<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
</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.
------------------------
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>
SUBJECT TO COMPLETION, DATED OCTOBER 31, 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, in each case owned at the close of
business on November , 1996 (the 'Record Date'). The Distribution will occur,
and certificates evidencing the VSRs will be mailed to holders of PCT Stock, on
or about November , 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 , 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 , 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 registration under the
Securities Act of 1933, as amended (the 'Securities Act'), and 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'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 will be 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 7 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 NOVEMBER , 1996.
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.
<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 initial
public offering (the 'Cigar IPO') by Consolidated Cigar Holdings Inc., a wholly
owned subsidiary of the Company ('Cigar Holdings'), of 6,075,000 shares of Class
A Common Stock (the 'Class A Common Stock') and the related payment of the net
proceeds thereof as a dividend to the Company, (ii) the issuance by Cigar
Holdings of a promissory note (the 'Promissory Note') in an original principal
amount of $70 million to the Company, (iii) the payment to the Company by Cigar
Holdings of a $5.6 million cash dividend (the 'Cigar Dividend') prior to the
Cigar IPO, (iv) the payment to the Company by Flavors Holdings of a $5.4 million
cash dividend prior to the Disposition (the 'Flavors Dividend'), (v) the
Disposition and (vi) the Distribution. The Cigar IPO, the Cigar Dividend, 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.
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 $408.5 million in cash and marketable securities at June 30,
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 $60.7 million at June 30, 1996. Through Consolidated Cigar, the
Company manufactures and distributes cigars and pipe tobacco products. In
addition, in connection with the Abex Transactions (as defined herein), 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 November , 1996.
DISTRIBUTION DATE On or about November , 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>
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 principally related to PCT's aerospace
business.
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.'
THE DISPOSITION
On November , 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. 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.'
4
<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
Corporation, a wholly owned subsidiary of Flavors Holdings ('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 six month period ended June 30, 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
June 30, 1996, gives pro forma effect to the Transactions, assuming that the
Transactions had been consummated on June 30, 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.
5
<PAGE>
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, ------------------------------
-------------------------------------- PRO FORMA
PRO FORMA JULY 2, JUNE 30, JUNE 30,
1993(A) 1994 1995(B) 1995(C) 1995 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 $126.6 $144.7 $ 92.0
Cost of sales........................................ 125.0 136.0 154.0 94.0 74.6 82.7 53.3
------- ------ ------- --------- ------- -------- ---------
Gross profit......................................... 77.6 90.9 107.1 63.9 52.0 62.0 38.7
Selling, general and administrative expenses......... 33.9 37.9 51.4 42.2 19.9 27.5 22.6
------- ------ ------- --------- ------- -------- ---------
Operating income..................................... 43.7 53.0 55.7 21.7 32.1 34.5 16.1
Interest expense..................................... 26.5 27.5 27.2 14.2 13.6 12.8 6.6
Interest, investment and dividend income............. (0.1) (0.2) (6.0) (5.5) (0.7) (3.4) (3.2)
Amortization of deferred charges and bank fees....... 2.0 2.0 2.1 1.0 1.0 1.0 0.4
Equity in earnings from continuing operations and
preferred dividends of PCT......................... -- -- (0.7) (4.7) -- (1.5) (3.7)
Other (income) expense, net.......................... (0.2) (0.2) 0.3 0.2 0.1 0.4 0.6
------- ------ ------- --------- ------- -------- ---------
Income from continuing operations before income
taxes.............................................. 15.5 23.9 32.8 16.5 18.1 25.2 15.4
Provision for income taxes........................... 5.5 7.5 9.7 2.1 5.6 7.7 3.2
------- ------ ------- --------- ------- -------- ---------
Income from continuing operations.................... 10.0 16.4 23.1 $ 14.4 12.5 17.5 $ 12.2
--------- ---------
--------- ---------
Discontinued operations
Equity in discontinued operations of PCT,
net of income taxes................................ -- -- 1.3 -- 14.7(d)
------- ------ ------- ------- --------
Income before extraordinary item..................... 10.0 16.4 24.4 12.5 32.2
Extraordinary item, net of tax benefit............... -- 2.7(e) -- -- --
------- ------ ------- ------- --------
Net Income........................................... $ 10.0 $ 13.7 $ 24.4 $ 12.5 $ 32.2
------- ------ ------- ------- --------
------- ------ ------- ------- --------
Income per share
Continuing operations.............................. $ 0.50 $ 0.82 $ 1.06 $ 0.66 $ 0.62 $ 0.76 $ 0.53
--------- ---------
--------- ---------
Discontinued operations............................ -- -- 0.06 -- 0.63
Extraordinary item................................. -- (0.13) -- -- --
------- ------ ------- ------- --------
Net income per share............................... $ 0.50 $ 0.69 $ 1.12 $ 0.62 $ 1.39
------- ------ ------- ------- --------
------- ------ ------- ------- --------
Weighted average common shares outstanding (in
thousands)......................................... 19,778 19,778 21,794 21,794 20,190 23,237 23,237
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ---------------------
-------------------------- PRO FORMA
1993 1994 1995 1996 1996(F)
------ ------ ------ -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................................... $293.6 $282.9 $560.6 $589.5 $ 784.2
Long-term debt (including current portion)....................... 276.4 250.2 229.6 223.7 117.1
Total stockholders' equity (deficit)............................. (25.4) (10.8) 103.7 135.3 332.9
</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) Includes the Company's equity in the gain on the sale by PCT of its entire
operations to Parker-Hannifin in 1996.
(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) 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 June 30, 1996. See 'Pro Forma Financial
Data.'
6
<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 $60.7 million at June 30, 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 the Credit Agreement (as defined below) and the Senior Subordinated
Notes (as defined below) 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 June 30, 1996, after giving effect to the Cigar IPO and the
Disposition, the outstanding consolidated indebtedness of the Company would have
been $117.1 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, selling assets (including
additional shares of capital stock of its subsidiaries) or operations, seeking
capital
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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 its credit agreement (the 'Credit Agreement') and its 10 1/2% Senior
Subordinated Notes due 2003 (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, and in the case of the Credit
Agreement, such dividends and distributions are currently prohibited. 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 June 30, 1996, after giving
effect to the Cigar Dividend, there was approximately $27.1 million outstanding
and $11.8 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 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.'
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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 requiring little cigars to
be 'fire-safe' (i.e., cigars that extinguish themselves if not continuously
smoked), restricting smoking in certain public areas and requiring cigar or pipe
tobacco to carry health warnings. 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.'
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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, 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 exemption 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 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. 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 Company. See Note 9 of the Notes to the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
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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. See '--Social, Political and Economic Risks Associated with
Foreign Operations and International Trade' and 'Business--Backorders.'
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. Although management of the Company believes that the
Company's balance sheet reflects adequate reserves for these matters, the timing
and amounts of payments are not entirely predictable and there can be no
assurance that these liabilities, to the extent assumed by the Company, will not
have a material adverse effect on the Company's business. Moreover, although the
Company has the benefit of insurance and/or indemnification arrangements
covering certain of these liabilities from various third parties, including
arrangements in favor of PCT and arrangements in favor of the Company, there can
be no assurance 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.'
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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 will continue to 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 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.'
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 will be 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.
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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.
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.'
THE DISPOSITION
On November , 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. 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.
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 $408.5 million in cash and marketable securities, at June 30,
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 $60.7 million at June 30, 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. 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.'
Mafco Worldwide, a wholly owned subsidiary of Flavors Holdings, is the only
manufacturer of licorice extract in the United States, and Mafco Worldwide
believes that it manufactures more than 70% of all licorice
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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.
THE DISTRIBUTION
On November , 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 will occur, and certificates representing the VSRs
will be mailed to PCT's stockholders, on or about November , 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 registration under the Securities Act and 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 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 will be 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.
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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 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.
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, -------------------
------------------------------------------------ JULY 2, JUNE 30,
1991 1992 1993(A) 1994 1995(B) 1995 1996
------ ------ ------- ------ ------- ------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 95.5 $100.1 $202.6 $226.9 $261.1 $ 126.6 $144.7
Cost of sales........................................... 58.4 60.4 125.0 136.0 154.0 74.6 82.7
------ ------ ------- ------ ------- ------- --------
Gross profit............................................ 37.1 39.7 77.6 90.9 107.1 52.0 62.0
Selling, general and administrative expenses............ 8.1 8.9 33.9 37.9 51.4 19.9 27.5
------ ------ ------- ------ ------- ------- --------
Operating income........................................ 29.0 30.8 43.7 53.0 55.7 32.1 34.5
Interest expense........................................ 13.9 16.5 26.5 27.5 27.2 13.6 12.8
Interest, investment and dividend income................ (0.4) (0.5) (0.1) (0.2) (6.0) (0.7) (3.4)
Amortization of deferred charges and bank fees.......... 1.1 1.6 2.0 2.0 2.1 1.0 1.0
Equity in earnings from continuing operations and
preferred dividends of PCT............................ -- -- -- -- (0.7) -- (1.5)
Other (income) expenses, net............................ 1.1 0.2 (0.2) (0.2) 0.3 0.1 0.4
------ ------ ------- ------ ------- ------- --------
Income from continuing operations before income taxes... 13.3 13.0 15.5 23.9 32.8 18.1 25.2
Provision for income taxes.............................. 5.0 4.8 5.5 7.5 9.7 5.6 7.7
------ ------ ------- ------ ------- ------- --------
Income from continuing operations....................... 8.3 8.2 10.0 16.4 23.1 12.5 17.5
Discontinued operations
Equity in discontinued operations of PCT, net of
income taxes........................................ -- -- -- -- 1.3 -- 14.7(c)
------ ------ ------- ------ ------- ------- --------
Income before extraordinary item........................ 8.3 8.2 10.0 16.4 24.4 12.5 32.2
Extraordinary item, net of tax benefit.................. -- 7.6(d) -- 2.7(d) -- -- --
------ ------ ------- ------ ------- ------- --------
Net income.............................................. $ 8.3 $ 0.6 $ 10.0 $ 13.7 $ 24.4 $ 12.5 $ 32.2
------ ------ ------- ------ ------- ------- --------
------ ------ ------- ------ ------- ------- --------
Earnings per share
Continuing operations................................. $ 0.42 $ 0.41 $ 0.50 $ 0.82 $ 1.06 $ 0.62 $ 0.76
Discontinued operations............................... -- -- -- -- 0.06 -- 0.63
Extraordinary item.................................... -- (0.38) -- (0.13) -- -- --
------ ------ ------- ------ ------- ------- --------
Total............................................... $ 0.42 $ 0.03 $ 0.50 $ 0.69 $ 1.12 $ 0.62 $ 1.39
------ ------ ------- ------ ------- ------- --------
------ ------ ------- ------ ------- ------- --------
Weighted average common shares outstanding (in
thousands)............................................ 19,778 19,778 19,778 19,778 21,794 20,190 23,237
OTHER DATA:
Ratio of earnings to fixed charges(e)................... 1.9x 1.7x 1.5x 1.8x 2.1x 2.2x 2.8x
<CAPTION>
DECEMBER 31,
------------------------------------------------ JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------- ------ ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................ $ 89.3 $ 82.6 $293.6 $282.9 $560.6 $589.5
Long-term debt (including current portion).............. 136.8 134.2 276.4 250.2 229.6 223.7
Total stockholders' equity (deficit).................... (66.1) (67.6) (25.4 ) (10.8) 103.7 135.3
</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) Includes the Company's equity in the gain on the sale by PCT of its entire
operations to Parker-Hannifin.
(d) Represents prepayment premiums, fees and expenses, unamortized deferred debt
issuance costs and original issue discount related to the refinancing of
indebtedness at Mafco Worldwide.
(e) 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.
15
<PAGE>
PRO FORMA FINANCIAL DATA
The unaudited pro forma statements of operations for the year ended
December 31, 1995 and the six month period ended June 30, 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 June 30,
1996, gives pro forma effect to the Transactions, assuming that the Transactions
had been consummated on June 30, 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.
16
<PAGE>
PRO FORMA BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FLAVORS
COMPANY HOLDINGS PRO FORMA COMPANY
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 99.5 $ (2.5) $ 127.8(a) $ 408.5
5.6(b)
5.4(c)
172.7(d)
Notes and trade receivables, net.............................. 31.2 (13.1) 7.2(d) 25.3
Inventories................................................... 85.7 (42.8) -- 42.9
Prepaid expenses and other.................................... 25.5 (2.8) -- 22.7
---------- ---------- ----------- ---------
Total current assets........................................ 241.9 (61.2) 318.7 499.4
Property, plant and equipment, net.............................. 47.8 (10.4) -- 37.4
Pension asset................................................... 60.7 -- -- 60.7
Investment in PCT preferred and common stock.................... 72.6 -- (46.2)(e) 26.4
Trademarks, net................................................. 31.6 -- -- 31.6
Intangible assets related to businesses acquired, net........... 61.9 (1.4) -- 60.5
Other assets.................................................... 73.0 (4.8) -- 68.2
---------- ---------- ----------- ---------
$589.5 $ (77.8) $ 272.5 $ 784.2
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt and short term borrowings... $ 7.3 $ (7.3) $ -- $ --
Accounts payable.............................................. 10.9 (4.3) -- 6.6
Accrued expenses and other.................................... 57.7 (5.9) 43.5(f) 95.3
---------- ---------- ----------- ---------
Total current liabilities................................... 75.9 (17.5) 43.5 101.9
Long-term debt.................................................. 216.4 (104.9) 5.6(b) 117.1
Other liabilities............................................... 161.9 (3.1) 44.7 (a) 184.4
(19.1)(f)
VSRs............................................................ 47.8(d) 47.8
Commitments and contingencies...................................
Stockholders' equity:
Common stock.................................................. 0.2 -- 0.2
Additional paid-in-capital.................................... 167.1 -- 167.1
Accumulated deficit........................................... (3.4) 49.0 83.1(a) 195.6
5.4(c)
132.1(d)
(46.2)(e)
(24.4)(f)
Currency translation adjustment............................... 1.3 (1.3) -- --
Treasury stock at cost........................................ (29.9) -- -- (29.9)
---------- ---------- ----------- ---------
Total stockholders' equity.................................. 135.3 47.7 150.0 333.0
---------- ---------- ----------- ---------
$589.5 $ (77.8) $ 272.5 $ 784.2
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
</TABLE>
- ------------------
(a) Reflects the Cigar IPO, which resulted in a gain to the Company of $83.1,
net of a deferred tax liability of $44.7.
(b) Reflects the Cigar Dividend paid by Cigar Holdings to the Company prior to
the Cigar IPO of $5.6, which was funded with borrowings under the Credit
Agreement.
(c) Reflects the Flavors Dividend to be paid by Flavors Holdings to the Company
prior to the Disposition of $5.4.
(d) Reflects (i) the Disposition and the issuance of the VSRs for cash proceeds
of $172.7, net of estimated transaction expenses and deferred cash payments
of $7.2 and the resulting gain and (ii) the Distribution.
(e) Reflects the deferral of a portion of the gain on the Disposition
corresponding to the Company's continuing 29% equity interest in PCT
following the Disposition, net of taxes.
(f) Reflects the tax effect of the gain to the Company on the Disposition.
17
<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 ADJUSTMENTS(A) 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 (0.5)(b) (14.2)
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 -- 4.0(c) 4.7
Other income (expense), net (0.3) 0.1 (0.2)
---------- ---------- -------------- ---------
Income from continuing operations before income taxes....... 32.8 (19.8) 3.5 16.5
Provision for income taxes.................................. (9.7) 7.7 (0.1)(d) (2.1)
---------- ---------- -------------- ---------
Income from continuing operations $ 23.1 $ (12.1) $ 3.4 $ 14.4
---------- ---------- -------------- ---------
---------- ---------- -------------- ---------
Earnings per share from continuing operations $ 1.06 $ 0.66
Weighted average number of shares outstanding (in
thousands)................................................ 21,794 21,794
Ratio of earnings to fixed charges(e)....................... 2.1x 2.0x
</TABLE>
- ------------------
(a) Minority interest in the earnings of Cigar Holdings is not reflected as a
pro forma adjustment as the book value of Cigar Holdings was negative at the
time of the Cigar IPO and remained negative after including the net income
of Cigar Holdings in 1995. If Cigar Holdings had a positive book value at
the time of the Cigar IPO, the minority interest in the earnings of Cigar
Holdings on a pro forma basis for the year ended December 31, 1995 would
have been $2.7.
(b) Reflects interest expense on borrowings used to fund the Cigar Dividend.
(c) Reflects the increase in the Company's equity in earnings from continuing
operations of PCT attributable to the Disposition.
(d) Reflects the tax effect of the pro forma adjustments, which reflect a
dividend exclusion deduction.
(e) 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 STATEMENT OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1996
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FLAVORS
COMPANY HOLDINGS PRO FORMA COMPANY
HISTORICAL HISTORICAL ADJUSTMENTS(A) PRO FORMA
---------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
Net sales.................................................... $ 144.7 $ (52.7) $ 92.0
Cost of sales................................................ 82.7 (29.4) 53.3
---------- ---------- ------- ---------
Gross profit................................................. 62.0 (23.3) -- 38.7
Selling, general and administrative expenses................. 27.5 (4.9) 22.6
---------- ---------- ------- ---------
Operating income............................................. 34.5 (18.4) -- 16.1
Interest expense............................................. (12.8) 6.4 (0.2)(b) (6.6)
Interest, investment and dividend income..................... 3.4 (0.2) 3.2
Amortization of deferred charges and bank fees............... (1.0) 0.6 (0.4)
Equity in earnings from continuing operations and preferred
dividends of PCT........................................... 1.5 -- 2.2(c) 3.7
Other income (expense), net.................................. (0.4) (0.2) (0.6)
---------- ---------- ------- ---------
Income from continuing operations before income taxes........ 25.2 (11.8) 2.0 15.4
Provision for income taxes................................... (7.7) 4.6 (0.1)(d) (3.2)
---------- ---------- ------- ---------
Income from continuing operations............................ $ 17.5 $ (7.2) $ 1.9 $ 12.2
---------- ---------- ------- ---------
---------- ---------- ------- ---------
Earnings per share from continuing operations................ $ 0.76 $ 0.53
Weighted average number of shares outstanding (in
thousands)................................................. 23,237 23,237
Ratio of earnings to fixed charges(e)........................ 2.8x 3.1x
</TABLE>
- ------------------
(a) Minority interest in the earnings of Cigar Holdings is not reflected as a
pro forma adjustment as the book value of Cigar Holdings was negative at the
time of the Cigar IPO and remained negative after including the net income
of Cigar Holdings in 1995 and the first six months of 1996. If Cigar
Holdings had a positive book value at the time of the Cigar IPO, the
minority interest in the earnings of Cigar Holdings on a pro forma basis for
the six months ended June 30, 1996 would have been $2.2.
(b) Reflects interest expense on borrowings used to fund the Cigar Dividend.
(c) Reflects the increase in the Company's equity in earnings from continuing
operations of PCT attributable to the Disposition.
(d) Reflects the tax effect of the pro forma adjustments, which reflect a
dividend exclusion deduction.
(e) 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.
19
<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.
On November , 1996, the Company sold all the outstanding shares of
Flavors Common Stock to PCT International. The following discussion of the
Company's financial condition and results of operations for the periods
indicated does not give pro forma effect to the Disposition. See 'Selected Pro
Forma Financial Data' for pro forma statement of operations data and pro forma
balance sheet data of the Company, which give effect to, among other things, the
Disposition and the other Transactions.
The Company's results of operations have been, and continue to be, affected
by certain trends in the tobacco products industry. See 'Business--Market
Overview' and '--The Tobacco Industry.'
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
(dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTH PERIOD ENDED
-------------------------------------------------------- ------------------------------------
1993 1994 1995 JULY 2, 1995 JUNE 30, 1996
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $202.6 100.0% $226.9 100.0% $261.1 100.0% $126.6 100.0% $144.7 100.0%
Cost of sales................ 125.0 61.6 136.0 59.9 154.0 59.0 74.6 58.9 82.7 57.1
Gross profit................. 77.6 38.4 90.9 40.1 107.1 41.0 52.0 41.1 62.0 42.9
Selling, general and
administrative expenses.... 33.9 16.7 37.9 16.7 51.4 19.7 19.9 15.7 27.5 19.0
Operating income............. 43.7 21.7 53.0 23.4 55.7 21.3 32.1 25.4 34.5 23.9
</TABLE>
Six Month Period Ended June 30, 1996 Compared with the Six Month Period Ended
July 2, 1995
Net sales in the first six months of 1996 and 1995 were $144.7 million and
$126.6 million, respectively, an increase of $18.1 million or 14.3%. 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 slightly lesser
extent, an increase in cigar units, particularly in the premium market.
Cost of sales were $82.7 million and $74.6 million in the first six months
of 1996 and 1995, respectively, an increase of $8.1 million or 10.9%. 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 57.1% in 1996 from 58.9% in
1995 primarily due to fixed manufacturing costs spread over increased net sales
and an insurance recovery related to damaged inventory.
SG&A expenses were $27.5 million and $19.9 million in the fist six months
of 1996 and 1995, respectively. As a percentage of net sales, SG&A expenses were
19.0% in the 1996 period and 15.7% in the 1995 period. The increase primarily
reflects increased marketing and selling expenses and the inclusion of corporate
expenses of the Company in the 1996 period.
20
<PAGE>
Interest expense was $12.8 million and $13.6 million in the first six
months of 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 $3.4 million and $.7 million
in the first six months of 1996 and 1995, respectively. The increase primarily
reflects interest income on cash acquired in connection with the Merger.
Equity in loss from continuing operations of PCT represents the Company's
interest in the continuing operations of common stock of PCT 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 before income
taxes was 30.7% in the first six months of 1996 and 31.1% in the first six
months of 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 income and franchise taxes. In addition, 1995 reflects a provision for
federal income taxes, net of tax benefits resulting from the utilization of
Consolidated Cigar's net operating loss carryforwards.
