promulgated under the Exchange Act and
Section 162(m) of the Code, each of whom, (a) to the extent necessary to
comply with Section 162(m) only, is an "outside director" within the meaning
of Section 162(m) and (b) to the extent necessary to comply with Rule 16b-3
only, is a "disinterested person" within the meaning of Rule 16b-3.
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer
the Plan and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the administration
of the Plan, including, without limitation, the authority to grant Options; to
determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine which Rights
(if any) shall be granted in conjunction with Options; to determine the
purchase price of the shares of Common Stock covered by each Option (the
"Option Price"); to determine the persons to whom, and the time or times at
which, Options shall be granted; to determine the number of shares to be
covered by each Option; to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the agreements (which need not be identical) entered into in
3
<PAGE>
connection with Options and/or Rights granted under the Plan ("Option
Agreements"); and to make all other determinations deemed necessary or
advisable for the administration of the Plan. The Committee may delegate to
one or more of its members or to one or more agents such administrative duties
as may be deemed advisable, and the Committee or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have under
the Plan.
No member of the Board of Directors or Committee shall be liable for
any action taken or determination made in good faith with respect to the Plan
or any Option or Right granted hereunder.
4. ELIGIBILITY.
Options, Rights, or both Options and Rights may be granted to key
employees (including, without limitation, officers and directors who are
employees) of the Company or its present or future Affiliate Corporations,
except that Incentive Stock Options shall be granted only to individuals who,
on the date of such grant, are employees of the Company or a Parent
Corporation or a Subsidiary Corporation. In determining the persons to whom
Options and/or Rights shall be granted and the number of shares to be covered
by each Option and any Rights, the Committee shall take into account the
duties of the respective persons, their present and potential contributions to
the success of the Company and such other factors as the Committee shall deem
relevant in connection with accomplishing the purpose of the Plan. A person to
whom an Option has been granted hereunder is sometimes referred to herein as
an "Optionee."
An Optionee shall be eligible to receive more than one grant of an
Option during the term of the Plan, but only on the terms and subject to the
restrictions hereinafter set forth.
4
<PAGE>
5. STOCK.
The stock subject to Options and Rights hereunder shall be shares of
the Company's common stock, par value $0.01 per share ("Common Stock"). Such
shares may, in whole or in part, be authorized but unissued shares or shares
that shall have been or that may be reacquired by the Company. The aggregate
number of shares of Common Stock as to which Options and Rights may be granted
from time to time under the Plan shall not exceed 1,250,000. No person may be
granted Options or Rights under the Plan during any calendar year representing
an aggregate of more than 750,000 shares of Common Stock. The limitations
established by the preceding two sentences shall be subject to adjustment as
provided in Section 8(i) hereof.
6. INCENTIVE STOCK OPTIONS.
Options granted pursuant to this Section 6 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms
and conditions, in addition to the general terms and conditions specified in
Section 8 thereof.
(a) VALUE OF SHARES. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of Common
Stock with respect to which Options granted under this Plan and all other
option plans of the Company, any Parent Corporation and any Subsidiary
Corporation become exercisable for the first time by an Optionee during any
calendar year shall not exceed $100,000.
(b) TEN PERCENT STOCKHOLDERS. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price shall not be
less than one hundred ten percent (110%) of the Fair Market Value of a share
of Common Stock of the Company on the date of grant of such Incentive Stock
Option, and (ii) the exercise period shall not exceed five (5) years from the
date of grant of such Incentive Stock Option.
5
<PAGE>
7. NONQUALIFIED STOCK OPTIONS.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Sections 5 and 8 hereof.
8. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to the Plan shall be evidenced by a
written Option Agreement between the Company and the Optionee, which agreement
shall comply with and be subject to the following terms and conditions:
(a) NUMBER OF SHARES. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) TYPE OF OPTION. Each Option Agreement shall specifically identify
the portion, if any, of the Option which constitutes an Incentive Stock Option
and the portion, if any, which constitutes a Nonqualified Stock Option.
(c) OPTION PRICE. Each Option Agreement shall state the Option Price
per share of Common Stock, which, in the case of Incentive Stock Options,
shall be not less than one hundred percent (100%) of the Fair Market Value of
a share of Common Stock of the Company on the date of grant of the Option and
shall be further subject to the limitation described in Section 6(b) hereof.