Equity in discontinued operations of PCT, net of income taxes which reflect
a dividend exclusion deduction, represents the Company's interest in the
discontinued operations of PCT, including the gain on sale of PCT's aerospace
business.
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 and other SG&A expenses incurred by the Company
since the 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 and
dividend income on the PCT Preferred Stock.
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
21
<PAGE>
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.
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 $15.3 million and
$10.6 million in the first half of 1996 and 1995, respectively. The increase of
$4.7 million from the first half of 1995 to the first half of 1996 reflects
higher net income and decreased working capital requirements in 1996 compared to
1995. 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. The increase 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 half of 1996 are primarily related to 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
$4.1 million and $1.3 million in the first half of 1996 and 1995, respectively.
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 $3.4
22
<PAGE>
million. 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 and the
construction project in Jamaica will be completed by the end of 1996. For the
first six months of 1996, $0.5 million of cash flows was also invested, as part
of an equity investment, in the Jamaican joint venture.
Cash flows used for financing activities were $4.6 million and $32.7
million in the first half of 1996 and 1995, respectively. Cash flows used for
financing activities in the first half of 1996 primarily reflects net repayments
of borrowings and in the first half of 1995 primarily reflects dividends paid to
Mafco Holdings of $14.0 million, an increase in restricted deposits of $15.7
million and net repayment of borrowings of $3.0 million. 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 Corporation, a wholly owned
subsidiary of PCT ('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.'
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 July 17, 1996,
the Company would have realized a combined loss of approximately $2.1 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.'
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<PAGE>
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 June 30,
1996, there was approximately $17.4 million unused and available under the
Credit Agreement, after taking into account approximately $1.0 million utilized
to support letters of credit. Cigar Holdings paid to the Company a cash dividend
of approximately $5.6 million funded by borrowings under the Credit Agreement.
As of June 30, 1996, after giving effect to the borrowings under the Credit
Agreement to fund the Cigar Dividend, there would have been approximately $11.8
million available under the Credit Agreement. 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 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.'
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.'
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<PAGE>
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
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
exemption 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 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. 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.
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<PAGE>
BUSINESS
GENERAL
The Company is a holding company with no business operations of its own.
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 $408.5 million in cash and marketable securities at June 30,
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 $60.7 million at June 30, 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.
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<PAGE>
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 economic, regulatory and
industry factors. The Company also intends to pursue joint venture opportunities
to enhance its overall cigar and pipe tobacco businesses.
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<PAGE>
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
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<PAGE>
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.
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.
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<PAGE>
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 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. The shortages of tobacco have not yet impacted 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.'
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
32
<PAGE>
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 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
33
<PAGE>
regulations promulgated by the FDA in the future could have a material adverse
effect on the operations of the Company.
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
34
<PAGE>
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 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.
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
35
<PAGE>
necessary, would be readily available on a timely basis on commercially
reasonable terms. 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, including with respect to the environmental,
asbestos and tax matters set forth below.
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. 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.
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. Pursuant to a stock purchase agreement, dated April 28, 1988,
as amended, between Pneumo Abex and Whitman Corporation ('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 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 are the
responsibility of PCT or the Company. 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
36
<PAGE>
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. The Company 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 the Company's involvement varies and is
limited for those matters being managed by Whitman.
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 Abex in 1982. As of September 30, 1996, the Company had
approximately $7.4 million in unreimbursed 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 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.
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<PAGE>
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 of Abex, the predecessor
of the Company, 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 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
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.
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 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 the Company 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 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.
Management believes that reserves as of June 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.
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 legal proceedings 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 other matters, irrespective of insurance
coverage and third party indemnities, will have material adverse effect on its
financial position or results of operations.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information (ages as of March 31,
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.................................. 46 President, Chief Executive Officer and a
Director
Irwin Engelman.................................. 61 Executive Vice President and Chief Financial
Officer
Barry F. Schwartz............................... 46 Executive Vice President and General Counsel
Theo W. Folz.................................... 52 President and Chief Executive Officer of Tobacco
Products Group and a Director
Gary R. Ellis................................... 42 Senior Vice President and Chief Financial
Officer of Tobacco Products Group
Philip E. Beekman............................... 64 Director
Jewel S. Lafontant-Mankarious................... 72 Director
Drew Lewis...................................... 64 Director
Robert Sargent Shriver III...................... 41 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, Mafco Worldwide,
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,
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,
Mafco Worldwide, New World, New World Television, NWCG Holdings, PCT, 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
39
<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 and Laboratory Corporation of America Holdings, which file 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
1993, 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 and Chief Financial Officer of Cigar Holdings since 1993 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, AT&T Corp., Ford Motor Company, FPL Group, Inc., Gannett Co., Inc. and
Union Pacific.
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.
40
<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.
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($) OPTIONS(#) ($)(A)
- ------------------------------------------------- ---- --------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
James R. Maher
President and Chief Executive Officer.......... 1995 500,000 1,000,000 750,000 --
Theo W. Folz 1995 1,000,000 1,000,000 3,000
President and Chief Executive Officer of 1994 675,000 400,000 3,000
Consolidated Cigar............................. 1993 638,000 300,000 -- 4,717
Gary R. Ellis 1995 200,000 200,000 3,000
Senior Vice President and Chief Financial 1994 185,000 100,000 3,000
Consolidated Cigar............................. 1993 175,000 75,000 -- 4,717
</TABLE>
- ------------------
(a) Represents the Company's contribution to the employee's account under
Consolidated Cigar's 401(k) plan.
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.
41
<PAGE>
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.
42
<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. Upon the closing of the Disposition, the Company's Chief Executive
Officer became entitled to 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.
43
<PAGE>
The monthly 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........................................ $ 315 $ 631 $ 946 $1,262 $1,575 $ 2,083
75,000........................................ 473 946 1,419 1,893 2,365 3,124
100,000........................................ 631 1,262 1,893 2,525 3,156 4,160
250,000........................................ 1,578 3,156 4,734 6,313 7,891 10,416
</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 will be increased
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. 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; (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.
44
<PAGE>
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.
45
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 31, 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 *
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)............................................................ 20,578,336 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 and are pledged to secure
obligations. 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.
(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) None of Ms. LaFontant-Mankarious or Mr. Lewis, each of whom 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.
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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.
The Company is insured under policies maintained by Mafco Holdings, and the
Company reimburses Mafco Holdings for the portion of the cost of such policies
attributable to the Company. Management of the Company believes that such cost
is lower than would be incurred were such entities to be separately insured. In
addition, the Company reimburses Mafco Holdings for the Company's allocable
portion of certain costs such as legal, accounting and other professional fees
and other services and related expenses.
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.
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
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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 value 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 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 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.
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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 do not
purport to be complete, and 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 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
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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.
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 VSRs.
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, 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 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)).
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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 determined in good faith by the Board of Directors of the Company
(the 'Board') to result in such debt having, in the opinion of an Independent
Financial Expert (as defined below), a market value as of the date of issuance
on a fully distributed basis equal to 100% of its principal amount. (Section
3.1(g)). 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.
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 such VSRs shall terminate and become null and void
and the Holders thereof shall have no further rights with respect thereto
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subject, in the case of a Redemption Event arising out of a Redemption
Transaction, to the consummation of such Redemption Transaction. (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
If an Event of Default (as defined below) occurs and is continuing, then,
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, and upon any such
declaration 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. (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).
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. Furthermore,
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 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).
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)).
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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 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.
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'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.
'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 otherwise; (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.
'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
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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.
'Prohibited Activity' means, with respect to any period, 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.
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'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.
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 (as defined in the Senior Subordinated
Notes Indenture) at the redemption prices set forth in the Senior Subordinated
Notes Indenture.
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
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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 general summary 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 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
Generally, 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.
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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 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.
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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
If the VSRs are characterized as cash settlement put options, 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.
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.
It is possible that 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,
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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.
LEGAL MATTERS
Certain legal 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, appearingin 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 reports of Arthur Andersen LLP,
independent public accountants. The financial statements referred to above are
61
<PAGE>
included in reliance upon such report given upon the authority of such firms as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is 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 is 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.
62
<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 June 30, 1996................................................... F-26
Unaudited Consolidated Statements of Earnings for the six month periods ended June 30, 1996 and July 2,
1995..................................................................................................... F-27
Unaudited Consolidated Statements of Cash Flows for the six month periods ended June 30, 1996 and July 2,
1995..................................................................................................... F-28
Notes to Unaudited Consolidated Financial Statements....................................................... F-29
</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
-------------- ------ ------ ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992.............. $ -- $ 1 $-- $ 10,133 $ (78,338) $ 582 $ --
Net income................................ 9,964
Currency translation adjustment........... (616)
Other..................................... (312)
Net contributions......................... 1 33,157
--
----- ------ ---------- ----------- ---------- --------
Balance at December 31, 1993.............. -- 1 1 43,290 (68,686) (34) --
Net income................................ 13,668
Currency translation adjustment........... 960
--
----- ------ ---------- ----------- ---------- --------
Balance at December 31, 1994.............. -- 1 1 43,290 (55,018) 926 --
Net income................................ 24,413
Currency translation adjustment........... 951
Dividends................................. (9,000) (5,000)
Abex merger, net of transaction costs..... 247 (1) (1) 71,197
Treasury stock............................ (29,903)
Retirement of value support rights........ 61,618
--
----- ------ ---------- ----------- ---------- --------
Balance at December 31, 1995.............. $247 $ -- $-- $167,105 $ (35,605) $1,877 $(29,903)
--
--
----- ------ ---------- ----------- ---------- --------
----- ------ ---------- ----------- ---------- --------
<CAPTION>
TOTAL
--------
<S> <C>
Balance at December 31, 1992.............. $(67,622)
Net income................................ 9,964
Currency translation adjustment........... (616)
Other..................................... (312)
Net contributions......................... 33,158
--------
Balance at December 31, 1993.............. (25,428)
Net income................................ 13,668
Currency translation adjustment........... 960
--------
Balance at December 31, 1994.............. (10,800)
Net income................................ 24,413
Currency translation adjustment........... 951
Dividends................................. (14,000)
Abex merger, net of transaction costs..... 71,442
Treasury stock............................ (29,903)
Retirement of value support rights........ 61,618
--------
Balance at December 31, 1995.............. $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.
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 ('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 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.
The 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 of Abex
Common Stock. The VSRs expired in accordance with their terms on September 19,
1995. As a result of the purchase of VSRs by the Company and the expiration of
all the VSRs, stockholders' equity increased by $61.6 million.
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. 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
F-7
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BACKGROUND AND BASIS OF PRESENTATION--(CONTINUED)
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 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 total assets of $353.7 million, total liabilities of $282.3
million (including the VSR obligation of $62.0 million) and a credit to
stockholders' equity of $71.4 million, net of transaction expenses of $6.7
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.
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.
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.
F-8
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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
F-9
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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, '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.
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
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 VSRs, and 1,484,850 shares of MC Group Common Stock (the 'Libra
Purchase'). 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
F-10
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENT IN PCT--(CONTINUED)
$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 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>
F-11
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 reserve........................................................... 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................................................................ $ 11,583 --
Employee benefits and other compensation......................................... 72,916 --
Indemnification reserve.......................................................... 15,900 --
Other............................................................................ 61,731 $14,149
-------- -------
$162,130 $14,149
-------- -------
-------- -------
</TABLE>
F-12
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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
F-13
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
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.
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
F-14
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
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.
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 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
F-15
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
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.
The Company also provides supplemental executive retirement plans for
certain officers which are unfunded.
F-16
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PENSION PLANS--(CONTINUED)
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.
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
F-17
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS--(CONTINUED)
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.
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>
F-18
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LONG-TERM DEBT--(CONTINUED)
(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 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
F-19
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LONG-TERM DEBT--(CONTINUED)
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.
(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
F-20
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LONG-TERM DEBT--(CONTINUED)
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 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
F-21
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 $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
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
F-22
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 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
F-23
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
16. SIGNIFICANT CUSTOMER
The Company has a customer which accounted for approximately 10%, 11% and
11% of 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.
F-24
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. GEOGRAPHIC INFORMATION--(CONTINUED)
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.
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial information for
the quarterly periods in 1995:
<TABLE>
<CAPTION>
1995
----------------------------------------
FIRST SECOND THIRD FOUR
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<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>
F-25
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 99,506 $ 93,417
Notes and trade receivables, net..................................................... 31,242 25,211
Inventories.......................................................................... 85,733 84,494
Prepaid expenses and other........................................................... 25,483 25,610
-------- ------------
Total current assets.............................................................. 241,964 228,732
Property, plant and equipment, net..................................................... 47,760 46,052
Pension asset.......................................................................... 60,710 57,245
Investment in PCT preferred and common stock........................................... 72,602 55,547
Trademarks, net........................................................................ 31,588 32,021
Intangible assets related to businesses acquired, net.................................. 61,922 62,770
Other assets........................................................................... 73,006 78,232
-------- ------------
$589,552 $560,599
-------- ------------
-------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and short term borrowings.......................... $ 7,280 $ 10,960
Accounts payable..................................................................... 10,878 9,595
Accrued expenses and other........................................................... 57,672 55,515
-------- ------------
Total current liabilities......................................................... 75,830 76,070
Long-term debt......................................................................... 216,402 218,678
Other liabilities...................................................................... 161,944 162,130
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.................................................................. (3,411) (35,605)
Currency translation adjustment...................................................... 1,338 1,877
Treasury stock at cost (1,484,850 shares)............................................ (29,903) (29,903)
-------- ------------
Total stockholders' equity........................................................ 135,376 103,721
-------- ------------
$589,552 $560,599
-------- ------------
-------- ------------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
------------------------------
JUNE 30, 1996 JULY 2, 1995
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 144,745 $ 126,589
Cost of sales....................................................................... 82,667 74,575
------------- -------------
Gross profit........................................................................ 62,078 52,014
Selling, general and administrative expenses........................................ 27,506 19,937
------------- -------------
Operating income.................................................................... 34,572 32,077
Interest expense.................................................................... (12,836) (13,635)
Interest, investment and dividend income............................................ 3,440 692
Amortization of deferred charges and bank fees...................................... (1,008) (990)
Equity in earnings from continuing operations and preferred dividends of PCT........ 1,466 --
Other income (expense), net......................................................... (361) (85)
------------- -------------
Income from continuing operations before income taxes............................... 25,273 18,059
Provision for income taxes.......................................................... (7,747) (5,618)
------------- -------------
Income from continuing operations................................................... 17,526 12,441
Discontinued operations:
Equity in discontinued operations of PCT (net of income taxes of
$1,360)........................................................................ 14,668 --
------------- -------------
Net income........................................................................ $ 32,194 $ 12,441
------------- -------------
------------- -------------
Earnings per share:
Continuing operations............................................................. $ 0.76 $ 0.62
Discontinued operations........................................................... 0.63 --
------------- -------------
Total............................................................................. $ 1.39 $ 0.62
------------- -------------
------------- -------------
Weighted average common shares outstanding.......................................... 23,237 20,190
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIODS
ENDED
----------------------
JUNE 30, JULY 2,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 32,194 $ 12,441
-------- --------
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization................................................... 5,131 5,145
Earnings of affiliates greater than distributions............................... -- 694
Equity in earnings of PCT....................................................... (17,855) --
Deferred income................................................................. (102) (103)
Changes in assets and liabilities:
Increase in notes and trade receivable.......................................... (6,144) (6,406)
(Increase) decrease in inventories.............................................. (1,627) 653
Increase (decrease) in accounts payable......................................... 1,339 50
(Decrease) increase in accrued expenses and other, net.......................... 2,330 (1,841)
-------- --------
(16,928) (1,808)
-------- --------
Net cash flows from operating activities............................................... 15,266 10,633
-------- --------
Cash flows from investing activities:
Capital expenditures................................................................. (4,107) (1,330)
Cash acquired in Abex Merger, net of costs........................................... -- 180,160
Other, net........................................................................... (368) 200
-------- --------
Net cash flows from investing activities............................................... (4,475) 179,030
-------- --------
Cash flows from financing activities:
Proceeds from borrowings............................................................. 1,000 843
Repayment of borrowings.............................................................. (6,940) (3,426)
Dividends paid....................................................................... -- (14,000)
Decrease (increase) in restricted deposits........................................... 2,356 (15,744)
Due to affiliates and other borrowings............................................... (1,048) (384)
-------- --------
Net cash flows from financing activities............................................... (4,632) (32,711)
-------- --------
Effect of exchange rate changes on cash................................................ (70) 57
-------- --------
Net (decrease) increase in cash and cash equivalents................................... 6,089 157,009
Cash and cash equivalents at beginning of period....................................... 93,417 9,323
-------- --------
Cash and cash equivalents at end of period............................................. $ 99,506 $166,332
-------- --------
-------- --------
Supplemental schedule of cash flow information:
Interest paid........................................................................ $ 13,013 $ 14,397
Income taxes paid, net of refunds.................................................... $ 2,876 $ 4,527
</TABLE>
See notes to consolidated financial statements
F-28
<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 six month periods ended June 30, 1996
and July 2, 1995 are not necessarily indicative of the results for the entire
year.
2. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Raw materials and supplies........................................... $ 58,325 $ 59,742
Work-in-process...................................................... 3,027 1,988
Finished goods....................................................... 24,381 22,764
-------- ------------
$ 85,733 $ 84,494
-------- ------------
-------- ------------
</TABLE>
3. TENDER OFFER
On April 17, 1996, C&F Holdings Corp. a subsidiary of MC Group, offered to
purchase for cash, all of the outstanding 11 7/8% Senior Subordinated Notes due
2002 of Mafco Worldwide (the '11 7/8% Senior Subordinated Notes') and all of the
outstanding 10 1/2% Senior Subordinated Notes due 2003 of Consolidated Cigar
(the '10 1/2% Senior Subordinated Notes'). The offers expired on May 15, 1996.
None of the 11 7/8% Senior Subordinated Notes or the 10 1/2% Senior Subordinated
Notes were purchased.
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, before estimated
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.
5. INITIAL PUBLIC OFFERING
On June 26, 1996, MC Group announced that its wholly owned subsidiary,
Consolidated Cigar Holdings Inc. ('Cigar Holdings'), filed a registration
statement with the Securities and Exchange Commission relating to an initial
public offering of approximately 15% of its common stock. Cigar Holdings is a
holding company which owns all of Consolidated Cigar's outstanding capital
stock. It is planned that, upon the successful completion of the offering, the
net proceeds will be distributed as a dividend to MC Group.
F-29
<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................................... 7
Background and the Disposition................. 13
The Distribution............................... 14
Selected Historical Financial Data............. 15
Pro Forma Financial Data....................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 26
Management..................................... 39
Security Ownership of Certain Beneficial Owners
and Management............................... 46
Certain Relationships and Related
Transactions................................. 47
Description of the Value Support Rights and VSR
Notes........................................ 49
Description of Certain Indebtedness............ 57
Certain United States Federal Income Tax
Consequences................................. 58
Legal Matters.................................. 61
Experts........................................ 62
Available Information.......................... 62
Index to Consolidated Financial
Statements................................... F-1
</TABLE>
23,156,502
VALUE SUPPORT RIGHTS
MAFCO CONSOLIDATED GROUP INC.
------------------------
PROSPECTUS
------------------------
NOVEMBER , 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 , 1996, between the Registrant and American
Stock Transfer & Trust Company (included as Exhibit A to the Purchase Agreement filed as Exhibit
2.1 hereto).
*5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to legality regarding the Value Support
Rights.
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
- ----------- ---------------------------------------------------------------------------------------------------------
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)).
<C> <S> <C>
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 opinion filed as Exhibit 5.1
hereto).
**24 -- Powers of Attorney.
**99.1 -- Report of Independent Public Accountants of Arthur Andersen LLP
</TABLE>
- ------------------
* To be filed by amendment.
** Filed herewith.
(b) Financial Statement Schedules:
Schedule I--Condensed Financial Information of Registrant
II-6
<PAGE>
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, 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.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on October 31, 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 October 31, 1996
- ------------------------------------------
Ronald O. Perelman
* Vice Chairman and Director October 31, 1996
- ------------------------------------------
Howard Gittis
* President, Chief Executive Officer and October 31, 1996
- ------------------------------------------ Director (Principal Executive Officer)
James R. Maher
* Executive Vice President and Chief October 31, 1996
- ------------------------------------------ Financial Officer (Principal Financial
Irwin Engelman Officer)
* Vice President and Controller October 31, 1996
- ------------------------------------------ (Principal Accounting Officer)
Laurence Winoker
* Director October 31, 1996
- ------------------------------------------
Philip E. Beekman
* Director October 31, 1996
- ------------------------------------------
Theo W. Folz
* Director October 31, 1996
- ------------------------------------------
Jewel S. LaFontant-Mankarious
* Director October 31, 1996
- ------------------------------------------
Drew Lewis
* Director October 31, 1996
- ------------------------------------------
Robert Sargent Shriver III
</TABLE>
* Joram C. Salig, by signing his name hereto, does hereby execute this
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
-------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<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> <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 , 1996, between the Registrant
and American Stock Transfer & Trust Company (included as Exhibit A to the Purchase
Agreement filed as Exhibit 2.1 hereto).
*5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to legality regarding the Value
Support Rights.
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- --------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
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)).
*10.9 -- Employment Agreement, dated as of August 15, 1996, between Consolidated Cigar
Corporation and Gary R. Ellis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- --------------------------------------------------------------------------------------------- -----------
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).
<S> <C> <C> <C> <C>
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- --------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- --------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
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> <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 opinion filed as
Exhibit 5.1 hereto).
**24 -- Powers of Attorney.
**99.1 -- Report of Independent Public Accountants of Arthur Andersen LLP
</TABLE>
- ------------------
* To be filed by amendment.
** Filed herewith.
<PAGE>
Exhibit 2.1
================================================================================
STOCK AND VSR PURCHASE AGREEMENT
By and Among
MAFCO CONSOLIDATED GROUP INC.,
POWER CONTROL TECHNOLOGIES, INC.