The Option Price shall be subject to adjustment as provided in Section 8(i)
hereof.
(d) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in
full, at the time of exercise, in cash or in shares of Common Stock having a
Fair Market Value equal to such Option Price or in a combination of cash and
such shares, and may be effected in whole or in part (i) with monies received
from the Company at the time of exercise as a compensatory cash payment, or
(ii) with monies borrowed from the Company pursuant to repayment terms and
conditions as shall be determined from time to
6
<PAGE>
time by the Committee, in its discretion, separately with respect to each
exercise of Options and each Optionee; provided, however, that each such method
and time for payment and each such borrowing and terms and conditions of
security, if any, and repayment shall be permitted by and be in compliance with
applicable law.
(e) TERM AND EXERCISE OF OPTIONS. Options shall be exercised over the
exercise period as and at the times and upon the conditions that the Committee
may determine, as reflected in the Option Agreement; provided, however, that
the Committee shall have the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it, in its
sole discretion, deems appropriate. The exercise period shall be determined by
the Committee; provided, however, that in the case of an Incentive Stock
Option, such exercise period shall not exceed ten (10) years from the date of
grant of such Incentive Stock Option and such exercise period shall be further
limited in circumstances described in Section 6(b) hereof. The exercise period
shall be subject to earlier termination as provided in Section 8(f) and 8(g)
hereof. An Option may be exercised, as to any or all full shares of Common
Stock as to which the Option has become exercisable, by giving written notice
of such exercise to the Committee; provided, however that an Option may not be
exercised at any one time as to fewer than one hundred (100) shares (or such
number of shares as to which the Option is then exercisable if such number of
shares is less than one hundred (100)).
(f) TERMINATION OF EMPLOYMENT. Except to the extent the applicable
Option Agreement provides otherwise, in the event that the employment of an
Optionee shall terminate (other than by reason of death, Disability or
Retirement), all Options of such Optionee that are exercisable at the time of
such termination may be exercised until the options expire in accordance with
their terms (notwithstanding such termination). Nothing in the Plan or in any
Option or Right granted pursuant hereto shall confer upon an individual any
right to continue in the employ of the Company or any of its Affiliate
Corporations or interfere in any way with the right of the
7
<PAGE>
Company or any such Affiliate Corporation to terminate such employment at any
time.
(g) ACCELERATION OF BENEFITS UPON DEATH, DISABILITY OR RETIREMENT OF
OPTIONEE. Except to the extent the applicable Option Agreement provides
otherwise, if the Optionee's employment shall terminate by reason of death,
Disability or Retirement, then all Options theretofore granted to such
Optionee (whether or not then exercisable) may be exercised by the Optionee
(or by the Optionee's estate or by a person who acquired the right to exercise
such Option by bequest or inheritance or otherwise by reason of the death or
Disability of the Optionee) at any time until the Options expire in accordance
with their terms (notwithstanding such death or termination).
(h) NONTRANSFERABILITY OF OPTIONS. Options granted under the Plan
shall not be transferable otherwise than by will or by the laws of descent and
distribution, and options may be exercised, during the lifetime of the
Optionee, only by the Optionee or by his guardian or legal representative.
(i) EFFECT OF CERTAIN CHANGES.
(2) If there is any change in the number of outstanding
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination, exchange of shares, merge,
consolidation, liquidation, split-up, spin-off or other similar
change in capitalization, any distribution to common shareholders,
including a rights offering, other than cash dividends, or any like
change, then the number of shares of Common Stock available for
Options and Rights, the number of such shares covered by outstanding
Options and Rights, and the price per share of such Options or the
applicable market value of Rights, shall be proportionately adjusted
by the Committee to reflect such change or distribution; provided,
however, that any fractional
8
<PAGE>
shares resulting from such adjustment shall be eliminated.
(3) In the event of a change in the Common Stock of the
Company as presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number of
shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common Stock
within the meaning of the Plan.