AND
PCT INTERNATIONAL HOLDINGS, INC.
Dated as of October 23, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
SALE AND PURCHASE OF THE SHARES AND ISSUANCE OF VSRS
Section 1.1 The Shares; VSRs.............................................. 2
Section 1.2 Purchase Price................................................ 2
Section 1.3 Consideration................................................. 2
Section 1.4 Closing....................................................... 2
Section 1.5 Deliveries by Seller.......................................... 3
Section 1.6 Deliveries by Purchaser....................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 2.1 Organization, Standing and Qualification...................... 4
Section 2.2 Authority Relative to this Agreement.......................... 4
Section 2.3 Capitalization................................................ 5
Section 2.4 Consents and Approvals; No Violation.......................... 6
Section 2.5 Financial Statements.......................................... 7
Section 2.6 Absence of Undisclosed Liabilities............................ 8
Section 2.7 Absence of Certain Changes or Events.......................... 8
Section 2.8 Title to Assets............................................... 10
Section 2.9 Leases........................................................ 10
Section 2.10 Intellectual Property........................................ 10
Section 2.11 Contracts.................................................... 12
Section 2.12 Litigation................................................... 13
Section 2.13 Insurance.................................................... 13
Section 2.14 Employee Benefit Plans; ERISA................................ 14
Section 2.15 Taxes........................................................ 17
Section 2.16 Environmental Matters........................................ 19
Section 2.17 Labor Relations and Employment............................... 21
Section 2.18 Brokers or Finders........................................... 21
Section 2.19 Transactions with Affiliates................................. 21
Section 2.20 Ownership of PCT Common Stock................................ 22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 3.1 Organization, Standing and Qualification...................... 22
Section 3.2 Authority Relative to this Agreement.......................... 22
Section 3.3 Capitalization................................................ 23
Section 3.4 Consents and Approvals; No Violation.......................... 23
Section 3.5 Brokers or Finders............................................ 24
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business........................................... 24
i
<PAGE>
Page
----
Section 4.2 Access to Information......................................... 27
Section 4.3 Reasonable Best Efforts....................................... 28
Section 4.4 Preparation of Registration Statement;
Listing.................................................... 28
Section 4.5 Covenant of PCT............................................... 29
Section 4.6 Further Assurances............................................ 30
Section 4.7 No Solicitation............................................... 30
Section 4.8 Fees and Expenses............................................. 30
Section 4.9 Public Announcements.......................................... 31
Section 4.10 Books and Records............................................ 31
Section 4.11 Tax Matters.................................................. 31
ARTICLE V
CONDITIONS
Section 5.1 Conditions to Each Party's Obligations........................ 42
Section 5.2 Conditions to Obligations of Purchaser........................ 42
Section 5.3 Conditions to Obligations of Seller........................... 43
ARTICLE VI
TERMINATION AND AMENDMENT
Section 6.1 Termination................................................... 44
Section 6.2 Effect of Termination......................................... 44
Section 6.3 Amendment..................................................... 44
Section 6.4 Extension; Waiver............................................. 44
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival Periods.............................................. 45
Section 7.2 Indemnification............................................... 45
Section 7.3 General Procedures; Third Party Claims........................ 47
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Certain Definitions........................................... 48
Section 8.2 Notices....................................................... 49
Section 8.3 Descriptive Headings.......................................... 50
Section 8.4 Counterparts.................................................. 50
Section 8.5 Entire Agreement; Assignment.................................. 50
Section 8.6 Governing Law................................................. 50
Section 8.7 Specific Performance.......................................... 50
Section 8.8 Parties in Interest........................................... 50
Section 8.9 Severability.................................................. 51
ii
<PAGE>
INDEX OF DEFINED TERMS
Term Where Defined
- ---- -------------
Acquisition Transaction......................... Section 4.7
Affected Party.................................. Section 4.11(h)(ii)
affiliate....................................... Section 8.1(a)
Agreement....................................... Recitals
associate....................................... Section 8.1(a)
Authorizations.................................. Section 5.2(d)
Balance Sheet................................... Section 2.5(a)
business day.................................... Section 8.1(b)
Closing......................................... Section 1.4
Closing Date.................................... Section 1.4
Code............................................ Section 2.14(c)
Common Stock.................................... Recitals
Company......................................... Recitals
Company SEC Documents........................... Section 2.5(b)
Contract........................................ Section 2.11
control......................................... Section 8.1(a)
CPA Firm........................................ Section 4.11(g)(iii)
Damages......................................... Section 7.2(a)
Deferred Cash Payments.......................... Section 1.3
Disclosure Schedule............................. Section 2.1
Election........................................ Section 4.11(a)
Encumbrances.................................... Section 2.8
Environment..................................... Section 2.16(e)(i)
Environmental Laws.............................. Section 2.16(e)(iii)
Environmental Material(s)....................... Section 2.16(e)(iv)
Environmental Notice............................ Section 2.16(e)(ii)
ERISA........................................... Section 2.14(a)
ERISA Affiliate................................. Section 2.14(a)
ERISA Plans..................................... Section 2.14(a)
Exchange Act.................................... Section 2.5(b)
Financial Statements............................ Section 2.5(a)
Forms 8023-A.................................... Section 4.11(a)
Governmental Entity............................. Section 2.4
HSR Act......................................... Section 2.4
Indemnified Parties............................. Section 7.2(c)
Indemnifying Party.............................. Section 7.3
Intellectual Property........................... Section 2.10
Interim Balance Sheet........................... Section 2.5(a)
IRS............................................. Section 4.11(a)
Mafco........................................... Recitals
Material Adverse Effect......................... Section 2.1
NYSE............................................ Section 4.4(b)
Payor........................................... Section 4.11(g)(iii)
Permits......................................... Section 2.16(a)
Permitted Liens................................. Section 2.8
person.......................................... Section 8.1(c)
Plans........................................... Section 2.14(a)
Preparer........................................ Section 4.11(g)iii)
iii
<PAGE>
Term Where Defined
- ---- -------------
Proceeding...................................... Section 2.12
Property........................................ Section 2.9
Purchase Common Stock........................... Section 3.3
Purchaser Group................................. Section 7.2(a)
Purchase Price.................................. Section 1.3
Purchaser....................................... Recitals
Recipient....................................... Section 4.11(h)(i)
Representatives................................. Section 7.2(a)
SEC............................................. Section 2.5(b)
Seller.......................................... Recitals
Seller Group.................................... Section 7.2(b)
Settling Party.................................. Section 4.11(h)(ii)
Shares.......................................... Recitals
Straddle Period................................. Section 4.11(f)
Subsidiary and Subsidiaries..................... Section 2.1
Tax(es)......................................... Section 2.15(c)
Tax Audit....................................... Section 4.11(h)(i)
Tax Return...................................... Section 2.15(c)
TIA............................................. Section 4.4(a)
Transfer Taxes.................................. Section 4.11(i)
VSR(s).......................................... Recitals
VSR Agreement................................... Recitals
iv
<PAGE>
STOCK AND VSR PURCHASE AGREEMENT (the "Agreement"), dated as of
October 23, 1996, by and among Mafco Consolidated Group Inc., a Delaware
corporation ("Seller"), Power Control Technologies, Inc., a Delaware corporation
("PCT"), and PCT International Holdings, Inc., a Delaware corporation
("Purchaser").
W I T N E S S E T H
WHEREAS, Seller owns beneficially and of record all the outstanding
capital stock of Flavors Holdings Inc., a Delaware corporation ("Flavors");
WHEREAS, Flavors owns beneficially and of record all the outstanding
capital stock of Mafco Worldwide Corporation, a Delaware corporation (the
"Company");
WHEREAS, as of the date of this Agreement there are outstanding
1,000 shares of Class A Common Stock, par value $1.00 per share ("Class A Common
Stock"), of Flavors;
WHEREAS, upon the terms and subject to the conditions of this
Agreement, Purchaser has agreed to acquire from Seller, and Seller has agreed to
sell to Purchaser 1,000 shares of Class A Common Stock (the "Shares"),
representing all of the issued and outstanding shares of capital stock of
Flavors;
WHEREAS, at the Closing (as defined below), Seller shall issue
23,156,502 Value Support Rights (each a "VSR" and collectively, the "VSRs") to
Purchaser, pursuant to a Value Support Rights Agreement substantially in the
form of Exhibit A attached hereto (the "VSR Agreement");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements, and conditions contained
herein, and intending to be legally bound hereby, the parties agree as follows:
<PAGE>
ARTICLE I
SALE AND PURCHASE OF THE SHARES AND ISSUANCE OF VSRS
Section 1.1 The Shares; VSRs. (a) Upon the terms and subject to the
conditions of this Agreement, at the Closing provided for in Section hereof,
Seller shall sell, convey, assign, transfer and deliver to Purchaser, and
Purchaser shall purchase, acquire and accept from Seller, all of the Shares,
free and clear of any liens, claims, options, pledges, security interests,
charges, encumbrances and restrictions whatsoever.
(b) Upon the terms and subject to the conditions of this Agreement,
at the Closing provided for in Section hereof, Seller shall issue and deliver to
Purchaser, and Purchaser shall purchase, acquire and accept from Seller, all of
the VSRs, free and clear of any liens, claims, options, pledges, security
interests, charges, encumbrances and restrictions whatsoever.
Section 1.2 Purchase Price. Upon the terms and subject to the
conditions of this Agreement, in consideration of the aforesaid sale,
conveyance, assignment, transfer and delivery of the Shares and the issuance of
the VSRs, Purchaser agrees to pay to Seller the Purchase Price (as defined
below) and, in consideration of certain indemnities previously provided by
Seller to PCT, Purchaser agrees to pay to Seller the Deferred Cash Payments (as
defined below).
Section 1.3 Consideration. The "Purchase Price" shall be cash in the
amount of $180,000,000 to be paid to Seller at the Closing. Subject to Section
4.8, the "Deferred Cash Payments" shall be cash in the amount of $3,700,000 to
be paid to Seller on June 30, 1997 and $3,500,000 to be paid to Seller on
December 31, 1997.
Section 1.4 Closing. Upon the terms and subject to the conditions of
this Agreement, the consummation of the transactions contemplated by this
Agreement (the "Closing") will take place on the second business day following
the satisfaction or waiver of all the conditions set forth in Article hereof at
10:00 a.m., at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, NY 10022, or at such other time or at such other place as
shall be agreed upon by
2
<PAGE>
the parties. The date on which the Closing occurs is referred to herein as the
"Closing Date."
Section 1.5 Deliveries by Seller. At the Closing, Seller shall
deliver or cause to be delivered (unless previously delivered) to Purchaser, the
following:
(a)(i) stock certificates representing all of the Shares,
accompanied by stock powers duly executed in blank or duly executed instruments
of transfer and (ii) any other documents that are necessary to transfer to
Purchaser good and valid title to the Shares, with any necessary transfer tax
stamps affixed or accompanied by evidence that all stock transfer taxes have
been paid;
(b) a VSR Certificate (as defined in the VSR Agreement) which shall
represent 23,156,502 VSRs;
(c) the stock books, stock ledgers, minute books and corporate seals
of Flavors and the Company (to be at the principal executive offices of Flavors
and the Company, as the case may be, unless otherwise directed by Purchaser);
and
(d) resignations of directors and officers of Flavors, as directed
by Purchaser.
Section 1.6 Deliveries by Purchaser.
(a) At the Closing, Purchaser shall deliver (unless previously
delivered) to Seller, the Purchase Price in immediately available funds by wire
transfer to the bank account designated by Seller at least one business day
prior to the Closing Date.
(b) On each of June 30, 1997 and December 31, 1997, Purchaser shall
deliver (unless previously delivered) to Seller, the Deferred Cash Payments in
accordance with Section 1.3 hereof, in immediately available funds by wire
transfer to the bank account designated by Seller at least one business day
prior to each such date.
3
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
Section 2.1 Organization, Standing and Qualification. Each of
Seller, Flavors, the Company and each of the Subsidiaries (as defined below) is
a corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of organization and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Except as set forth on the Balance Sheet (as
defined below) or in Section of the Disclosure Schedule (as defined below),
Flavors has no liabilities or assets (other than the Shares), and does not own,
lease or operate any properties or carry on any business. Each of Flavors and
the Company is duly qualified or licensed and in good standing to do business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified or licensed would not have a
Material Adverse Effect. For purposes of this Agreement "Material Adverse
Effect" means with respect to the Company, a material adverse effect, on the
business, properties, assets, operations or financial results or condition of
the Company and the Subsidiaries, taken as a whole. Seller has heretofore
delivered to Purchaser complete and correct copies of the certificate of
incorporation and bylaws, as currently in effect, of Flavors and the Company.
Except for each subsidiary (each a "Subsidiary" and collectively, the
"Subsidiaries" to the extent any such entity is a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X of the Securities Exchange Act of 1934)
set forth in Section of the disclosure schedule delivered by Seller to Purchaser
concurrently herewith (the "Disclosure Schedule"), the Company has no
subsidiaries and owns no stock or equity interest in any corporation,
partnership, joint venture or other entity.
Section 2.2 Authority Relative to this Agreement. Seller has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the
4
<PAGE>
transactions contemplated hereby have been duly and validly authorized by
Seller's Board of Directors and no other corporate proceedings on the part of
Seller are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller and constitutes, and each other agreement that
is to be executed and delivered by Seller in connection with the transactions
contemplated by this Agreement, when executed and delivered by Seller, as the
case may be, will constitute, a valid and binding agreement of Seller,
enforceable against Seller in accordance with its terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally, and
(ii) as such enforceability may be limited by general principles of equity,
regardless of whether asserted in a proceeding in equity or law.
Section 2.3 Capitalization. The authorized capital stock of Flavors
consists of 2,000 shares of Class A Common Stock and 2,000 shares of Class B
Common Stock, par value $1.00 per share, of which 1,000 shares of Class A Common
Stock are issued and outstanding and owned by Seller. The authorized capital
stock of the Company consists of 1,000 shares (the "Company Shares") of common
stock, $1.00 par value per share, all of which are issued and outstanding and
owned by Flavors. There are no other shares of capital stock of Flavors or the
Company authorized, issued or outstanding. The Shares are owned by Seller, and
the Company Shares are owned by Flavors, beneficially and of record, and each of
the Shares and the Company Shares are duly authorized, validly issued, fully
paid and nonassessable and are not subject to any preemptive rights. There are
not (a) issued or outstanding any securities convertible into or exchangeable
for, or any options, warrants, calls, puts, subscriptions or other rights
(preemptive or otherwise) to acquire, any shares of capital stock of Flavors or
the Company, or (b) any agreements or contractual commitments (other than this
Agreement) relating to the Shares or the Company Shares or obligating Flavors to
issue or sell any shares of its capital stock or any such securities, options,
warrants, calls, puts, subscriptions or other rights, or (c) except as set forth
in Section of the Disclosure Schedule, any pledges, security interests, liens,
charges, encumbrances, equities, claims or options
5
<PAGE>
of whatever nature relating to any of the Shares or the Company Shares. At the
Closing, Purchaser will acquire good and valid title to the Shares, free and
clear of all pledges, security interests, liens, charges, encumbrances,
equities, claims and options of whatever nature, except those set forth on
Section of the Disclosure Schedule.
Section 2.4 Consents and Approvals; No Violation. Except for
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the rules and regulations thereunder (the "HSR Act"), there is no
requirement applicable to Seller or the Company to make any filing with, or to
obtain any permit, authorization, consent or approval of, any court of competent
jurisdiction, regulatory authority or other public body, federal, state or local
domestic or foreign (a "Governmental Entity") as a condition to the lawful
consummation by Seller of the transactions contemplated by this Agreement,
except where the failure to make any such filing or obtain any such permit,
authorization, consent or approval would not have a Material Adverse Effect.
Except as set forth in Section of the Disclosure Schedule and except for
applicable requirements of the HSR Act, neither the execution and delivery of
this Agreement by Seller, nor the consummation by Seller of the transactions
contemplated hereby, nor compliance by Seller with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the
certificate of incorporation or bylaws of Seller, Flavors or the Company, (ii)
result in a breach of, or default under (or give rise to any right of
termination, cancellation or acceleration under), any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement, lease
or other instrument or obligation to which Seller, the Company or any Subsidiary
is a party, or by which any of their respective businesses, properties or assets
may be bound, except for such breaches or defaults (or rights of termination,
cancellation or acceleration) set forth in Section of the Disclosure Schedule as
to which requisite waivers or consents have been obtained or will be obtained
prior to the Closing Date, or (iii) violate any order, judgment, writ,
injunction, decree, statute, rule or regulation applicable to Seller, the
Company or the Company's assets or properties of the Company or any Subsidiary,
except for such violations which would not have a Material Adverse
6
<PAGE>
Effect. Except as set forth in Section of the Disclosure Schedule, there is no
Proceeding (as defined below) pending or, to the knowledge of the Company or
Seller, threatened against Seller, Flavors, the Company or any Subsidiary that
seeks to prevent the consummation of the transactions contemplated hereby.
Section 2.5 Financial Statements; SEC Reports. (a) Seller has
previously furnished to Purchaser (i) audited balance sheets of the Company as
of December 31, 1995 and 1994 and the related statements of income, retained
earnings and cash flows of the Company for the periods then ended, together with
the notes thereto and the report of Ernst & Young LLP thereon, (the audited
balance sheet of the Company for the period ending December 31, 1995 is referred
to herein as the "Balance Sheet") and (ii) an unaudited balance sheet of the
Company as of June 30, 1996 (the "Interim Balance Sheet") and the related
statement of income, retained earnings and cash flows of the Company for the
period then ended (such financial statements described in clauses (i) and (ii)
collectively, the "Financial Statements"). Each balance sheet included in the
Financial Statements presents fairly in all material respects the financial
position of the Company as of its respective date and each of the statements of
income and retained earnings, and cash flows included in the Financial
Statements presents fairly in all material respects the results of operations
and cash flows of the Company for the periods set forth therein, in each case in
accordance with GAAP, except as otherwise noted therein.
(b) The Company has filed with the Securities and Exchange
Commission (the "SEC"), all forms and reports required to be filed by it since
January 1, 1993 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and has heretofore made available to Purchaser (i) its Annual
Reports on Form 10-K for the years ended December 31, 1993, December 31, 1994
and December 31, 1995, respectively, (ii) its Quarterly Reports on Form 10-Q for
the periods ended March 31 and June 30, 1996 and (iii) all other forms and
reports filed by the Company with the SEC since January 1, 1993. The documents
described in clauses (i)-(iii) above are referred to in this Agreement
collectively as the "Company SEC Documents". As of their respective dates, the
Company SEC Documents (i) did not contain any untrue statement
7
<PAGE>
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) complied in
all material respects with the applicable requirements of the Exchange Act and
the applicable rules and regulations of the SEC thereunder.
Section 2.6 Absence of Undisclosed Liabilities. To the best of
Seller's knowledge, the Company does not have any liabilities or obligations
required to be set forth on a balance sheet in accordance with GAAP, except for
the liabilities and obligations (i) reflected in the Balance Sheet, (ii)
incurred in the ordinary course of business consistent with past practice since
the date of the Balance Sheet which have not had, and are not reasonably likely
to have, a Material Adverse Effect, and (iii) pertaining to Taxes (as defined
below).
Section 2.7 Absence of Certain Changes or Events. To the best of
Seller's knowledge, except as expressly provided for in this Agreement or set
forth in Section of the Disclosure Schedule, since the date of the Balance
Sheet, the Company has not:
(a) except in the ordinary course of business, made any change
in its business or operations or in the manner of conducting its business;
(b) suffered any Material Adverse Effect;
(c) entered into any written employment contract or, except
for compensation arrangements entered into in the ordinary course of business,
compensation arrangement or employee benefit plan, or changed or committed to
change (including, without limitation, any change pursuant to any bonus,
pension, profit-sharing or other plan, commitment, policy or arrangement) the
compensation payable or to become payable to any of its officers, directors,
employees, agents or consultants, or made any pension, retirement, profit
sharing, bonus or other employee welfare or benefit payment or contribution,
other than in the ordinary course of business and consistent with past practice;
(d) declared, paid or made, or set aside for payment or
making, any dividend or other distribution
8
<PAGE>
in respect of its capital stock or other securities, or directly or indirectly
redeemed, purchased or otherwise acquired any of its capital stock or other
securities or subdivided or in any way reclassified or changed any of the terms
or provisions of any share of its capital stock;
(e) paid, loaned or advanced any amount to or in respect of,
or sold, transferred or leased any property or assets (real, personal or mixed,
tangible or intangible) to, or entered into any transaction, agreements or
arrangements with or for the benefit of, Seller or any affiliate or associate of
Seller, or any of the Company's officers or directors or any affiliate or
associate of its officers or directors, except for payments, loans and advances
to officers and directors in the ordinary course of business and consistent with
past practice;
(f) made any change in any accounting or tax principles,
practices or methods including, without limitation, its accounts payable
practices, except for such changes which are both required by GAAP or law;
(g) cancelled any material debts or claims, or waived any
rights of material value or incurred or guaranteed any material obligation or
liability (whether absolute, accrued, contingent or otherwise and whether due or
to become due), except for current liabilities incurred in the ordinary course
of business;
(h) terminated or amended or suffered the termination or
amendment of any material contract or disposed of or permitted to lapse any
material item of Intellectual Property (as defined in Section hereof); or
(i) agreed, whether in writing or otherwise, to take any
action described in this Section 2.7.
9
<PAGE>
Section 2.8 Title to Assets. The Company has good and valid title to
all its assets shown on the Balance Sheet or acquired since the date of the
Balance Sheet, other than the assets shown on the Balance Sheet and disposed of
since the date thereof in the ordinary course of business and consistent with
past practice, and all such assets are free and clear of any and all
Encumbrances (as defined below) other than those set forth on Section of the
Disclosure Schedule and Permitted Liens. "Encumbrances" means any mortgage,
pledge, lien, encumbrance, charge or adverse claim affecting title or resulting
in an encumbrance against real or personal property, or a security interest of
any kind. "Permitted Liens" means (i) liens for current taxes not yet due, (ii)
imperfections of title, easements and zoning restrictions, if any, which do not
materially detract from the value of the property subject thereto for the uses
and purposes to which such property is currently employed or materially impair
the operations of the Company and which have arisen only in the ordinary course
of business and consistent with past practice, and (iii) mechanics',
materialmen's and similar liens attaching by operation of law, incurred in the
ordinary course of business and securing payments not delinquent or payments
which are being contested in good faith by the Company.
Section 2.9 Leases. All material leases of real property
("Property") as to which the Company or any Subsidiary is the lessee or
sublessee, and all amendments and modifications thereof, are listed on Section
of the Disclosure Schedule (true, correct and complete copies of such leases
have been made available to Purchaser). To the best of Seller's knowledge, all
such leases are in full force and effect and have not been modified or amended,
except as set forth in Section of the Disclosure Schedule. There exists no event
of default by the Company or any Subsidiary under any such leases or, to the
best of Seller's knowledge, by any third party thereto, nor any event which with
notice or lapse of time or both would, in each case, constitute a Material
Adverse Effect.
Section 2.10 Intellectual Property. Section of the Disclosure
Schedule lists (a) the federal registration number and the date of registration
concerning registrations of patents, trademarks and service marks and of other
marks, trade names or other trade
10
<PAGE>
rights currently used by the Company or any Subsidiary in the conduct of its
business, all of the copyrights and all applications for any of the foregoing
and all analogous registrations, copyrights, and applications to any foreign
jurisdiction; and (b) all intellectual property rights owned by any third party
which are not generally commercially available and are currently used by the
Company or any Subsidiary in the conduct of its business, whether such use is or
will be pursuant to license, sublicense, agreement or permission. Seller has
delivered or made available to Purchaser complete and accurate copies of each
agreement, registration and other document relating to the intellectual property
set forth on Section of the Disclosure Schedule. To the best of Seller's
knowledge, the Company and each Subsidiary owns or possesses adequate and
enforceable licenses or other rights to use (i) all intellectual property rights
listed on Section 2.10 of the Disclosure Schedule, (ii) all computer software
used by the Company or any Subsidiary in the conduct of its businesses and (iii)
all other patents, trademarks, service marks, other marks, trade names and
assumed names, all applications for any of the foregoing, all trade secrets,
designs, plans, specifications and other intellectual property rights of every
kind of the Company or any Subsidiary (whether or not registered) that are
possessed by the Company or any Subsidiary or used in their respective
businesses (all of the items referred to in clauses (a) and (b) of this
paragraph and (ii) and (iii) of this sentence being the "Intellectual
Property"). To the best of Seller's knowledge, no person has a right to receive
a royalty or similar payment in respect of any item of Intellectual Property
pursuant to any contractual arrangements entered into by the Company, any
Subsidiary or Seller or otherwise. Except as set forth in Section of the
Disclosure Schedule, neither the Company, any Subsidiary nor Seller has granted
any license, sublicense or other similar agreement relating in whole or in part
to any Intellectual Property. Neither the Company, any Subsidiary nor Seller has
received written notice that the Company's or any Subsidiary's use of any
material item of Intellectual Property is interfering with, infringing upon or
otherwise violating the rights of any third party in or to such Intellectual
Property. No written notices have been received by Seller and, to the best of
the Company's and Seller's knowledge, no proceedings have been instituted
against Seller, the Company or any Subsidiary alleging that use
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or proposed use of any material item of the Intellectual Property by the Company
or any Subsidiary infringes upon or otherwise violates any rights of a third
party in or to such Intellectual Property.
Section 2.11 Contracts. To the best of Seller's knowledge, except as
set forth in Section of the Disclosure Schedule, neither the Company nor any
Subsidiary is a party to, or bound by, any written or oral: (a) contract,
agreement, understanding, commitment, or other arrangement (each, a "Contract")
with Seller or Seller's affiliates or with any present or former officer,
employee, agent, consultant, advisor, salesperson or sales representative or
affiliate or associate of the Company or any Subsidiary pursuant to which
payments may be required to be made at any time following the date hereof to any
such person in excess of $100,000 in any year; (b) Contract (including, but not
limited to, any mortgage, indenture, debenture, bond, note, installment
obligation or other instrument) constituting indebtedness; (c) guaranty of any
obligation for borrowings or performances, or guaranty or warranty of products
or services; (d) Contract for the sale or lease of any asset or property owned
or used by the Company or any Subsidiary exceeding $100,000 in value or annual
payments; (e) Contract for the purchase of any real estate, machinery, equipment
or other capital assets with a purchase price exceeding $100,000; (f) Contract
which is not terminable on ninety or fewer days' notice at any time without
premium or penalty or payment in excess of $100,000; or (g) Contract to which
the Company or any Subsidiary, Seller, or any of the Company's or any
Subsidiary's employees is a party which will restrict such person's ability to
do business in any geographic area or which grants to any person exclusive or
similar rights in any line of business or in any geographic area. Except as set
forth in Section 2.11 of the Disclosure Schedule, with respect to each Contract
listed in Section 2.11 of the Disclosure Schedule, there is no default by the
Company or any Subsidiary or event that with notice or lapse of time, or both,
would constitute such a default nor, to Seller's knowledge, any default, or
event that with notice, lapse of time or both, would constitute such a default,
by any other party thereto, existing with respect to any such Contract, except
for such defaults which do not result in a Material Adverse Effect. Neither the
Company, any Subsidiary nor Seller intends, and
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<PAGE>
neither has received notice that any party to any such Contract intends, to
terminate, amend or cancel any such Contract. Each of the Contracts listed in
Section 2.11 of the Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding obligation of the Company or any
Subsidiary, as the case may be. Seller has made available to Purchaser complete
and accurate copies of each Contract or other written evidence of the
obligations, and all amendments thereto, listed in Section 2.11 of the
Disclosure Schedule.
Section 2.12 Litigation. Except as set forth in Section of the
Disclosure Schedule, there are (i) to the best of Seller's knowledge no
investigations pending or threatened or (ii) no actions, causes of action,
claims, suits, proceedings, orders, writs, injunctions or decrees (each, a
"Proceeding") pending or, to the best of Seller's knowledge, threatened, against
the Company or any Subsidiary or Seller affecting the operations of the Company
or any Subsidiary, their respective businesses, assets or properties at law or
in equity, or before or by any Governmental Entity. Neither the Company nor any
Subsidiary is in default with respect to any order, writ, injunction or decree
of any Governmental Entity.
Section 2.13 Insurance. Set forth in Section of the Disclosure
Schedule is a complete and accurate list of all primary, excess and umbrella
policies, bonds and other forms of insurance currently owned or held by or on
behalf of and/or providing insurance coverage to the Company or any Subsidiary,
their respective businesses, properties and assets (or their directors,
officers, salespersons, agents or employees). All policies set forth in Section
2.13 of the Disclosure Schedule are in full force and effect and shall remain in
full force and effect through the Closing Date, and with respect to all
policies, all premiums currently payable or previously due have been paid, and,
to the best of Seller's knowledge, no notice of cancellation or termination has
been received by the Company, any Subsidiary or Seller with respect to any such
policy, except for statutory notices. All such policies are sufficient for
compliance with all requirements of law and of all Contracts and agreements to
which the Company or any Subsidiary is a party or otherwise bound and are valid,
outstanding, collectible and enforceable policies and provide insurance coverage
which is adequate and customary for a busi-
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<PAGE>
ness of the size and type of the Company or any Subsidiary, as the case may be.
Complete and accurate copies of all such policies and related documentation have
previously been provided or made available to Purchaser.
Section 2.14 Employee Benefit Plans; ERISA. (a) Section 2.14 of the
Disclosure Schedule contains a complete and accurate list of each deferred
compensation, incentive compensation, bonus, stock purchase, stock option,
employment, severance or termination pay, medical, life, disability or other
insurance, supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement, and each other material
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended from time to time ("ERISA")), program,
agreement or arrangement, sponsored, maintained or contributed to or required to
be contributed to by the Company or any ERISA Affiliate, for which the Company
has direct liability for the benefit of any employee, officer, consultant (or
any dependent or beneficiary thereof) or former employee of the Company whether
formal or informal (the "Plans"). "ERISA Affiliate" means any entity (whether or
not incorporated) other than the Company that, together with the Company, is or
was a member of a controlled group of corporations within the meaning of Section
414(b) of the Code, or of a group of trades or businesses under common control
within the meaning of Section 414(c) of the Code, or of an affiliated service
group within the meaning of Section 414(m) of the Code. Section 2.14 of the
Disclosure Schedule identifies each of the Plans that is an "employee benefit
plan," as that term is defined in section 3(3) of ERISA (the "ERISA Plans").
(b) With respect to each Plan, Seller has heretofore delivered or
made available to Purchaser true and complete copies of each of the following
documents, if available:
(i) a copy of such Plan (including all amendments thereto) or, where
substantially similar arrangements exist, a sample copy (including all
amendments thereto) and a list of all persons participating in such arrangement;
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<PAGE>
(ii) a copy of the annual report and actuarial valuation report and
audited financial statements, if required under ERISA, and the report prepared
with respect thereto in accordance with Statement of Financial Accounting
Standards No. 87, Employer's Accounting for Pensions for the last three years;
(iii) a copy of the most recent Summary Plan Description required
under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements and audited financial
statements thereof; and
(v) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan for which such letter has been
obtained.
(c) Except as set forth in Schedule 2.14 of the Disclosure Schedule,
neither the Company nor any ERISA Affiliate currently maintains, sponsors or
contributes to, nor has direct liability for, any Plan subject to Title IV of
ERISA. The Company has not received and is not aware of any material actions,
claims (other than routine claims for benefits), lawsuits, arbitrations or
investigations pending or to the best of Seller's and the Company's knowledge
threatened with respect to any Plan or against any fiduciary or any Plan.
(d) Neither the Company, nor any ERISA Plan, nor any trust created
thereunder, nor any trustee or administrator thereof, has engaged in a
transaction in connection with which the Company, any ERISA Plan or, such trust,
could be subject to either a material civil penalty assessed pursuant to section
409 or 502(i) of ERISA or a material tax imposed pursuant to section 4975 or
4976 of the Internal Revenue Code of 1986, as amended (the "Code"). No Plan
which is subject to Section 302 of ERISA or Section 412 of the Code has incurred
an "accumulated funding deficiency" as defined in either of such Sections,
whether or not waived, nor has requested or obtained any extension of any
applicable amortization period. As of the Closing Date, the Company and each
ERISA Affiliate shall have made all required contributions under each Plan for
all periods through and includ-
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<PAGE>
ing the Closing Date or adequate accruals therefor will have been provided for
and will be reflected on the Balance Sheet of the Company.
(e) No ERISA Plan is a "multiemployer plan," as defined in section
3(37) of ERISA, nor is any ERISA Plan a plan described in section 4063(a) of
ERISA.
(f) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(g) Each ERISA Plan that is intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified, the trusts maintained thereunder have been
determined by, or a request for such determination has been made to, the
Internal Revenue Service to be exempt from taxation under section 501(a) of the
Code, and all required submissions have been made to the Internal Revenue
Service with respect to maintaining the "qualified" status of each such ERISA
Plan under Section 401(a) of the Code.
(h) No Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees or dependents thereof of the Company beyond their retirement or other
termination of service (other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any "employee pension benefit plan,"
as that term is defined in section 3(2) of ERISA, (iii) deferred compensation
benefits accrued as liabilities on the books of the Company or (iv) benefits the
full cost of which is borne by the current or former employee (or his or her
dependents or beneficiaries)).
(i) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee, officer, director
or consultant of the Company to any payment, including, without limitation, any
severance pay, unemployment compensation, golden parachute, bonus or any other
payment or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation or benefit payable with respect to any current or former
employee, officer, direc-
16
<PAGE>
tor or consultant of the Company. No Plan provides benefits or payments
contingent upon, triggered by or increased as a result of, a change in the
ownership or effective control of the Company.
(j) All reports, notices and other disclosure relating to Plans
required to be filed with, or furnished to, Governmental Entities, plan
participants or plan beneficiaries have been timely filed and furnished in
accordance with applicable law.
(k) No amounts payable under any Plan will fail to be deductible for
federal income tax purposes, including without limitation, by virtue of section
280G of the Code.
(l) With respect to each applicable Plan, the Company has complied
with the provisions of Section 4980B(f) of the Code.
(m) Except as set forth in Section 2.14 of the Disclosure Schedule,
(i) the Company has no written employment Contracts or other written
compensation or severance pay arrangements with Seller or Seller's affiliates or
associates, or any employee of the Company and (ii) all employees of the Company
are employed at will.
Section 2.15 Taxes. (a) Except as set forth in Section 2.15 of the
Disclosure Schedule, Flavors and each of its subsidiaries has filed, or as of
the Closing Date will have filed, with the appropriate federal, state, local and
foreign taxing authorities all federal income tax returns and all other material
Tax Returns (as defined in paragraph (d) below) required to be filed by or with
respect to Flavors or any of its subsidiaries, as the case may be, whose due
dates (taking into account any timely filed extensions) fall on or before the
Closing Date, and such Tax Returns are or will be true, correct and complete in
all material respects. Flavors and each of its subsidiaries has paid in full or
has made adequate provision in the Balance Sheet for all federal income taxes
and all other material Taxes (as defined in paragraph (d) below) which are or
will be due or claimed to be due from them by any taxing authority for all
periods (or portions thereof) up to and including the Closing Date. There are no
liens for Taxes upon the assets of
17
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Flavors or any of its subsidiaries except for statutory liens for current Taxes
not yet due.
(b) Except as set forth in Section 2.15 of the Disclosure Schedule,
neither Flavors nor any of its subsidiaries has requested any extension of time
within which to file any Tax Return, which Tax Return has not since been filed
and neither Flavors nor any of its subsidiaries has waived any statute of
limitations for, or agreed to any extension of time with respect to, the
assessment of Taxes of Flavors or any of its subsidiaries, as the case may be.
(c) Except as set forth in Section 2.15 of the Disclosure Schedule,
neither Flavors nor any of its subsidiaries has received any notice of
deficiency or assessment from any taxing authority with respect to liabilities
for Taxes of Flavors or any of its subsidiaries which has not been fully paid or
finally settled. No power of attorney has been executed by, or on behalf of,
Flavors or any of its subsidiaries with respect to any matter relating to Taxes
which is currently in force.
(d) For purposes of this Agreement, "Tax" or "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to, income, gross receipts, excise, property, sales, use (or any
similar taxes), transfer, franchise, payroll, withholding, social security,
business license fees, or other taxes including any interest, penalties or
additions thereto. For purposes of this Agreement, "Tax Return" shall mean any
return, report, information return, schedule or other document (including any
related or supporting information) required to be supplied to a taxing authority
with respect to Taxes.
(e) For purposes of this Section 2.15 (and Section 4.11 of this
Agreement), the term "subsidiaries" shall not include Rishmac Produce & Export
Company or Choube Shirin.
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<PAGE>
Section 2.16 Environmental Matters. (a) Each of the Company and the
Subsidiaries and their respective properties and assets are in material
compliance with all applicable Environmental Laws (as defined in paragraph (e)
below) which compliance includes, but is not limited to, the possession of all
permits, licenses, registrations and other governmental authorizations required
under applicable Environmental Laws (collectively, "Permits"), and compliance
with the terms and conditions thereof, and there are no circumstances of a
nature which may materially prevent or interfere with compliance in the future.
Except as set forth in Section of the Disclosure Schedule, no additional Permits
are necessary for the conduct of the business of the Company or any Subsidiary
as currently conducted.
(b) There is no Environmental Notice (as defined in paragraph (e)
below) that is (i) pending or, to the best of Seller's knowledge, threatened
against the Company or any Subsidiary or (ii) to the best of Seller's knowledge,
pending or threatened against any person or entity whose liability for such
Environmental Notice may have been retained or assumed by or could reasonably be
imputed or attributed by law or contract to the Company or any Subsidiary.
(c) To the best of Seller's knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents arising out
of, based upon, resulting from or relating to the operation, ownership or use of
any property or assets currently or formerly owned, operated or used by the
Company or any Subsidiary, including, without limitation, the release, emission,
discharge or disposal of any Environmental Material (as defined in paragraph (e)
below) into the Environment (as defined herein), that (i) would likely result in
the incurrence of costs under Environmental Laws which would have Material
Adverse Effect; or (ii) would likely form the basis of any Environmental Notice
against or with respect to the Company or any Subsidiary or against any person
or entity whose liability for any Environmental Notice may have been retained or
assumed by or could be imputed or attributed by law or contract to the Company
or any Subsidiary which would have Material Adverse Effect.
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<PAGE>
(d) Except as set forth in Section 2.16 of the Disclosure Schedule,
without in any way limiting the generality of the foregoing, to Seller's
knowledge (i) there are and have been no underground storage tanks located on
property owned, leased or used by the Company or any Subsidiary, (ii) there is
no asbestos contained in or forming part of any building, building component,
structure or office space owned, leased or used by the Company or any
Subsidiary, or located on the Property, (iii) no polychlorinated biphenyls
(PCBs) are used or stored on any property owned, leased or used by the Company
or any Subsidiary and (iv) there are no locations currently or formerly owned,
leased or used by the Company or any Subsidiary at which any Environmental
Material generated, used, owned or controlled by the Company, any Subsidiary or
Seller may have been disposed of or released into the Environment in violation
of Environmental Laws in effect at that time.
(e) For purposes of this Agreement:
(i) "Environment" means any surface water, ground water, drinking
water supply, land surface or subsurface strata, ambient air and including,
without limitation, any indoor location.
(ii) "Environmental Notice" means any notice or claim by any person
or entity alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental costs, or harm,
injuries or damages to any person, property, natural resources, or any fines or
penalties) arising out of, based upon, resulting from, or relating to the
emission, discharge, disposal, release or threatened release in or into the
Environment of any Material.
(iii) "Environmental Laws" means all federal, state, local and
foreign laws, codes, regulations, requirements, directives, orders, common law,
and administrative or judicial interpretations thereof, all as in effect on the
date hereof and on the Closing Date, that may be enforced by any governmental
agency or court, relating to pollution, the protection of human health, the
protection of the Environment, or the emission, discharge, disposal, release or
threatened release of Environmental Materials in or into the Environment.
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<PAGE>
(iv) "Environmental Material" or "Environmental Materials" means
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes, and including, without limitation, asbestos, or asbestos-containing
materials, PCBs, and petroleum, oil or petroleum or oil products or derivatives.
Section 2.17 Labor Relations and Employment. Except as set forth in
Section 2.17 of the Disclosure Schedule, (i) there is no labor strike, dispute,
slow-down, stoppage or lockout actually pending, or to the best of the Company's
or Seller's knowledge, affecting or threatened against the Company or any
Subsidiary and during the past three years there has not been any such action;
(ii) no union claims to represent the employees of the Company or any
Subsidiary; (iii) there is no agreement with any labor organization, nor work
rules or practices agreed to with any labor organization or employee
association, applicable to employees of the Company or any Subsidiary nor is the
Company or any Subsidiary a party to or bound by any collective bargaining
agreement; (iv) there is no grievance pending against the Company or any
Subsidiary arising out or under of any collective bargaining agreement or other
grievance procedure; (v) there are no charges with respect to or relating to the
Company or any Subsidiary pending before the Equal Employment Opportunity
Commission or any other agency responsible for the prevention of unlawful
employment practices; and (vi) neither the Company, any Subsidiary nor Seller
has received notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws to conduct an
investigation with respect to or relating to the Company or any Subsidiary and,
to the best of the Company's and Seller's knowledge, no such investigation is in
progress.
Section 2.18 Brokers or Finders. Purchaser does not have and will
not have any obligation to pay any broker's, finder's, investment banker's,
financial advisor's or similar fee in connection with this Agreement, or the
transactions contemplated hereby, by reason of any action taken by or on behalf
of Seller or the Company.
Section 2.19 Transactions with Affiliates. Except as set forth in
Section of the Disclosure Schedule, the Company has no outstanding liabilities
or
21
<PAGE>
obligations for amounts owing to, or notes or accounts receivable from, or
leases, contracts or other commitments or arrangements with or for the benefit
of, Seller, its affiliates or associates, or the Company's directors, officers
or employees.
Section 2.20 Ownership of PCT Common Stock. Seller and its
affiliates beneficially own 5,939,400 shares of PCT Common Stock (as defined
below) and 20,000 shares of PCT Preferred Stock (as defined below).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Each of PCT and Purchaser represents and warrants to Seller as
follows:
Section 3.1 Organization, Standing and Qualification. Each of PCT
and Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.
Section 3.2 Authority Relative to this Agreement. Each of PCT and
Purchaser has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of each of PCT and Purchaser and no other corporate proceedings on the
part of either PCT or Purchaser are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of PCT and Purchaser and constitutes,
and each other agreement that is to be executed and delivered by PCT or
Purchaser, as the case may be, in connection with the transactions contemplated
by this Agreement, when executed and delivered by any such party will
constitute, a valid and binding agreement of such party enforceable against such
party in accordance with its terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization and other similar
laws affecting creditors' rights generally, and (ii) as such en-
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<PAGE>
forceability may be limited by general principles of equity, regardless of
whether asserted in a proceeding in equity or law.
Section 3.3 Capitalization. The authorized capital stock of PCT
consists of 250,000,000 shares of common stock, par value $.01 per share ("PCT
Common Stock"), of which 20,594,120 are issued and outstanding and 250,000,000
shares of preferred stock, par value $0.01 per share ("PCT Preferred Stock"), of
which 20,000 are issued and outstanding. There are no other shares of capital
stock of PCT authorized, issued or outstanding. All outstanding shares of PCT
Common Stock and PCT Preferred Stock are duly authorized, validly issued, fully
paid and nonassessable and are not subject to any preemptive rights. Except as
set forth in Section 3.3 of the Disclosure Schedule, there are not (a) issued or
outstanding any securities convertible into or exchangeable for, or any options,
warrants, calls, puts, subscriptions or other rights (preemptive or otherwise)
to acquire, any shares of capital stock of PCT or (b) any agreements or
contractual commitments involving PCT or its affiliates relating to shares of
PCT Common Stock, PCT Preferred Stock or obligating PCT to issue or sell any
shares of its capital stock or any such securities, options, warrants, calls,
puts, subscriptions or other rights.