(4) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by
the Committee, whose determination in that respect shall be final,
binding and conclusive, provided that each incentive Stock Option
granted pursuant to this Plan shall not be adjusted in a manner that
causes such option to fail to continue to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
(a) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an Option
shall have no rights as a stockholder with respect to any shares covered by
the Option until the date of the issuance of a stock certificate to him for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution
of other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8(i) hereof.
(b) OTHER PROVISIONS. The Option Agreements authorized under the Plan
shall contain such other provisions, including, without limitation, (i) the
granting of Rights, (ii) the imposition of restrictions upon the exercise of
an Option, and (iii) in the case of an Incentive Stock Option, the inclusion
of any condition not inconsistent with such Option qualifying as an Incentive
Stock Option, as the Committee shall deem advisable.
9
<PAGE>
9. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. In the case of a Nonqualified Stock Option,
Related Rights may be granted either at or after the time of the grant of such
Option. In the case of an Incentive Stock Option, Related Rights may be
granted only at the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted with respect to
a given Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that, unless otherwise
provided by the Committee at the time of grant, a Related Right granted with
respect to less than the full number of shares covered by a related Option
shall only be reduced if and to the extent that the number of shares covered
by the exercise or termination of the related Option exceeds the number of
shares not covered by the Right.
A Related Right may be exercised by an Optionee, in accordance with
paragraph (b) of this Section 9, by surrendering the applicable portion of the
related Option. Upon such exercise and surrender, the Optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section 9. Options which have been so surrendered, in whole or in
part, shall no longer be exercisable to the extent the Related Rights have
been exercised.
(b) TERMS AND CONDITIONS. Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of the Plan, as shall be
determined from time to time by the Committee and as evidenced by a written
Option Agreement between the Company and the Optionee, including the
following:
(2) Related Rights shall be exercisable only at such time or
times and to the extent that the Options to which they relate shall
be exercisable in accordance with the provisions of Section 6, 7, 8
and this Section 9 of the Plan; provided, however, that any Related
Right shall not be exercisable during the first six (6) months of the
term of the Related Right, except that this additional limita-
10
<PAGE>
tion shall not apply in the event of death of the Optionee prior to
the expiration of the six (6) month period.
(3) Upon the exercise of a Related Right, an Optionee shall
be entitled to receive up to, but not more than, an amount in cash or
shares of Common Stock equal in value to the excess of the Fair
Market Value of one (1) share of Common Stock over the option price
per share specified in the related Option multiplied by the number of
shares in respect of which the Related Right shall have been
exercised, with the Committee having the right to determine the form
of payment.
(4) Related Rights shall be transferable only when and to
the extent that the underlying Option would be transferable under
paragraph (h) of Section 8 of the Plan.
(5) A Related Right granted in connection with an Incentive
Stock Option may be exercised only if and when the market price of
the Common Stock subject to the Incentive Stock Option exceeds the
exercise price of such Option.
(6) Free Standing Rights shall be exercisable at such time
or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however,
that Free Standing Rights shall not be exercisable during the first
(6) six months of the term of the Free Standing Right, except that
this limitation shall not apply in the event of death of the
recipient of the Free Standing Right prior to the expiration of the
six-month period.
(7) The term of each Free Standing Right shall be fixed by
the Committee, but no Free Standing Right shall be exercisable more
than ten (10) years after the date such right is granted.
(8) Upon the exercise of a Free Standing Right, a recipient
shall be entitled to receive up to, but not more than, an amount in
cash or shares
11
<PAGE>
of Common Stock equal in value to the excess of the Fair Market Value
of one share of Common Stock over the price per share specified in
the Free Standing Right (which shall be no less than one hundred
percent (100%) of the Fair Market Value of the Common Stock on the
date of grant) multiplied by the number of shares in respect of which
the right is being exercised, with the Committee having the right to
determine the form of payment.
(9) No Free Standing Right shall be transferable by the
recipient otherwise than by will or by the laws of descent and
distribution, and all such rights shall be exercisable, during the
recipient lifetime, only by the recipient or his legal guardian or
legal representative.
(10) In the event of the termination of employment of a
recipient of a Free Standing Right, such right shall be exercisable
to the same extent that an Option would have been exercisable in the
event of the termination of employment of an Optionee.
10. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES.