Section 3.4 Consents and Approvals; No Violation. Except for
applicable requirements of the HSR Act, there is no requirement applicable to
PCT or Purchaser to make any filing with, or to obtain any permit,
authorization, consent or approval of, any Governmental Entity as a condition to
the lawful consummation by PCT or Purchaser of the transactions contemplated
hereby. Except for applicable requirements of the HSR Act, neither the execution
and delivery of this Agreement by PCT or Purchaser, nor the consummation by PCT
or Purchaser of the transactions contemplated hereby, nor compliance by PCT or
Purchaser with any of the provisions hereof will (i) conflict with or result in
a breach of any provision of the certificate of incorporation or bylaws of PCT
or Purchaser, (ii) result in a breach of, or default under (or give rise to any
right of termination, cancellation or acceleration under), any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which PCT or Purchaser is
a party or by which any of
23
<PAGE>
their respective properties or assets may be bound, except for such breaches or
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained or will be obtained prior to
the Closing Date or (iii) violate any order, judgment, writ, injunction, decree,
statute, rule or regulation applicable to it or its properties or assets except
for such violations which would not have a material adverse effect on (x) the
business, properties, results of operations or financial or other conditions of
PCT and Purchaser, taken as a whole, or (y) on the ability of PCT or Purchaser
to consummate the transactions contemplated hereby. Except as set forth in
Section of the Disclosure Schedule, there is no Proceeding pending or, to the
best knowledge of PCT and Purchaser, threatened against PCT or Purchaser that
seeks to prevent the consummation of the transactions contemplated hereby.
Section 3.5 Brokers or Finders. Seller will not have any obligation
to pay any broker's, finder's, investment banker's, financial advisor's or
similar fee in connection with this Agreement, or the transactions contemplated
hereby by reason of any action taken by or on behalf of PCT or Purchaser.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business. During the period from the date
hereof to the Closing, except as otherwise contemplated by this Agreement,
Seller shall cause the Company to be operated only in the ordinary course of
business consistent with past practice. Seller will use its reasonable best
efforts to cause the Company to preserve intact the present organization of the
Company, keep available the services of the present officers and employees of
the Company and preserve the Company's relationships with customers, suppliers,
licensors, licensees, contractors, distributors and others having significant
business dealings with the Company, as the case may be. Without limiting the
generality of the foregoing, and except as otherwise provided in this Agreement,
from the date of this Agreement to the Closing, without the prior written
consent of Purchaser, Seller agrees that the Company shall not:
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<PAGE>
(a) (i) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any shares of its capital stock or any other securities or equity equivalents,
(ii) split, combine or reclassify any shares of its capital stock or (iii) amend
the terms of any such securities or agreements outstanding on the date hereof;
(b) amend its certificate of incorporation or by-laws;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock, or redeem, repurchase or otherwise acquire any of its
securities, except that Flavors and the Company may declare, set aside or pay a
cash dividend in an amount not to exceed $5.4 million;
(d) (i) sell, lease, transfer or dispose of any assets or rights,
(ii) permit any asset to suffer any Encumbrance thereupon, except for such
Encumbrances existing on the date hereof and Permitted Liens, (iii) acquire any
assets or rights, unless in the case of (i), (ii) and (iii), (A) in the ordinary
course of business consistent with past practice, or (B) pursuant to obligations
in effect on the date hereof or (iv) enter into any commitment or transaction
binding on the Company with respect to (i), (ii) or (iii) above, unless in the
ordinary course of business consistent with past practice;
(e) (i) incur or assume any indebtedness for borrowed money other
than in the ordinary course of business consistent with past practice, (ii)
issue or sell any debt securities or warrants or rights to acquire any debt
securities, (iii) assume, guarantee, endorse or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other person, or
(iv) make any loans, advances or capital contributions to, or investments in,
any other person;
(f) pay, discharge or satisfy any liability, obligation, or
Encumbrance (absolute, accrued, asserted or unasserted, contingent or otherwise)
of the Company,
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<PAGE>
other than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice or in accordance with their terms, of
claims, liabilities or obligations of the Company (i) reflected or reserved
against on the Balance Sheet or (ii) incurred in the ordinary course of business
consistent with past practice since the date of the Balance Sheet;
(g) change any of the accounting or tax principles, practices or
methods used by the Company (except as required by GAAP or law);
(h) enter into, adopt, amend or terminate any Plan, increase in any
manner the compensation or fringe benefits of any officer or employee of the
Company or pay any benefit not required by any existing Plan, or enter into any
contract, agreement commitment or arrangement to do any of the foregoing, except
to the extent required by applicable law or entered into in the ordinary course
of business consistent with past practice;
(i) enter into or offer to enter into any employment arrangement
(other than in the ordinary course of business consistent with past practice for
employees at will with annual salaries of not more than $100,000 per person) or
any consulting arrangement with any person (other than in the ordinary course of
business consistent with past practice);
(j) make or authorize any capital expenditures;
(k) settle or compromise any Tax liability;
(l) (i) enter into, amend or terminate any Contract, except in the
ordinary course of business consistent with past practice, or (ii) take any
action or fail to take any action that, with or without either notice or lapse
of time, would constitute a material default under any such Contract;
(m) make any payments, loans, advances or other distributions to, or
enter into any transaction, agreement or arrangement with, Seller, or any of
Seller's affiliates or associates;
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(n) make any change in its accounts payable practices;
(o) terminate or amend or fail to perform any of its obligations,
permit any default to exist or cause any material breach under any of the
Company policies of insurance set forth in Section 2.13 of the Disclosure
Schedule;
(p) dispose of or permit to lapse any material item of Intellectual
Property;
(q) take, or agree in writing or otherwise to take, any of the
actions set forth in this Section 4.1.
Section 4.2 Access to Information. (a) Seller shall, and shall cause
the Company to, (i) give Purchaser and its authorized representatives full
access during normal business hours to all books and records, plants, offices,
warehouses and other facilities and properties utilized by the Company in
connection with its business and all information relating to the Company, its
business, properties, assets, financial condition, results of operations and
prospects, (ii) permit Purchaser and its authorized representatives, to make
such inspections thereof and to interview such personnel of the Company during
normal business hours as Purchaser may reasonably request and (iii) cause the
Company's officers and auditors to furnish Purchaser and its authorized
representatives with such financial and operating data and other information
with respect to the items set forth in clause (i) of this paragraph (a) as
Purchaser may from time to time reasonably request, and cause the Company's
auditors to deliver their workpapers related to such information if Purchaser
shall so request.
(b) All information about the Company obtained by Purchaser from
Seller or the Company or their respective directors, officers, employees, agents
or representatives in connection with the transactions contemplated hereby
(other than publicly available information) shall be held in confidence by
Purchaser and such information shall not be disclosed to any person (other than
Purchaser and its affiliates and its or their directors, officers, employees,
agents, and representatives) except as may be required by judicial process,
administrative order, or any law, rule or regulation.
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Section 4.3 Reasonable Best Efforts. (a) Upon the terms and subject
to the conditions of this Agreement, each of the parties hereto agrees to use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
including, but not limited to, (i) the preparation and filing of all applicable
forms under the HSR Act, (ii) the preparation and filing of all other forms,
registrations and notices required to be filed to consummate the transactions
contemplated by this Agreement and the taking of such actions as are necessary
to obtain any requisite approvals, consents, orders, exemptions or waivers by
any third party or Governmental Entity and (iii) the satisfaction of all
conditions to Closing. Each party shall promptly consult with the other party to
provide any necessary information not subject to legal privilege with respect
to, and provide the other party (or its counsel) copies of, all filings made by
such party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and the
transactions contemplated by this Agreement.
(b) Each party hereto shall promptly inform the other party of any
communication from any Governmental Entity regarding any of the transactions
contemplated by this Agreement. If any party or affiliate thereof receives a
request for additional information or documentary material from any such
Governmental Entity with respect to the transactions contemplated by this
Agreement, then such party will endeavor in good faith to make, or cause to be
made, as soon as reasonably practicable and after consultation with the other
party, an appropriate response in compliance with such request.
Section 4.4 Preparation of Registration Statement; Listing. (a) As
soon as practicable following the Closing Date, at the direction of, and with
all reasonably necessary assistance from, Purchaser, Seller shall prepare and
file with the SEC any registration statement (the "Registration Statement")
necessary for PCT to distribute the VSRs to its stockholders. Each party will
provide the other party and its agents with reasonable opportunity to review and
comment upon the Registration
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Statement, including all amendments and supplements thereto, prior to the filing
thereof with the SEC and or distribution thereof to the stockholders of PCT, and
shall make all reasonable changes thereto requested by the other party or its
agents. Each party shall use its reasonable best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable.
Each party shall provide and shall be deemed to have provided the other party
with the information concerning it required to be included in the Registration
Statement. Seller shall take any action required to be taken under any
applicable state securities laws in connection with the issuance of the VSRs and
shall cause the VSR Agreement to be qualified under the Trust Indenture Act of
1939, as amended (the "TIA"), if required by the TIA.
(b) As soon as practicable following the Closing Date, at the
direction of, and with all reasonable necessary assistance from, Purchaser,
Seller shall use its best efforts to cause the VSRs to be approved for listing
on the New York Stock Exchange ("NYSE") or other national securities exchange or
automated quotation system approved by Seller and Purchaser, in each case,
subject to official notice of issuance.
Section 4.5 Covenant of PCT. (a) Except as set forth in Section 4.5
of the Disclosure Schedule, from the date of this Agreement until the date of
the distribution of the VSRs to stockholders of PCT, without the prior written
consent of Seller, PCT shall not (i) authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of its capital stock or any other securities
or equity equivalents, (ii) split, combine or reclassify any shares of its
capital stock, (iii) amend the terms of any such securities or agreements
outstanding on the date hereof or (iv) declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, or redeem, repurchase or otherwise
acquire any of its securities.
(b) Each of PCT and Purchaser covenant to cause the distribution of
one VSR and 125 VSRs per share
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to all holders of PCT Common Stock and PCT Preferred Stock, respectively, as
soon as practicable following the declaration by the SEC of the effectiveness of
the Registration Statement.
Section 4.6 Further Assurances. Seller and Purchaser agree that,
from time to time after the Closing, without additional consideration, each of
them will execute and deliver such further instruments and take such other
action as may be necessary to make effective the transactions contemplated by
this Agreement.
Section 4.7 No Solicitation. Seller will, and will cause the Company
to, immediately cease any existing discussions or negotiations with any third
parties conducted prior to the date hereof with respect to any merger, business
combination, sale of assets (other than sales permitted by this Agreement), sale
of shares of capital stock or other securities or similar transaction involving
any third party and Seller or the Company (an "Acquisition Transaction"). Seller
shall, and Seller will ensure that the Company and its directors and officers
shall, and will use their reasonable best efforts to cause Seller's and the
Company's employees or other affiliates not to, directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations with,
or provide any information to, any corporation, partnership, person or other
entity or group (other than Purchaser or its directors, officers, employees or
other affiliates or representatives) concerning any Acquisition Transaction.
Seller will immediately communicate to Purchaser any such inquiries or proposals
regarding an Acquisition Transaction and the terms thereof.
Section 4.8 Fees and Expenses. Except as otherwise set forth in this
Agreement, each party hereto shall pay the fees and expenses incurred by it in
connection with the transaction contemplated hereby. In addition, the cost of
obtaining the third party consents set forth on Section 2.4 of the Disclosure
Schedule necessary to allow Seller, Flavors or the Company to consummate the
transactions contemplated hereby shall be borne by the Company. Any fees and
expenses incurred in connection with the settlement of the litigation set forth
in Sections 2.4 and 3.4 of the Disclosure Schedule shall be
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split evenly between Seller and Purchaser until such aggregate amount equals
$1,000,000 and, thereafter, all such fees and expenses shall be paid by Seller;
provided, however, if requested by Seller, Purchaser shall advance the amount of
any fees and expenses to be paid by Seller and the amount of such advance shall
be deducted from the Deferred Cash Payments (together with interest accrued at a
rate of 5.5% annually until the date of the relevant Deferred Cash Payment),
first from the Deferred Cash Payment to be made on December 31, 1997 and then,
if necessary, from the Deferred Cash Payment to be made on June 30, 1997.
Section 4.9 Public Announcements. Subject to Section hereof, none of
Seller, the Company or Purchaser will issue or cause the publication of any
press release or otherwise make any public statement with respect to the
transactions contemplated hereby without the prior written consent of the
parties hereto; provided, that any party hereto may make a public announcement
to the extent required by law, judicial process or the rules, regulations or
interpretations of the Securities and Exchange Commission.
Section 4.10 Books and Records. At the Closing, Seller shall deliver
to the Company all books and records in its possession relating to the Company.
Section 4.11 Tax Matters. (a) Tax Treatment - Section 338(h)(10)
Election. With respect to the sale and acquisition of the Shares pursuant to
this Agreement, (A) within 240 days after the Closing Date, Seller and Purchaser
shall agree on the form and content of the IRS Forms 8023-A (the "Forms 8023-A")
on which the election to be made pursuant to Section 338(h)(10) of the Code (the
"Election") shall be made; (B) within fifteen (15) days thereafter, Purchaser
shall deliver to Seller properly executed Forms 8023-A, which Seller shall file
on a timely basis with the Internal Revenue Service (the "IRS") following the
Closing Date; (C) Seller and Purchaser shall jointly and timely make any
elections under state or local tax law comparable to the Election with respect
to the purchase of the Shares; (D) Seller and Purchaser shall, as promptly as
practicable following the Closing Date, cooperate with each other to take all
other actions necessary and appropriate (including filing such forms, returns,
elections, schedules and other documents
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as may be required) otherwise to effect and preserve timely Election in
accordance with the provisions of Treasury Regulation Sections 1.338-1 and
1.338(h)(10)-1 (or any comparable provisions of state or local tax law) or any
successor provisions; and (E) Seller and Purchaser shall report the sale and
acquisition, respectively, of the Shares pursuant to this Agreement consistent
with the Election (and any comparable elections under state or local tax laws)
and shall take no position to the contrary thereto in any Tax Return, any
proceeding before any taxing authority or otherwise.
(b) To the extent permissible by law, Seller shall prepare and file
or cause to be filed (i) any corrections, amendments or supplements to the Forms
8023-A and (ii) any state or local forms or reports that are necessary or
appropriate for purposes of complying with the requirements for making any state
or local election that is comparable to the Election. To the extent necessary
for the valid filing of any such corrections, amendments, supplements, forms or
reports, Purchaser shall, at the request of Seller, properly execute or have
properly executed any requisite forms or reports specified by Seller, and, to
the extent required by law and reasonably practicable within the time period
following receipt of Seller's requests, Purchaser shall file timely or cause to
be filed timely any such forms or reports.
(c) In connection with the Election, within 180 days after the
Closing Date, (i) Seller shall provide to Purchaser a proposed determination of
the Modified Aggregate Deemed Sales Price (as defined under applicable Treasury
Regulations) with respect to Flavors, and (ii) Purchaser shall provide to Seller
a proposed allocation of such Modified Aggregate Deemed Sales Price among the
assets of Flavors, which allocations shall be made in accordance with Section
338(b) of the Code and any applicable Treasury Regulations. Within 10 days
following such provision, Purchaser and Seller, respectively, shall have the
right to object to any such determination or allocation. If a party objects to
any such determination or allocation, the parties shall resolve their dispute
pursuant to the provision for resolving Tax Related Disputes described in
paragraph (k) of this Section 4.11. Seller and Purchaser (i) shall be bound by
the allocations determined pursuant to this paragraph for purposes of
determining any Taxes; (ii) shall prepare and file all
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Tax Returns to be filed with any taxing authority in a manner consistent with
such allocations; and (iii) shall take no position inconsistent with such
allocations in any Tax Return, any proceeding before any taxing authority or
otherwise. In the event that any such allocation is disputed by any taxing
authority, the party receiving notice of such dispute shall promptly notify and
consult with the other party hereto concerning resolution of such dispute.
Neither Seller nor Purchaser shall, or shall permit any of their affiliates
(including, without limitation, Flavors and any of its subsidiaries) to, take
any action to modify any of the forms or reports (including any corrections,
amendments or supplements thereto) that are required for the making of the
Election or any comparable elections under state or local tax law after their
execution or to modify or revoke the Election following the filing of the Forms
8023-A by Seller without the written consent of Seller and Purchaser, as the
case may be.
(d) For purposes of any Taxes, Seller and Purchaser agree that as of
the Closing Date each VSR has a fair market value equal to the average trading
price of the VSRs on the first day the VSRs are traded on the New York Stock
Exchange or other national securities exchange or automated quotation system,
unless Seller and Purchaser agree that such price does not accurately reflect
the value of the VSRs as of the Closing Date, in which case Seller and Purchaser
shall mutually agree on an appropriate fair market value for the VSRs. Purchaser
and Seller agree to file, and to cause their affiliates to file, all Tax Returns
on a basis consistent with the valuations set forth in this Section 4.11(d).
(e) Indemnification.
(i) Seller's Indemnification of Purchaser. Seller shall
indemnify Purchaser from, against, and in respect of (A) any Taxes of Flavors or
any of its subsidiaries for any taxable period, or portion of a Straddle Period
(as determined pursuant to Section 4.11(f) hereof), ending on or prior to the
Closing Date; (B) any Taxes of Flavors or any of its subsidiaries arising from
the departure by Flavors or any of its subsidiaries from an affiliated, unitary,
consolidated, combined, or other similar group as a result of the transactions
contemplated by this Agreement, or attribut-
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able to any corporation or other entity which joined with Flavors or any of its
subsidiaries in the filing of an affiliated, unitary, consolidated, combined, or
similar return for any taxable period, or portion of a Straddle Period (as
determined pursuant to Section 4.11(f) hereof), ending on or prior to the
Closing Date; and (C) any Transfer Taxes for which Seller is liable pursuant to
Section 4.11(i) hereof; and
(ii) Purchaser's Indemnification of Seller. Purchaser
shall indemnify Seller from, against, and in respect of (A) any Taxes of Flavors
or any of its subsidiaries for any taxable period, or portion of a Straddle
Period (as determined pursuant to Section hereof), beginning after the Closing
Date; and (B) any Transfer Taxes for which Purchaser is liable pursuant to
Section 4.11(i) hereof.
(f) Computation of Tax Liabilities, Proration of Taxes and Earnings
and Profits. To the extent permitted by Law or administrative practice, the
taxable year of Flavors and each of its subsidiaries shall end on and include
the Closing Date. For purposes of determining the earnings and profits of
Flavors and each of its subsidiaries or the liability for Taxes for a portion of
a taxable year or period that begins before and ends after the Closing Date (a
"Straddle Period"), the determination of such earnings and profits or such Taxes
for the portion of the year or period ending on, and the portion of the year or
period beginning after, the Closing Date, shall be determined by assuming that
the taxable year or period ended on and included the Closing Date, except that
exemptions, allowances or deductions that are calculated on an annual basis and
annual real and personal property taxes shall be prorated on the basis of the
number of days in the annual period elapsed through the Closing Date as compared
to the number of days in the annual period elapsing after the Closing Date.
(g) Tax Returns.
(i) Seller shall prepare, or cause to be prepared, and
file, or cause to be filed, on a timely basis all Tax Returns with respect to
Flavors and each of its subsidiaries for any taxable period ending on or prior
to the Closing Date;
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(ii) Purchaser shall prepare, or cause to be prepared,
and file, or cause to be filed, on a timely basis all Tax Returns with respect
to Flavors and each of its subsidiaries for any taxable period ending after the
Closing Date, including Tax Returns for any Straddle Period; and
(iii) If either Purchaser, on the one hand, or Seller,
on the other hand, may be liable for any portion of the Taxes payable on any Tax
Return to be filed by the other, the party responsible for filing such return
(the "Preparer") shall use its best efforts to prepare and deliver to the other
party (the "Payor") a copy of such return and any schedules, work papers and
other documentation then available that are relevant to the preparation of the
portion of such return for which the Payor is or may be liable hereunder not
later than thirty (30) days prior to the due date for such return (inclusive of
extensions). The Preparer shall not file such return without the prior written
consent of the Payor, which consent shall not be unreasonably withheld and which
consent shall be provided to the Preparer at least ten (10) days prior to the
due date for such return (inclusive of extensions). If the Preparer and the
Payor are unable to agree on the amount of the Payor's liability for any Taxes
reflected on a Tax Return, such dispute shall be settled by an internationally
recognized firm of independent public accountants mutually acceptable to both
the Preparer and the Payor (the "CPA Firm") whose fees and expenses shall be
paid by the Preparer and the Payor in proportion to each party's respective
liability for the items in dispute as determined by the CPA Firm, and the Payor
shall pay the amount determined by the CPA Firm within five (5) Business Days of
such determination. If the Preparer fails to satisfy its obligations under this
Section 4.11(g)(iii), the Payor's obligation to indemnify the Preparer for any
Taxes which are reflected on any such Tax Return shall be reduced to the extent
the Payor is prejudiced by such failure and the Payor shall retain any and all
remedies it may otherwise have which arise out of such failure.
(h) Contest Provisions. (i) Notification of Contests. Each of
Purchaser, on the one hand, and Seller, on the other hand (the "Recipient"),
shall notify the other party in writing within thirty (30) days of receipt by
the Recipient of written notice of any pending or
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threatened audits, adjustments or assessments relating to Taxes (a "Tax Audit")
which may affect the liability for Taxes of such other party. If the Recipient
fails to give such written notice to the other party, the Recipient shall not be
entitled to indemnification for any Taxes arising in connection with such Tax
Audit to the extent such failure to give notice affects the other party's
ability to participate in the Tax Audit or increases the other party's liability
for Taxes;
(ii) Control of Contests. To the extent a Tax Audit
relates to any taxable period ending on or prior to the Closing Date, Seller
shall at its expense control the defense and settlement of such Tax Audit. To
the extent a Tax Audit relates to any taxable period beginning after the Closing
Date, Purchaser shall at its expense control the defense and settlement of such
Tax Audit. To the extent a Tax Audit relates to any Straddle Period Seller shall
at its expense control the defense and settlement of such Tax Audit.
Notwithstanding the foregoing, neither party shall be entitled to settle, either
administratively or after the commencement of litigation, any claim for Taxes
which would adversely affect the liability for Taxes of Flavors or any of its
subsidiaries with respect to any taxable period ending after the Closing Date
(including any Straddle Period) or the liability for Taxes of Seller, Flavors or
any of its subsidiaries with respect to periods ending on or before the Closing
Date to any extent (including, but not limited to, the imposition of income tax
deficiencies, the reduction of asset basis or cost adjustments, the lengthening
of any amortization or depreciation periods, the denial of amortization or
depreciation deductions, or the reduction of loss or credit carryforwards)
without the prior written consent of the other party. Such consent shall not be
unreasonably withheld and shall not be necessary to the extent that the
appropriate party has indemnified the other party in form and substance
reasonably acceptable to the indemnitee. If a firm offer is made by a taxing
authority to settle a claim or litigation and the party which desires to accept
the offer ("Settling Party") notifies the other party ("Affected Party") in
writing that it desires to accept and agree to such settlement, but the Affected
Party elects not to accept or agree to such settlement, the Affected Party may
continue to contest or defend such claim or litigation and, in such event, the
total maximum liability of
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the Settling Party with respect to such claim or litigation shall be limited to
and shall not exceed the amount of the Settling Party's share of such settlement
offer, plus the Settling Party's reasonable out-of-pocket costs and expenses
(including reasonable attorneys' fees and disbursements) to the date of notice
that the Settling Party desires to accept such settlement; and
(iii) Participation Rights. Any party whose liability
for Taxes may be affected by a Tax Audit shall be entitled to participate at its
own expense in such defense and to employ counsel of its choice at its own
expense.
(i) Transfer Taxes. All excise, sales, use, transfer (including real
property transfer or gains), stamp, documentary, filing, recordation and other
similar taxes together with any interest, additions or penalties with respect
thereto and any interest in respect of such additions or penalties ("Transfer
Taxes") resulting directly or indirectly from the transfer by Seller of the
Shares to Purchaser, shall be borne equally by Seller and Purchaser. Any Tax
Returns that must be filed in connection with such Transfer Taxes shall be
prepared and filed when due by the party primarily or customarily responsible
under the applicable local law for filing such Tax Returns, and such party will
use its best efforts to provide such Tax Returns to the other party at least
thirty (30) days prior to the due date for such Tax Returns. Notwithstanding
Section hereof, the responsibility for filing Tax Returns relating to Transfer
Taxes shall be covered exclusively by this Section 4.11(i).
(j) Certain Post-Closing Settlement Payments. (i) Purchaser's
Claiming, Receiving or Using Refunds and Overpayments. Except as provided in
Section 4.11(j)(ii), if, after the Closing Date, Purchaser, Flavors or any of
their subsidiaries receive any refund, or utilize the benefit of any overpayment
of Taxes which, in either case, (A) relates to a Tax paid by Seller or any of
its affiliates on or prior to the Closing Date, or (B) is the subject of
indemnification by Seller under this Agreement, Purchaser shall promptly
transfer, or cause to be transferred, to Seller the entire amount of the refund
or overpayment (including interest) received or utilized by Purchaser. Purchaser
shall notify Seller promptly after
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the discovery of a right to claim any such refund or overpayment and the receipt
of any such refund or utilization of any such overpayment. Purchaser shall as
promptly as practicable claim any such refund or utilize any such overpayment
and shall furnish to Seller all information, records and assistance necessary to
verify the amount of the refund or overpayment;
(ii) Purchaser's Carryback of Post-Closing Losses.
Purchaser may carry back any Tax losses or credits to any taxable period of
Seller or Flavors ending on or prior to the Closing Date and shall be entitled
to retain the refund or other benefit resulting therefrom; provided, however,
that Purchaser shall indemnify Seller from, against and in respect of all Taxes
relating directly or indirectly to such carry back;
(iii) Realization of Tax Benefits in Respect of
Indemnified Liabilities. (A) If, after the Closing Date, (a) Purchaser or any of
its affiliates realizes any Damages for which it is indemnified by Seller or (b)
an adjustment required by any taxing authority increases Seller's
indemnification obligation under this Agreement, Purchaser and its affiliates
shall claim any such Damages and recognize any such adjustment on their Tax
Returns and claim to the fullest extent permissible all deductions allowable as
a result of any such Damages or adjustment. Purchaser shall furnish to Seller at
Seller's expense all relevant information, records and assistance reasonably
necessary to verify the amount of the decrease, if any, in Purchaser's and its
affiliates' Taxes paid solely as a result of recognizing or realizing such
Damages or adjustment and claiming all such permissible deductions (as compared
to the Taxes Purchaser and its affiliates would otherwise have paid solely
without such Damages or adjustment). Purchaser shall promptly transfer, or cause
to be transferred, to Seller the entire amount of such decrease at the time such
decrease is realized, whether realized by Purchaser and its affiliates paying
less Taxes or receiving a refund;
(B) If, after the Closing Date, (a) Seller or any of its
affiliates realizes any Damages for which it is indemnified by Purchaser hereof
or (b) an adjustment required by any taxing authority increases Purchaser's
indemnification obligation under this Agree-
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ment, Seller and its affiliates shall claim any such Damages and recognize any
such adjustment on their Tax Returns and claim to the fullest extent permissible
all deductions allowed as a result of any such Damages or adjustment. Seller
shall furnish to Purchaser at Purchaser's expense all material information,
records and assistance necessary to verify the amount of the decrease, if any,
in Seller's and its affiliates' Taxes paid solely as a result of recognizing or
realizing such Damages or adjustment and claiming all such permissible
deductions (as compared to the Taxes Seller and its affiliates would otherwise
have paid solely without such Damages or adjustment). Seller shall promptly
transfer, or cause to be transferred, to Purchaser the entire amount of such
decrease at the time such decrease is realized, whether realized by Seller and
its affiliates by paying less Taxes or receiving a refund.
(iv) Subsequent Adjustment. In the event that any Tax refund,
benefit or savings described in any clause of this Section 4.11(j) is
subsequently reduced as a result of any adjustment required by any final
determination of the applicable law of the relevant jurisdictions, this Section
4.11(j) shall be applied taking into account such adjustment.
(k) Resolution of All Tax Related Disputes. For purposes of
computing the amount of any payment due under this Section 4.11, each party
shall provide to the other, as reasonably requested by the other, all reasonably
available information, records and assistance necessary to verify the amount of
the payment due. In the event that Seller, on the one hand, and Purchaser, on
the other hand, cannot agree on any calculation of any amount relating to Taxes
or the interpretation or application of any provision of this Agreement relating
to Taxes, such dispute shall be resolved by the CPA Firm, which shall act as an
arbitrator to resolve all points of disagreement and whose decision shall be
final and binding upon all persons involved and whose expenses shall be paid by
Seller and Purchaser in proportion to each party's respective liability as
determined by the CPA Firm.
(l) Closing and Post-Closing Actions which Affect Seller's Liability
for Taxes. (i) Purchaser shall not and shall not permit Flavors or any of its
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subsidiaries, without the prior written consent of Seller, to take any action on
or after the Closing Date if such action could increase the liability for Taxes
of Seller with respect to the transactions contemplated by this Agreement
(including any obligation of Seller to indemnify Purchaser under this
Agreement).
(ii) Purchaser shall not, without the prior written
consent of Seller, amend any Tax Return filed by, or with respect to, Flavors or
any of its subsidiaries for any taxable period, or portion thereof, beginning
before the Closing Date and ending on or before the Closing Date.
(m) Maintenance of Books and Records. Until the applicable statute
of limitations (including periods of waiver) has run for all Tax Returns filed
or required to be filed with respect to taxable periods ending on or prior to
the Closing Date, Purchaser shall retain all of the books and records relating
to Flavors and each of its subsidiaries in existence on the Closing Date and
after the Closing Date will upon request and for a reasonable and specific
purpose provide Seller access to such relevant books and records for inspection
and copying by Seller and their representatives during normal business hours.
After the expiration of such period, no such books and records shall be
destroyed by Purchaser without first advising Seller in writing and giving
Seller at least sixty (60) business days to obtain possession thereof.
(n) Termination of Existing Tax Sharing Agreements. Prior to the
Closing Date, the parties shall terminate any existing tax sharing agreements to
the extent such agreement or arrangement binds Flavors or any of its
subsidiaries. The preceding sentence shall not apply to any agreement entered
into in connection with this Agreement.
(o) Assistance and Cooperation. The parties agree that, after the
Closing Date: (i) Each party shall assist the other party in preparing and
filing any Tax Returns which such other party is responsible for preparing and
filing;
(ii) The parties shall cooperate fully in preparing for
any audits of, or disputes
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with taxing authorities regarding, any Tax Returns and payments in respect
thereof;
(iii) The parties shall make available to each other and
to any taxing authority as reasonably requested all relevant books and
records relating to Taxes;
(iv) Each party shall provide timely written notice to
the other party of any pending or proposed Tax Audit for which the other
party may have an indemnification obligation under this Agreement;
(v) Each party shall furnish the other party with copies
of all relevant correspondence received from any taxing authority in
connection with any Tax Audit or information request relating to any Taxes
referred to in subsection (iv) of this Section 4.11(o); and
(vi) Except as otherwise provided herein, the party
requesting assistance or cooperation shall bear the other party's
reasonable out-of-pocket expenses in complying with such request to the
extent that those expenses are attributable to fees and other costs of
unaffiliated third-party service providers.
(p) To the extent any provision in any other Section of this
Agreement is inconsistent with any provisions of this Section 4.11, this Section
4.11 shall exclusively govern all matters relating to Taxes (including the
procedure by which claims for Tax indemnification are made, the determination of
any amounts required to be paid, and the manner by which controversies are
resolved).
41
<PAGE>
ARTICLE V
CONDITIONS
Section 5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of the
following condition:
(a) No statute, rule, regulation, order, decree or injunction shall
have been enacted, entered, promulgated or enforced by a Governmental Entity
which prohibits the consummation of the transactions contemplated by this
Agreement and shall be in effect and, except as set forth in Sections 2.12 and
3.4 of the Disclosure Schedule, no Proceeding seeking such relief shall be
pending.
Section 5.2 Conditions to Obligations of Purchaser. The obligations
of PCT and Purchaser to effect the transactions contemplated by this Agreement
are further subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) The representations and warranties of Seller in this Agreement
shall be true and correct in all material respects as of the date hereof and at
and as of the Closing with the same effect as though such representations and
warranties had been made at and as of such time, other than representations and
warranties that speak as of a specific date or time (which need only be true and
correct in all material respects as of such date or time);
(b) Seller and the Company shall have performed in all material
respects all obligations required to be performed by them under this Agreement
at or prior to the Closing;
(c) Purchaser shall have received certificates, dated the Closing
Date, from (i) the Company, duly executed by the Company, (ii) Flavors, duly
executed by Flavors and (iii) Seller, duly executed by Seller, to the effect of
(a) and (b) above;
(d) All authorizations, Permits, consents, orders or approvals of,
or declarations or filings with,
42
<PAGE>
or expirations or terminations of waiting periods (including the waiting period
under the HSR Act) imposed by, any Governmental Entity, and all third party
consents (collectively, the "Authorizations") necessary to effect the
transactions contemplated by this Agreement, shall have occurred, been filed or
been obtained;
(e) Seller shall have delivered or caused to be delivered to
Purchaser each of the items specified in Section 1.5 hereof.
Section 5.3 Conditions to Obligations of Seller. The obligations of
Seller to effect the transactions contemplated by this Agreement are further
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Purchaser in this
Agreement shall be true and correct in all material respects as of the date
hereof and at and as of the Closing with the same effect as though such
representations and warranties had been made at and as of such time, other than
representations and warranties that speak as of a specific date or time (which
need only be true and correct in all respects as of such date or time);
(b) Purchaser shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing;
(c) Seller shall have received certificates, dated the Closing Date,
from (i) Purchaser, duly executed by Purchaser, and (ii) PCT, duly executed by
PCT, to the effect of (a) and (b) above;
(d) All Authorizations necessary for Purchaser to effect the
transactions contemplated by this Agreement, shall have occurred, been filed or
been obtained by it; and
(e) Purchaser shall have delivered or caused to be delivered to
Seller each of the items specified in Section 1.6 hereof.
43
<PAGE>
ARTICLE VI
TERMINATION AND AMENDMENT
Section 6.1 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual consent of Seller and Purchaser;
(b) by either Seller, on the one hand, or Purchaser, on the other
hand, if the Closing shall not have occurred by December 31, 1996; or
(c) by either Seller or Purchaser if any court of competent
jurisdiction or other competent Governmental Entity shall have issued an order,
decree or injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such statute, rule, regulation, order, decree or injunction or
other action shall have become final and nonappealable.
Section 6.2 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 6.1 hereof, (i) this
Agreement shall forthwith become void and have no effect, without any further
obligation on the part of any party hereto or its affiliates, directors,
officers, stockholders, agents, or representatives, except that the provisions
of Sections 2.18, 3.5, 4.2(b) and (and Section 8.7 to the extent it is
applicable to such Sections) shall survive and no party shall be relieved of any
liability for any breach of this Agreement and (ii) Purchaser will redeliver to
Seller all documents, work papers and other material of Seller or otherwise
delivered by Seller relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof.
Section 6.3 Amendment. This Agreement may be amended at any time by
the parties hereto, but only by an instrument in writing signed by each of the
parties hereto.
Section 6.4 Extension; Waiver. At any time prior to the Closing, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the parties hereto, (ii) waive any inaccuracies in
the representations and warranties contained
44
<PAGE>
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed by such party.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival Periods. All representations and warranties of
the parties contained in this Agreement, the Disclosure Schedule, or any
certificate or document delivered in connection herewith shall survive the
Closing and shall apply with respect to claims asserted in writing within
eighteen months from the Closing Date; provided, that the representations and
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4 and 2.8 shall survive the
Closing indefinitely, the representations and warranties contained in Sections
2.14 and 2.15 shall survive the Closing Date until the third-year anniversary of
the date of this Agreement and the representations and warranties contained in
Section 2.15 shall survive the Closing Date until the expiration of the
applicable statutes of limitation for the assessment or collection of the Taxes
to which such representation or warranty relates. The covenants and agreements
of the parties hereto shall survive the Closing in accordance with their terms.
For purposes of this Agreement, the representations and warranties of Seller
contained herein shall be deemed to include the Disclosure Schedule. Rights of a
party to indemnification shall not be limited or affected by any pre-Closing
investigation by such party.
Section 7.2 Indemnification. Subject to the other provisions of this
Article VII, from and after the Closing:
(a) Seller shall indemnify and hold harmless Purchaser, its
subsidiaries and affiliates, each of Purchaser's, its subsidiaries' and
affiliates' directors, officers, employees, representatives and agents
("Representatives"), and each of the heirs, executors, successors and assigns of
any of the foregoing (collectively, "Purchaser Group") from and against any
costs or expenses (including attorneys' fees), judgments, fines, losses,
45
<PAGE>
claims and damages (collectively, "Damages") incurred by the members of
Purchaser Group which arise out of or are the result of any breach of any
representation or warranty or failure to perform any covenant or agreement made
by Seller or on behalf of the Company under this Agreement or the Disclosure
Schedule delivered by Seller in connection herewith.
(b) PCT and Purchaser, jointly and severally, shall indemnify and
hold harmless Seller, each of its Representatives, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, "Seller
Group") from and against any Damages incurred by the members of Seller Group
which arise out of or are the result of any breach of any representation or
warranty or the failure to perform any covenant or agreement made by or on
behalf of Purchaser under this Agreement or any documents delivered by Purchaser
in connection herewith.
(c) The members of Seller Group, on the one hand, and the members of
Purchaser Group, on the other hand, as the case may be, are sometimes referred
to herein as the "Indemnified Parties."
(d) Neither the Purchaser Group nor the Seller Group shall be
entitled to indemnification from PCT and Purchaser, on the one hand, or Seller,
on the other hand, for Damages which arise out of or are the result of any
breach of any representation or warranty (except those set forth in Section 2.15
hereof) or the failure to perform any covenant or agreement under this Agreement
(except those set forth in Section 4.11 hereof), unless the cumulative total of
all Damages of the Purchaser Group or the Seller Group, as the case may be,
exceeds $2,000,000 and then only to the extent such cumulative total of Damages
exceeds $2,000,000. The maximum amount of Damages that PCT and Purchaser, on the
one hand, or Seller, on the other hand, shall be liable for under this Section
shall be $100,000,000 (which shall be in addition to any liability for Taxes
under Sections 2.15 and 4.11 hereof).
(e) To the extent permitted by law, Purchaser and Seller shall, and
shall cause their affiliates to, treat for tax purposes any indemnification
payments made
46
<PAGE>
or received with respect to any Damages as an adjustment to the purchase price
for the Shares.
Section 7.3 General Procedures; Third Party Claims. (a) If an
Indemnified Party intends to seek indemnification pursuant to this Article VII,
such Indemnified Party shall promptly notify Seller or PCT and Purchaser (and in
any event shall deliver such notice within the survival periods set forth in
Section 7.1 hereof), as the case may be (the "Indemnifying Party"), in writing
of such claim describing such claim in reasonable detail; provided, that the
failure to provide such notice shall not affect the obligations of the
Indemnifying Party unless it is actually prejudiced thereby, subject, however,
to the time periods specified in Section 7.1 hereof. In the event that such
claim involves a claim by a third party against the Indemnified Party, the
Indemnifying Party shall have 30 days after receipt of such notice to decide
whether it will undertake, conduct and control, through counsel of its own
choosing (which shall be reasonably satisfactory to the Indemnified Party) and
at its own expense, the settlement or defense thereof, and if it so decides, the
Indemnified Party shall cooperate with it in connection therewith; provided,
that the Indemnified Party may participate in such settlement or defense through
counsel chosen by it whose fees and expenses shall be borne by the Indemnified
Party, unless the Indemnified Party shall have reasonably concluded based upon
written advice of counsel that representation by the same counsel would
represent a conflict of interest due to the availability to it of defenses which
are different from or additional to those available to the Indemnifying Party,
in which case, such reasonable fees and expenses of such counsel (which shall be
reasonably satisfactory to the Indemnifying Party) shall be borne by the
Indemnifying Party. Notwithstanding anything in this Section 7.3(a) to the
contrary, the Indemnifying Party may, without the consent of the Indemnified
Party, settle or compromise any action or consent to the entry of any judgment
which includes as an unconditional term thereof the delivery by the claimant or
plaintiff to the Indemnified Party of a duly executed and legally effective
written release of the Indemnified Party from all liability in respect of such
action. The Indemnifying Party shall not be liable for any settlement of any
such action or proceeding effected without its written consent, but if settled
with its written consent (which shall not be
47
<PAGE>
unreasonably withheld) or if there is a final judgment for the plaintiff in any
such action or proceeding, the Indemnifying Party agrees to indemnify and hold
harmless such Indemnified Parties from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing, any claims
for Damages with respect to Taxes pursuant to this Section 7.3 shall be governed
by Section 4.11 hereof.
(b) The Indemnified Party and the Indemnifying Party shall cooperate
fully in all aspects of any investigation, defense, pre-trial activities, trial,
compromise, settlement or discharge of any claim in respect of which indemnity
is sought pursuant to Article VII, including, but not limited to, by providing
the other party with reasonable access to employees and officers (including as
witnesses) and other information.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Certain Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) "affiliate" or "associate" 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;
(b) "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; and
(c) "person" means any individual, corporation, partnership, joint
venture, association, joint-stock
48
<PAGE>
company, trust, limited liability company, unincorporated organization or
government or any agency or political subdivision thereof.
Section 8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt if delivered
personally, telecopied (which is confirmed) or mailed by registered or certified
mail (return receipt requested) or overnight delivery service to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to PCT or Purchaser, to:
Power Control Technologies Inc.
35 East 62nd Street
New York, New York 10021
Telephone: (212) 572-8600
Telecopy: (212) 572-5056
Attention: General Counsel
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telephone: (212) 715-9100
Telecopy: (212) 715-8000
Attention: Thomas E. Constance, Esq.
(b) if to Seller, to:
Mafco Consolidated Group Inc.
35 East 62nd Street
New York, New York 10021
Telephone: (212) 572-8600
Telecopy: (212) 572-5056
Attention: General Counsel
49
<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Attention: Alan C. Myers, Esq.
Section 8.3 Descriptive Headings. The descriptive headings herein
are inserted for convenience only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
Section 8.4 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement.
Section 8.5 Entire Agreement; Assignment. This Agreement, including
the annexes and exhibits hereto and the documents, schedules (including, without
limitation, the Disclosure Schedule), certificates and instruments referred to
herein constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of law
or otherwise.
Section 8.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York, without regard
to any applicable principles of conflicts of law.
Section 8.7 Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
Section 8.8 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon
50
<PAGE>
any other person or persons any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 8.9 Severability. This Agreement shall be deemed severable;
the invalidity or unenforceability of any term or provision of this Agreement
shall not affect the validity or enforceability of this Agreement or of any
other term hereof, which shall remain in full force and effect.
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
MAFCO CONSOLIDATED GROUP INC.
/s/ James R. Maher
---------------------------------
Name: James R. Maher
Title: President & Chief Ex-
ecutive Officer
POWER CONTROL TECHNOLOGIES, INC.