If the Committee shall so require, as a condition of exercise, each
Optionee shall agree that:
(a) no later than the date of exercise of any Option or Right granted
hereunder, the Optionee will pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld upon the exercise of such
Option or Right (any such tax, a "Withholding Tax"); and
(b) the Company shall, to the extent permitted or required by law,
have the right to deduct any Withholding Tax from any payment of any kind
otherwise due to the Optionee.
12
<PAGE>
11. TERMINATION AND AMENDMENT.
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on, and no Option or Right shall be granted
after, the tenth anniversary of the effective date of the Plan. The Plan may
be terminated, modified or amended by the shareholders of the Company. The
Board may at any time terminate, modify or amend the Plan in such respects as
it shall deem advisable; provided, however, that the Board may not, without
approval by the holders of a majority of the voting shares of the Company:
i) increase (except as provided in Section 8(i) hereof) the
maximum number of shares of Common Stock as to which Options or Rights
may be granted under the Plan;
ii) change the class of employees eligible to receive
Options or Rights; or
iii) adopt any other amendments to the Plan that are
considered material for purposes of Rule 16b-3(b) under the Exchange
Act.
No termination, modification or amendment of the Plan may, without
the consent of the employee to whom any Option or Right shall theretofore have
been granted, adversely affect the rights of such employee or his or her
transferee (as provided herein) under such Option or Right.
12. EFFECTIVENESS; APPROVAL OF STOCKHOLDERS.
The Plan shall take effect upon its adoption by the Board of
Directors, but its effectiveness and the exercise of any Options or Rights
shall be subject to the approval of the holders of a majority of the voting
shares of the Company, which approval must occur within twelve (12) months
after the date the Plan is adopted by the Board.
13
<PAGE>
13. EFFECT OF HEADINGS.
The section and subsection headings contained herein are
for convenience only and shall not affect the construction hereof.
14
<PAGE>
THE TOBACCO PRODUCTS GROUP PERFORMANCE BONUS PLAN
Mafco Consolidated Group Inc. (the "Company") has adopted
the Tobacco Products Group Performance Bonus Plan. Compensation payable under
the Tobacco Products Group Performance Bonus Plan is intended to qualify as
"performance based compensation" under Section 162(m) of the Internal Revenue
Code of 1986, as amended. Senior executive officers of the Company selected
for participation in the Tobacco Products Group Performance Bonus Plan by the
Compensation Committee of the Company's Board of Directors will be entitled to
participate in the Tobacco Products Group Performance Bonus Plan. The
performance goals under the Tobacco Products Group Performance Bonus Plan are
established by the Compensation Committee with respect to each calendar year.
The performance goals under the Tobacco Products Group Performance Bonus Plan
will be based on achievement of earnings before interest, tax, depreciation
and amortization ("EBITDA") targets, which may relate to EBITDA of
Consolidated Cigar Corporation, EBITDA of Mafco Worldwide Corporation, or
EBITDA of the Company's Tobacco Products Group. The payments under the Tobacco
Products Group Performance Bonus Plan to any one individual during any
calendar year may not exceed $2,000,000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the Mafco Consolidated Group Inc. Consolidated Balance Sheet
and Statement of Operations and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CAPTION>
<S> <C>
<CIK> 0000888676
<NAME> Mafco Consolidated Group Inc.
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 90,782
<SECURITIES> 0
<RECEIVABLES> 33,474
<ALLOWANCES> (5,492)
<INVENTORY> 87,311
<CURRENT-ASSETS> 231,449
<PP&E> 73,785
<DEPRECIATION> (28,321)
<TOTAL-ASSETS> 566,139
<CURRENT-LIABILITIES> 75,443
<BONDS> 174,522
0
0
<COMMON> 247
<OTHER-SE> 111,493
<TOTAL-LIABILITY-AND-EQUITY> 566,139
<SALES> 66,168
<TOTAL-REVENUES> 66,168
<CGS> 38,302
<TOTAL-COSTS> 38,302
<OTHER-EXPENSES> 12,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,299)
<INCOME-PRETAX> 12,147
<INCOME-TAX> (3,836)
<INCOME-CONTINUING> 8,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,311
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