/s/ J. Eric Hanson
---------------------------------
Name: J. Eric Hanson
Title: Executive Vice Presi-
dent
PCT INTERNATIONAL HOLDINGS, INC.
/s/ Laurence Winoker
---------------------------------
Name: Laurence Winoker
Title: Vice President
52
<PAGE>
List of Schedules
-----------------
Subsidiaries and Equity Investments Schedule 2.1
Pledge of Shares Schedule 2.3
Violations and Defaults Schedule 2.4
Certain Changes Schedule 2.7
Encumbrances Schedule 2.8
Leases of Real Property Schedule 2.9
Intellectual Property Schedule 2.10
Contracts Schedule 2.11
Litigation Schedule 2.12
Insurance Schedule 2.13
Employee Benefits Schedule 2.14
Taxes Schedule 2.15
Environmental Matters Schedule 2.16
Labor Relations Schedule 2.17
Affiliate Transactions Schedule 2.19
Capitalization Schedule 3.3
Proceedings to Prevent Consummation
of the Transactions Schedule 3.4
Capitalization Schedule 4.5
<PAGE>
EXHIBIT A
================================================================================
MAFCO CONSOLIDATED GROUP INC.
Issuer
-------------
VALUE SUPPORT RIGHTS AGREEMENT
Dated as of November [ ], 1996
-------------
AMERICAN STOCK TRANSFER & TRUST COMPANY
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS*
Page
----
PARTIES........................................................... 1
RECITALS.......................................................... 1
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.......................................... 2
Section 1.2 Compliance and Opinions.............................. 13
Section 1.3 Form of Documents Delivered to Trustee............... 15
Section 1.4 Acts of Holders...................................... 16
Section 1.5 Notices, etc., to Trustee and Company................ 18
Section 1.6 Notice to Holders; Waiver............................ 18
Section 1.7 Conflict with Trust Indenture Act.................... 19
Section 1.8 Effect of Headings and Table of Contents............. 19
Section 1.9 Successors and Assigns............................... 19
Section 1.10 Benefits of Agreement............................... 20
Section 1.11 Governing Law....................................... 20
Section 1.12 Legal Holidays...................................... 20
Section 1.13 Separability Clause................................. 20
Section 1.14 No Recourse Against Others.......................... 20
ARTICLE 2
SECURITY FORMS
Section 2.1 Forms Generally...................................... 21
Section 2.2 Form of Face of Security............................. 22
Section 2.3 Form of Reverse of Security.......................... 24
Section 2.4 Form of Trustee's Certificate of
Authentication............................ 32
ARTICLE 3
THE SECURITIES
Section 3.1 Title and Terms...................................... 33
Section 3.2 Registrable Form..................................... 40
Section 3.3 Execution, Authentication, Delivery and
Dating.................................... 40
Section 3.4 Temporary Securities................................. 41
Section 3.5 Registration, Registration of Transfer
and Exchange.............................. 42
Section 3.6 Mutilated, Destroyed, Lost and Stolen
Securities................................ 44
Section 3.7 Presentation of VSR Certificate...................... 45
Section 3.8 Persons Deemed Owners................................ 46
Section 3.9 Cancellation......................................... 46
- --------
* Note: This table of contents shall not, for any purpose, be
deemed to be a part of this Agreement.
i
<PAGE>
Page
----
ARTICLE 4
THE TRUSTEE
Section 4.1 Certain Duties and Responsibilities.................. 47
Section 4.2 Certain Rights of Trustee............................ 49
Section 4.3 Not Responsible for Recitals or Issuance
of Securities............................. 51
Section 4.4 May Hold Securities.................................. 51
Section 4.5 Money Held in Trust.................................. 51
Section 4.6 Compensation and Reimbursement....................... 51
Section 4.7 Disqualification; Conflicting Interests.............. 53
Section 4.8 Corporate Trustee Required; Eligibility.............. 53
Section 4.9 Resignation and Removal; Appointment of
Successor................................. 53
Section 4.10 Acceptance of Appointment of Successor.............. 56
Section 4.11 Merger, Conversion, Consolidation or
Succession to Business.................... 56
Section 4.12 Preferential Collection of Claims
Against Company........................... 57
ARTICLE 5
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 5.1 Company to Furnish Trustee Names and
Addresses of Holders...................... 58
Section 5.2 Preservation of Information; Communications
to Holders................................ 58
Section 5.3 Reports by Trustee................................... 59
Section 5.4 Reports by Company................................... 59
ARTICLE 6
AMENDMENTS
Section 6.1 Amendments Without Consent of Holders................ 60
Section 6.2 Amendments with Consent of Holders................... 62
Section 6.3 Execution of Amendments.............................. 63
Section 6.4 Effect of Amendments; Notice to Holders.............. 64
Section 6.5 Conformity with Trust Indenture Act.................. 64
Section 6.6 Reference in Securities to Amendments................ 64
ARTICLE 7
COVENANTS
Section 7.1 Payment of Amounts, if any, to Holders............... 65
Section 7.2 Maintenance of Office or Agency...................... 65
Section 7.3 Money for Security Payments to Be Held
in Trust.................................. 67
Section 7.4 Certain Purchases and Sales.......................... 68
Section 7.5 Listing of Securities................................ 69
Section 7.6 Registration of Debt Securities; TIA................. 69
Section 7.7 Minimum Principal Amount of Debt Securities.......... 69
Section 7.8 Manipulative Transactions............................ 70
Section 7.9 Statement as to Compliance........................... 70
Section 7.10 Notice of Default................................... 71
ARTICLE 8
REMEDIES OF THE TRUSTEE AND HOLDERS ON EVENT OF DEFAULT
Section 8.1 Event of Default Defined; Acceleration
ii
<PAGE>
Page
----
of Maturity; Waiver of Default............ 71
Section 8.2 Collection of Indebtedness by Trustee;
Trustee May Prove Debt.................... 74
Section 8.3 Application of Proceeds.............................. 78
Section 8.4 Suits for Enforcement................................ 79
Section 8.5 Restoration of Rights on Abandonment of
Proceedings............................... 80
Section 8.6 Limitations on Suits by Holders...................... 80
Section 8.7 Unconditional Right of Holders to
Institute Certain Suits................... 81
Section 8.8 Powers and Remedies Cumulative; Delay
or Omission Not Waiver of Default......... 82
Section 8.9 Control by Holders................................... 82
Section 8.10 Waiver of Past Defaults............................. 83
Section 8.11 Trustee to Give Notice of Default, But
May Withhold in Certain Circumstances..... 84
Section 8.12 Right of Court to Require Filing of
Undertaking to Pay Costs.................. 85
ARTICLE 9
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 9.1 Company May Consolidate, etc., on
Certain Terms............................. 85
Section 9.2 Successor Person Substituted......................... 86
Section 9.3 Opinion of Counsel to Trustee........................ 87
Exhibit A - Terms of Indenture
iii
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939 and Value Support
Rights Agreement, dated as of November [ ], 1996.
Trust Indenture Act Section Agreement Section
- --------------------------- -----------------
Section 310 (a)(1)................................. 4.9
(a)(2)................................. 4.9
(a)(3)................................. Not Applicable
(a)(4)................................. Not Applicable
(b).................................... 4.7, 4.9
Section 311 (a).................................... 4.13(a)
(b).................................... 4.13(b)
(b)(2)................................. 5.3(a)(2), 5.3(b)
Section 312 (a).................................... 5.1, 5.2(a)
(b).................................... 5.2(b)
(c).................................... 5.2(c)
Section 313 (a).................................... 5.3(a)
(b).................................... 5.3(b)
(c).................................... 5.3(a), 5.3(b)
(d).................................... 5.3(c)
Section 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
Section 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
Section 316 (a).................................... 1.1
(a)(1)(A).............................. 8.9
(a)(1)(B).............................. 8.10
(a)(2)................................. Not Applicable
(b).................................... 8.7
Section 317 (a)(1)................................. 8.2
(a)(2)................................. 8.2
(b).................................... 7.3
Section 318 (a).................................... 1.7
- ---------------
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Agreement.
iv
<PAGE>
INDEX OF DEFINED TERMS
Term Where Defined
- ---- -------------
Accounting Firm........................... Section 3.1(c)
Act....................................... Section 1.4
Adjustment Event.......................... Section 3.1(k)
Affiliate................................. Section 1.1
Agreement................................. Section 1.1
Applicable Number......................... Section 1.1
Authorized Newspaper...................... Section 1.1
Base Amount............................... Section 1.1
big six................................... Section 3.1(c)
Board of Directors........................ Section 1.1
Board Resolution.......................... Section 1.1
Business Day.............................. Section 1.1
Change of Control......................... Section 1.1
Commission................................ Section 1.1
Company................................... Section 1.1
Company Order............................. Section 1.1
Company Request........................... Section 1.1
control, controlling, controlled.......... Section 1.1
Corporate Trust Office.................... Section 1.1
default or Defaults....................... Section 8.11
Default Payment Amount.................... Section 1.1
Default Payment Date...................... Section 1.1
Default Interest Rate..................... Section 1.1
Designated Options........................ Section 1.1
Distribution Amount....................... Section 1.1
Effective Date............................ Section 1.1
Event of Default.......................... Section 8.1
Exchange Act.............................. Section 5.4(a)(i)
Exchange Act Documents.................... Section 1.1
generally accepted accounting principles.. Section 1.1
Holder.................................... Section 1.1
indemnitee................................ Section 4.6(c)
Indenture................................. Exhibit A
Independent Financial Expert.............. Section 1.1
Market Price.............................. Section 1.1
Maturity Date............................. Section 1.1
Minimum Principal Per Holder.............. Section 7.7
NASDAQ.................................... Section 1.1
NMS/NASDAQ................................ Section 1.1
Notes..................................... Exhibit A
Notice of Default......................... Section 8.1(b)
Officers' Certificate..................... Section 1.1
Opinion of Counsel........................ Section 1.1
Optional Call Date........................ Section 1.1
Optional Call Payment Amount.............. Section 3.1(d)
Optional Call Payment Date................ Section 3.1(d)
Outstanding............................... Section 1.1
Owed Principal Amount..................... Section 7.7
Paying Agent.............................. Section 1.1
Payment Notes............................. Section 7.6
PCT....................................... Recitals
PCT Common Stock.......................... Section 1.1
Person.................................... Section 1.1
Prohibited Activity....................... Section 1.1
Purchase Agreement........................ Recitals
Purchaser................................. Recitals
Redemption Event.......................... Section 3.1(h)
Redemption Notice Date.................... Section 3.1(h)
Redemption Payment Date................... Section 3.1(h)
Redemption Price.......................... Section 3.1(h)
Redemption Transaction.................... Section 3.1(h)
Responsible Officer....................... Section 1.1
Securities................................ Recitals
Security Register......................... Section 3.5
Security Registrar........................ Section 3.5
Subsidiary................................ Section 1.1
Total Disposition......................... Section 1.1
Total Disposition Amount.................. Section 1.1
v
<PAGE>
Total Disposition Payment Date............ Section 3.1(e)
Trust Indenture Act....................... Section 1.1
Trustee................................... Section 3.1
Value Support Rights...................... Section 3.1
vice president............................ Section 1.1
Voting Securities......................... Section 1.1
VSR Certificate........................... Section 1.1
VSRs...................................... Recitals
30-Day Average Market Price............... Section 2.3
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VALUE SUPPORT RIGHTS AGREEMENT, dated as of November [ ], 1996, by
and between MAFCO CONSOLIDATED GROUP INC., a Delaware corporation (the
"Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the creation of an issue of
value support rights (the "Securities" or "VSRs"), of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Agreement;
WHEREAS, pursuant to the Stock and VSR Purchase Agreement dated as
of October 23, 1996 (the "Purchase Agreement") by and among the Company, Power
Control Technologies, Inc., a Delaware corporation ("PCT"), and PCT
International Holdings, Inc., a Delaware corporation and wholly owned subsidiary
of PCT ("Purchaser"), the Company agreed to sell to Purchaser all of the
outstanding common stock of Flavors Holdings Inc., a Delaware corporation, and
the Company agreed to issue to Purchaser the Securities;
WHEREAS, pursuant to the Purchase Agreement, Purchaser and PCT are
obligated to deliver the Securities to all holders of PCT Common Stock (as
defined herein) and preferred stock, par value $.01 per share, of PCT; 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 Agreement a valid agreement of
the Company, all in accordance with their and its terms.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and the
consummation of the transactions referred to above, it is 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 Agreement, 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 Agreement;
(c) all other terms used herein which are defined in the Trust
Indenture Act (as defined herein), 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 Agreement as a whole and not to any
particular Article, Section or other subdivision.
"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
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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.
"Agreement" means this instrument as originally executed and as it
may from time to time be supplemented or amended pursuant to the applicable
provisions hereof.
"Applicable Number", initially shall be equal to one, subject to
adjustment in accordance with Section 3.1(k).
"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 newspaper 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 $.01) of (a)(x) $10.25, if the date of determination
occurs on or before January 1, 1998, or (y) $11.00, if the date of determination
occurs after January 1, 1998, over (b) the Distribution Amount (as defined
herein).
"Board of Directors" means 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
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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 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 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 divi-
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dend, 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 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
Board of Directors 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.
"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 Agreement, until a successor Person
shall have become such pursuant to the applicable provisions of this Agreement,
and thereafter "Company" shall mean such successor Person. To 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,
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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 Agreement is located
at 6201 Fifteenth Avenue, Brooklyn, New York 11219.
"Default Payment Amount" means, as of a Default Payment Date (as
defined herein), 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 Securities
become due and payable pursuant to Section 8.1.
"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 Securities
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
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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 Securities
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 consideration 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
7
<PAGE>
Designated Option, the fair market value of such Designated Option shall equal
zero.
"Effective Date" means November 30, 1996.
"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.
"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 NMS/NASDAQ, the last
reported sale price as reported on the NMS/NASDAQ, or, if such security is not
listed on a national securities exchange and is not quoted on NMS/NASDAQ the
average of the highest reported bid and
8
<PAGE>
lowest reported asked quotation on the NASDAQ or, if such security is not listed
on a national securities exchange and is not quoted by NMS/NASDAQ or 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.
"NMS/NASDAQ" means the National Market System of NASDAQ.
"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 Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Agreement, except:
(a) Securities 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, Securities for the payment of which money in the necessary amount
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<PAGE>
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
Agreement, 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.
"PCT Common Stock" means the common stock, par value $.01 per share,
of PCT.
"Paying Agent" means any Person authorized by the Company to pay the
amount determined pursuant to Section 3.1, if any, on any Securities on behalf
of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited
10
<PAGE>
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Prohibited Activity" means, with respect to any period, 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 any 401k 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, or (z) acquisitions of up to an
aggregate of 25,000 shares of PCT Common Stock in the open market by directors
or officers of PCT).
"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.
"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.
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"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 Securities) 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 sum of 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
stock-
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<PAGE>
holders (and assuming such holder did not exercise any right of appraisal
granted under law).
"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 Agreement, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Agreement, and thereafter
"Trustee" shall mean such successor Trustee.
"VSR Certificate" means a certificate representing any
of the VSRs.
"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 Agreement, 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 Agreement
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
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of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Agreement 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
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<PAGE>
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 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 Agreement, 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 Agreement 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 an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments
15
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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 Agreement 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 Agreement. 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 Agreement 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.
(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.
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(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 Agreement 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
Agreement 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,
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furnished or filed, in writing, to or with the Trustee at American Stock
Transfer & Trust Company, 6201 Fifteenth Avenue, Brooklyn, New York 11219; 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.
Where this Agreement 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 Agreement 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
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to mail notice of any event as required by any provision of this Agreement, 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 Agreement 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 agreements in this Agreement by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.10 Benefits of Agreement.
Nothing in this Agreement or in the Securities, express or implied,
shall give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Agreement 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 Agreement 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.
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In the event that an Optional Call Date, the Maturity Date, the
Total Disposition Payment Date or the Default Payment Date, as the case may be,
shall not be a Business Day, then (notwithstanding any provision of this
Agreement 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 an Optional Call Date, the Maturity
Date, the Total Disposition Payment Date or the Default Payment Date, as the
case may be.
Section 1.13 Separability Clause.
In case any provision in this Agreement or in the VSRs 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 Agreement 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 forms set forth in this
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Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Agreement 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 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 Form of Face of Security.
MAFCO CONSOLIDATED GROUP INC.
No. _____ Certificate for ___ Value Support Rights
This Certificate expires on January 1, 1999 unless redeemed or
otherwise terminated.
This certifies that _______________, or registered assigns (the
"Holder"), is the registered holder of the number of Value Support Rights
("VSRs") set forth above. Each VSR entitles the Holder, subject to the
provisions contained herein and in the Agreement referred to on the reverse
hereof, to a payment from Mafco Consolidated Group Inc., a Delaware corporation
(the "Company"), in an amount determined pursuant to the provisions set forth on
the reverse hereof and as more fully described in the Agreement. Such payment,
if any, shall be made on the Optional Call Payment Date, the Maturity Date, the
Redemption Payment Date upon a redemption, the Default Payment Date upon the
occurrence of an Event of Default or the Total Disposition Payment Date upon the
occurrence of a Total Disposition.
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Payment of any amounts pursuant to this VSR Certificate shall be
made only upon presentation by the Holder hereof, 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, or as provided
on the reverse hereof. American Stock Transfer & Trust Company has been
appointed as paying agent in the Borough of Manhattan, the City of New York.
Reference is hereby made to the further provisions of this VSR
Certificate set forth on the reverse hereof which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this VSR Certificate shall not be entitled to any benefit under the Agreement,
or be valid or obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated: MAFCO CONSOLIDATED
GROUP INC.
By___________________________
Attest:
[SEAL]
- ----------------------------
Authorized Signature
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Section 2.3 Form of Reverse of Security.
This VSR Certificate is issued under and in accordance with the
Value Support Rights Agreement, dated as of October [ ], 1996 (the "Agreement"),
between the Company and American Stock Transfer & Trust Company, as trustee (the
"Trustee," which term includes any successor Trustee under the Agreement), and
is subject to the terms and provisions contained in the Agreement, to all of
which terms and provisions the Holder of this VSR Certificate consents by
acceptance hereof. The Agreement is hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Agreement for a full
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
VSRs. Capitalized terms not otherwise defined shall have the meanings set forth
in the Agreement.
Unless the right to receive payment hereunder previously has been
satisfied in connection with an Optional Call Date, a Total Disposition, an
Event of Default or a Redemption Event as provided below, the Company shall pay
to the Holder hereof on January 1, 1999 (the "Maturity Date"), for each VSR
represented hereby 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 determined as of such date, over the 30-Day Average Market Price
determined as of such date and (y) $3.25. Such determinations by the Accounting
Firm absent manifest error shall be final and binding on the Company and the
Holders.
Upon an Optional Call Date, the Company may, in its sole discretion,
pay to the Holder hereof for each VSR represented hereby 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 determined as of an Optional Call Date,
over the 30-Day Average Market Price determined as of such date 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 Securities on an Optional Call Date, the Company shall 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 hereof notice that
the Company has exercised its optional right to call the Securities, the
Optional Call Payment Amount and the Optional Call Payment Date; provided,
however, such notice to Holders may, at the option of the Company, occur
simultaneously with the payment of the Optional Call Payment Amount.
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<PAGE>
Upon the consummation of a Total Disposition, the Company shall pay
to the Holder hereof for each VSR represented hereby an amount, if any, as
determined by the Accounting Firm, equal to the lesser of (x) the excess, if
any, of the Base Amount, determined as of the Total Disposition Payment Date
over the Total Disposition Amount and (y) $3.25. Such determinations by the
Accounting Firm and any Independent Financial Expert absent manifest error shall
be final and binding on the Company and the Holder. Such payment shall be made
on any date (the "Total Disposition Payment Date") established by the Company,
which in no event shall be more than 30 days after the date on which the Total
Disposition was consummated. As soon as practicable following a Total
Disposition, the Company shall give the Holder and the Trustee hereof notice of
such Total Disposition and the Total Disposition Payment Date.
Upon the occurrence and during the continuance of an Event of
Default, either the Trustee or the Holders of not less than 25% of the
Securities outstanding, by delivery of a written notice to the Company (and to
the Trustee if given by the Holders), may declare the Securities to be due and
payable immediately, and upon any such declaration the Company shall pay to each
Holder for each VSR held by such Holder the Default Payment Amount with interest
at the Default Interest Rate from the Default Payment Date through the date
payment is made or duly provided for.
In the event that it is determined that no amount is payable on the
VSRs to the Holder on an Optional Call Date, the Maturity Date, the Default
Payment Date or the Total Disposition Payment Date, as the case may be, the
Company shall give to the Holder and the Trustee notice of such determination.
Upon making such determination, absent manifest error this VSR Certificate shall
terminate and become null and void and the Holder hereof shall have no further
rights with respect hereto. The failure to give such notice or any defect
therein shall not affect the validity of such determination.
Upon the occurrence of a Redemption Event, the VSRs represented by
this VSR Certificate may be redeemed at the option of the Company in whole (but
not in part) at a 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 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 fifth Business Day prior to
the Redemption Notice Date and (y) $3.25 (the "Redemption Price").
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
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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 of Directors of the Company, 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 or 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.
Notice of redemption shall include the Redemption Price, determined
as provided for above, 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 VSR Certificates to be
redeemed at its registered address. If money sufficient to pay the Redemption
Price of all VSR Certificates to be redeemed is deposited with the Paying Agent
on or before the payment date, on and after such date such VSR Certificates
shall terminate and become null and void and the Holders thereof shall have no
further rights with respect thereto subject, in the case of a Redemption Event
arising out of a Redemption Transaction, to the consummation of such Redemption
Transaction.
Notwithstanding any provision of the Agreement or of this VSR
Certificate to the contrary, (i) other than in the case of interest on the
Default Payment Amount, no interest shall accrue on any amounts payable on the
VSRs to any Holder, (ii) 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
engage in any Prohibited Activity and (iii) 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.
"Applicable Number" initially shall be equal to one subject to
adjustment in accordance with Section 3.1(l) of the Agreement.
"Base Amount" means, as of any date of determination, the excess
(rounded to the nearest $.01) of (a)(x) $10.25, if the date of determination
occurs on or before January 1, 1998, or (y)
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<PAGE>
$11.00, if the date of determination occurs after January 1, 1998, over (b) the
Distribution Amount.
"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 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 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 Board of Directors 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.
"Default Payment Amount" means, as of a Default Payment Date, an
amount, if any, as 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 this VSR becomes
due pursuant to Section 8.1 of the Agreement.
"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
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<PAGE>
or other distributions consisting of property or assets (other than cash, the
Securities or other securities, but including any rights, warrants or options to
purchase Securities or other securities that expire prior to the 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 Securities 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 consideration 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.
"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 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 Affiliates 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 NMS/NASDAQ, the last
reported sale price as reported on NMS/NASDAQ or, if such security is not listed
on a national securities exchange and is not quoted on NMS/NASDAQ, the average
of the highest reported bid and lowest reported asked quotation on the NASDAQ
or, if such security
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is not listed on a national securities exchange and is not quoted on NMS/NASDAQ
or NASDAQ but is traded in the over-the-counter market, the fair market value of
such security as determined by an Independent Financial Expert.
"Prohibited Activity" means, with respect to any period, 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 any 401k 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, or (z) acquisitions of up to an
aggregate of 25,000 shares Of PCT Common Stock in the open market by directors
or officers of PCT).
"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 Securities) 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, with respect to a Total
Disposition, 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
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such holder did not exercise any right of appraisal granted under law).
As set forth in Section 3.1(g) of the Agreement, to the extent the
aggregate principal amount of the senior debt obligation referred to below is at
least $25,000,000, all amounts payable on the Maturity Date may be paid, at the
option of the Company, either in cash or, subject to the provisions of Sections
7.5 and 7.6 of the Agreement, by the issuance of a senior debt obligation of the
Company which is not subordinated to any other debt obligation of the Company,
with a principal amount equal to the amount of the payment due. Any debt issued
by the Company in satisfaction of the Company's obligations with respect to VSRs
shall be issued pursuant to an indenture having the principal terms set forth on
Exhibit A to the Agreement and will have a maturity of up to three years from
the date of issuance and will have an interest rate and redemption provisions
determined in good faith by the Board of Directors of the Company to result in
such debt having in the opinion of an Independent Financial Expert a market
value as of the date of issuance on a fully distributed basis equal to 100% of
its principal amount.
The Agreement permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Agreement at any time by the
Company and the Trustee with the consent of the Holders of a majority of the
Securities at the time Outstanding.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of the VSRs represented by this VSR Certificate
is registerable on the Security Register of the Company, upon surrender of this
VSR Certificate for registration of transfer at the office or agency of the
Company maintained for such purpose in The City of New York, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new VSR
Certificates, for the same amount of VSRs, will be issued to the designated
transferee or transferees.
As provided in the Agreement and subject to certain limitations
therein set forth, this VSR Certificate is exchangeable for one or more VSR
Certificates representing the same number of VSRs as represented by this VSR
Certificate as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of VSRs, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this VSR Certificate for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this VSR Certificate is
registered as the owner hereof for all purposes, and neither the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
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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 VSR or the Agreement or for any claim based on,
in respect of or by reason of such obligations or their creation. By accepting a
VSR Certificate, each Holder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the VSR Certificate.
All capitalized terms used in this VSR Certificate without
definition shall have the meanings assigned to them in the Agreement.
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Section 2.4 Form of Trustee's Certificate of Authentication.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the VSR Certificates referred to in the
within-mentioned Agreement.
[TRUSTEE],
as Trustee
By____________________________________
Authorized Officer
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ARTICLE 3
THE SECURITIES
Section 3.1 Title and Terms.
(a) The aggregate number of VSR Certificates which may be
authenticated and delivered under this Agreement is limited to a number equal to
23,500,000 except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities pursuant to
Section 3.4, 3.5, 3.6 or 6.6.
(b) The Securities shall be known and designated
as the "Value Support Rights" of the Company.
(c) 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, the Company shall pay to each Holder on
the Maturity Date, 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 determined as of such date, over the
30-Day Average Market Price determined as of such date and (y) $3.25. Such
determinations by the Accounting Firm absent manifest error shall be final and
binding on the Company and the Holders. The Company shall provide notice to the
Trustee of the amount payable and the method of payment pursuant to this Section
3.1(c) together with a reasonably detailed calculation of the determination of
such amount.
(d) Upon an Optional Call Date, the Company may, in its sole
discretion, pay to the Holder hereof for each VSR represented
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<PAGE>
hereby 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 determined as of such
Optional Call Date, over the 30-Day Average Market Price determined as of such
date 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 Securities on an Optional Call Date, the Company
shall 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 hereof notice, in the form set forth below, that the Company has
exercised its optional right to call the Securities, the Optional Call Payment
Amount and the Optional Call Payment Date; provided, however, such notice to
Holders may, at the option of the Company, occur simultaneously with the payment
of the Optional Call Payment Amount.
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* * * * * *
MAFCO CONSOLIDATED GROUP INC.
VALUE SUPPORT RIGHTS
[Date]
NOTICE OF EXERCISE OF OPTIONAL RIGHT TO CALL THE SECURITIES
NOTICE IS HEREBY GIVEN THAT, pursuant to Section 3.1 of the Value
Support Rights Agreement, dated as of October [ ], 1996 (the "Agreement"),
between Mafco Consolidated Group Inc., (the "Company"), and American Stock
Transfer & Trust Company, as trustee (the "Trustee"), the Company has exercised
its optional right to call the Securities. All terms used in this Notice which
are defined in the Agreement shall have the meanings assigned to them in the
Agreement.
The Optional Call Payment Amount payable to each Holder on ________,
the Optional Call Payment Date, for each VSR held by such Holder shall be equal
to $___________.
MAFCO CONSOLIDATED GROUP INC.
* * * * * *
(e) Upon the consummation of a Total Disposition, the Company
shall pay to each Holder for each VSR held by such Holder an amount, if any, as
determined by the Accounting Firm, equal to the lesser of (x) the excess, if
any, of the Base Amount determined as of the Total Disposition Payment Date over
the Total Disposition Amount and (y) $3.25. Such determinations by the
Accounting Firm and any Independent Financial Expert absent manifest error shall
be final and binding on the Company and the Holders. Such payment shall be made
on any date (the "Total Disposition Payment Date") established by the Company,
which in no event shall be more than 30 days after the date on which the Total
Disposition was consummated.
(f) As soon as practicable following a Total Disposition, the
Company shall give each Holder and the Trustee notice of such Total Disposition
and the Total Disposition Payment
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<PAGE>
Date and such notice to the Trustee shall also specify the method of payment of
the amount payable on the Total Disposition Payment Date. The Company shall also
provide to the Trustee an Officers' Certificate as to the occurrence of a Total
Disposition setting forth the amount of such payment.
(g) 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 may be paid, at the option of the
Company, either in cash or, subject to the provisions of Sections 7.5 and 7.6 of
this Agreement, by the issuance of a senior debt obligation of the Company which
is not subordinated to any other debt obligation of the Company, with a
principal amount equal to the amount of the payment due. The Company shall
provide notice to the Trustee of the method of payment within one Business Day
prior to the payment thereof. Any debt issued by the Company in satisfaction of
the Company's obligations with respect to VSRs shall be issued pursuant to an
indenture having the principal terms set forth on Exhibit A hereto and will have
a maturity of up to three years from the date of issuance and will have an
interest rate and redemption provisions determined in good faith by the Board of
Directors of the Company to result in such debt having in the opinion of an
Independent Financial Expert a market value as of the date of issuance on a
fully distributed basis equal to 100% of its principal amount. Such
determination of the Board of Directors will be supported by a written opinion
delivered to the Board of Directors by an Independent Financial Expert. Prior to
the issuance of such debt securities, the Company shall provide the Trustee with
an Officer's
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<PAGE>
Certificate as to compliance with the conditions precedent to the issuance of
such debt securities set forth in this Agreement.
(h) Upon the occurrence of a Redemption Event, 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, 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 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 (the "Redemption Price"). A notice of
the redemption pursuant to this Section 3.1(h) setting forth the Redemption
Price and the date of redemption shall also be delivered to the Trustee,
together with an Officer's Certificate as to the occurrence of a Redemption
Event and specifying the Redemption Price and redemption date.
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
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(subject to customary conditions to closing and fiduciary obligations), in
either of clauses (i) and (ii) as determined in good faith by the Board of
Directors of the Company 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.
Notice of redemption shall include the Redemption Price, determined
as provided for above, 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 VSR Certificates to be
redeemed at its registered address. If money sufficient to pay the Redemption
Price of all VSR Certificates to be redeemed is deposited with the Paying Agent
on or before the payment date, on and after such date such VSR Certificates
shall terminate and become null and void and the Holders thereof shall have no
further rights with respect thereto subject, in the case of a Redemption Event
arising out of a Redemption Transaction, to the consummation of such Redemption
Transaction.
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(i) Notwithstanding any provision of this Agreement or the VSR
Certificates to the contrary, other than in the case of interest on the Default
Payment Amount, no interest shall accrue on any amounts payable on the VSRs to
any Holder.
(j) In the event that all of the VSR Certificates not previously
cancelled shall have been called for redemption by the Company pursuant to
Section 3.1(h) hereof or shall have become due and payable pursuant to the terms
hereof, and the Company has paid or caused to be paid or deposited with the
Trustee all amounts payable to the Holders under this Agreement, then this
Agreement shall cease to be of further effect and shall be deemed satisfied and
discharged. Notwithstanding the satisfaction and discharge of this Agreement,
the obligations of the Company under Section 4.6(c) shall survive.
(k) 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 3.1(k)), 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
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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 3.1(k). Whenever an adjustment is made as provided in
this Section 3.1(k), the Company shall (i) promptly prepare a certificate
setting forth such adjustment and a brief statement of the facts accounting for
such adjustment, (ii) promptly file with the Trustee a copy of such certificate
and (iii) 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 3.2 Registrable Form.
The Securities shall be issuable only in registered form.
Section 3.3 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
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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 Agreement, 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 authenticate and deliver such Securities as
provided in this Agreement and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Agreement 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 or facsimile 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
Agreement.
Section 3.4 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.
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Temporary Securities may contain such reference to any provisions of this
Agreement 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 Agreement as
definitive Securities.
Section 3.5 Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the office of American Stock
Transfer & Trust Company 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. American Stock
Transfer & Trust Company is hereby initially appointed "Security Registrar" for
the purpose of registering Securities and transfers of Securities as herein
provided.
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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 VSR Certificates
representing the same aggregate number of VSRs represented by the VSR
Certificate so surrendered that are 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 VSR Certificates representing the aggregate number
of VSRs represented by such VSR Certificate that are not to be transferred.
At the option of the Holder, VSR Certificates may be exchanged for
other VSR Certificates that represent in the aggregate the same number of VSRs
as the VSR Certificates surrendered at such office or agency. Whenever any VSR
Certificates are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the VSR Certificates 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 Agreement, 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 3.4 or 6.6 not involving any transfer.
Section 3.6 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 VSR Certificate of like
tenor and amount of VSRs, 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 VSR Certificate, pay to the Holder of
such Security on an Optional Call Date, the Maturity Date, the Total Disposition
Payment Date or the Default Payment Date, as the case may be, 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
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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 shall be
entitled to all benefits of this Agreement 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 3.7 Presentation of VSR Certificate.
Payment of any amounts pursuant to the VSRs 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 or in debt securities of the
Company in accordance with the provisions of Section 3.1(g). However, the
Company may pay such amounts by its check payable in such money.
Section 3.8 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
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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 3.9 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 canceled 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 canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Agreement. All cancelled Securities held by the Trustee shall
be disposed of as directed by a Company Order.
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 Agreement and no implied covenants shall be read
into this Agreement against the Trustee. In case an Event of Default with
respect to the Securities has occurred (which has not been cured or
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waived), the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, 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 Agreement; but in the case of any such certificates
or opinions which by any provision hereof are specifically 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 Agreement.
(c) No provision of this Agreement 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 Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any
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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 Agreement.
(d) Whether or not therein expressly so provided, every
provision of this Agreement 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 document 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 the
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
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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 Agreement 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 it 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 Agreement at the request or
direction of any of the Holders pursuant to this Agreement, 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) 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
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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;
(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 Agreement.
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
Agreement 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
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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);
(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 Agreement (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
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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 Agreement. When a 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 Agreement. 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 the Trust Indenture Act to act as such
and has a combined capital and surplus of at least $15,000,000. 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
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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 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
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(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 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 of the Outstanding Securities, a successor Trustee shall be appointed
by Act of the Holders of a majority 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
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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 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
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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 Agreement 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.
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If and when the Trustee shall be or shall become a creditor of the
Company (or any other obligor upon the 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.
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(b) The rights of the Holders to communicate with other
Holders with respect to their rights under this Agreement 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.
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 Agreement 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,
(i) 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
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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 (such required
information, documents and other reports, generally, the "Exchange Act
Documents"); or,
(ii) if the Company is not required to file its Exchange
Act Documents, quarterly and annual financial information that 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.
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
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(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 Agreement as herein
set forth; provided that in respect of any such additional covenant,
restriction, 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 Agreement or
the Securities to the Holders; or
(e) to make any other provisions with respect to matters or
questions arising under this Agreement; provided
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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 Agreement 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 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 Agreement or to the Securities or of modifying in any manner the rights of
the Holders under this Agreement or to the Securities; provided, however, that
no such amendment shall, without the consent of the Holder of each Outstanding
Security affected thereby:
(a) modify the definition of Optional Call Date, Optional Call
Payment Date, Maturity Date, Total Disposition Payment Date, Default Payment
Date, Market Price, 30-Day Average Market Price, Default Payment Amount, Default
Payment Interest Rate, Base Amount or Prohibited Activity, modify Section 3.1(k)
or otherwise 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 or, except as expressly permitted by Section 6.1(e), modify the
definition of Applicable Number, Distri-
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bution Amount, Optional Call Payment Amount, Total Disposition Amount or Change
of Control;
(b) reduce the 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 Agreement 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 he
sufficient if such Act shall approve the substance thereof.
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 Agreement. 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 Agreement 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
Agreement and the Securities shall be modified in accordance therewith, and such
amendment shall form a part of this Agreement
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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
opinion of the Trustee and the Board of Directors of the Company, 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.
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ARTICLE 7
COVENANTS
Section 7.1 Payment of Amounts, if any, to Holders.
The Company will duly and punctually pay the amounts, if any, on the
Securities in accordance with the terms of the Securities and this Agreement.
Such amounts shall be considered paid on the date due if on such date the
Trustee or the Paying Agent holds in accordance with this Agreement money
sufficient to pay all such amounts then due. Notwithstanding any other provision
of this Agreement, the Trustee and the Paying Agent shall comply with all U.S.
federal withholding requirements with respect to payments to Holders that the
Company, the Trustee or the Paying Agent reasonably believes are applicable
under the Internal Revenue Code of 1986, as amended, and the Treasury
regulations thereunder. Amounts withheld in compliance with such withholding
requirements shall, for purposes of this Agreement, be treated as paid to the
Holder such withholding was made with respect to. The consent of Holder shall
not be required for any such withholding.
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, (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 Agreement may be served. The office of the Trustee at
Fifteenth Avenue, Brooklyn, New York 11219 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
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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 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 an Optional Call Payment Date, the
Maturity Date, the Total Disposition Payment Date, Redemption Payment Date or
the Default 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,
if any, so becoming due until such sums shall be paid to such Persons or
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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 an Optional Call Payment Date, the Maturity
Date, the Total Disposition Payment Date, the Redemption Payment Date or the
Default Payment Date, as the case may be, deposit with a Paying Agent a sum in
same day funds sufficient to pay the amount, if any, so becoming due; 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 herein provided and will notify the Trustee of the sums so held 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 on any Security and remaining
unclaimed for one year after an Optional Call Payment Date, the Maturity Date,
the Total Disposition Payment Date, Redemption Payment Date or the Default
Payment Date, as the case may be, shall be paid to the Company on Company
Request, or (if then
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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 Certain Purchases and Sales.
(a) 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 engage in any
Prohibited Activity.
(b) 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.
Section 7.5 Listing of Securities.
The Company will use its best efforts to cause (i) the Securities
and (ii) the securities, if any, contemplated to be issued pursuant to an
indenture having the terms set forth on Exhibit A hereto, to be either (a)
registered on a national securities exchange or (b) quoted on NMS/NASDAQ.
Section 7.6 Registration of Debt Securities; TIA.
If the Company elects to satisfy its obligations hereunder, subject
to the provisions of Section 7.7 hereof, by issuing debt securities pursuant to
an indenture having the terms set forth on Exhibit A (the "Payment Notes"), the
Company, shall cause, no
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later than the applicable payment date hereunder, (i) such issuance of debt
securities to be registered under the Securities Act and (ii) such indenture to
be qualified under the TIA.
Section 7.7 Minimum Principal Amount of Debt Securities.
Notwithstanding anything in this Agreement to the contrary, if the
Company elects to issue Payment Notes pursuant to Section 7.6 hereof, the
Company may elect not to issue Payment Notes to any individual Holder if such
Holder would receive, in the aggregate, a principal amount of Payment Notes (the
"Owed Principal Amount") that is less than an amount to be determined by the
Company prior to the issuance thereof (the "Minimum Principal Per Holder"), but
the Minimum Principal Per Holder shall not exceed $1,000.00. If such individual
Holder's owed Principal Amount exceeds the Minimum Principal Per Holder, the
Company may elect to issue to such individual Holder Payment Notes in an
aggregate principal amount that is (i) at least the Minimum Principal Per Holder
and (ii) in increments above the Minimum Principal Per Holder in an amount to be
determined by the Company prior to the issuance of the Payment Notes, but each
such increment shall not exceed $1,000.00. Any obligations under this Agreement
of the Company to any such individual Holder that are not satisfied by the
issuance of Payment Notes as a result of the provisions of this Section 7.7
shall be satisfied by the Company as otherwise provided in this Agreement. Any
payments of cash by the Company contemplated by this Agreement (including this
Section 7.7) may be funded in whole or in part by the issuance of Payment Notes
to the Trustee and by the Trustee's subsequent sale of such Payment Notes on the
principal national securities exchange on which such Payment Notes are listed
or, if such Payment Notes are not so
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listed, on NMS/NASDAQ. Nothing in this Section 7.7 shall require the Company to
issue any Payment Notes to any Holder.
Section 7.8 Manipulative Transactions.
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.
Section 7.9 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 Agreement 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 Agreement throughout
such year, or, 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 7.10 Notice of Default.
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The Company shall file with the Trustee written notice of the
occurrence of any Event of Default or other default under this Agreement 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 the 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 all or any part of the amounts
payable in respect of any of the Securities 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 otherwise; or
(b) 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,
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to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% of the Outstanding Securities, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(c) 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
(d) 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 described above occurs and is continuing, then, and in
each and every such case, unless all of the Securities shall have already become
due and payable, either the Trustee or the Holders of not less than 25% of the
Securities then Outstanding hereunder by notice in writing to the Company (and
to the Trustee if
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given by the Holders), may declare the Securities to be due and payable
immediately, and upon any such declaration the Default Amount for each VSR shall
become immediately due and payable and, thereafter, shall bear interest at the
Default Interest Rate until payment is made to the Trustee.
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 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 under this
Agreement, 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 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.
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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, 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 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
Default Interest Rate); 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
Agreement 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
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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 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
ortaken possession of the Company or its 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
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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 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
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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 of
reorganization or arrangement 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 Agreement,
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 Agreement 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.
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Section 8.3 Application of Proceeds.
Any monies 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
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 Default Interest Rate on all
such amounts, and in case such monies 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
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to protect and enforce the rights vested in it by this 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 this Agreement or in aid of the exercise of any power
granted in this Agreement or to enforce any other legal or equitable right
vested in the Trustee by this Agreement 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 Agreement 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 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 Agreement to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise upon or under or
with respect to this Agreement, 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% of the Securities
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<PAGE>
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 Agreement 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
Agreement, 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 Agreement 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
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<PAGE>
payment on or after 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 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 8.9 Control by Holders.
The Holders of a majority 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 Agreement;
provided that such direction shall not be otherwise than in accordance with law
and the
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<PAGE>
provisions of this Agreement; 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 such actions or
forebearances are unduly prejudicial to such Holders.
Nothing in this Agreement 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 (b), (c) or (d) of Section 8.1, the Holders of a
majority 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
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<PAGE>
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 Agreement; 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 the amounts 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 withholding of such notice is in the interests of the Holders.
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<PAGE>
Section 8.12 Right of Court to Require Filing of Undertaking to Pay
Costs.
All parties to this Agreement 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 Agreement 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 of
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% 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
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<PAGE>
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 Agreement to be
performed or observed by the Company and (ii) the Company, or such successor
Person, as the case may be, shall not, immediately after such merger or
consolidation, or such sale or conveyance, be in default in the performance of
any such covenant or condition provided, however, that nothing herein shall
affect the rights of the Holders or the Trustee upon any Total Disposition.
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 Agreement 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 Agreement
as the Securities theretofore or
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<PAGE>
thereafter issued in accordance with the terms of this Agreement 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 Agreement 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 liquidation or dissolution,
complies with the applicable provisions of this Agreement.
* * * * * *
86
<PAGE>
This Agreement 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 counterparts together shall be deemed an original of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
MAFCO CONSOLIDATED GROUP INC.
By:__________________________________
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPA-
NY, as Trustee
By:__________________________________
Name:
Title:
87
<PAGE>
EXHIBIT A
Mafco Consolidated Group Inc.
Summary of Terms of Senior Notes
Issuer: Mafco Consolidated Group Inc. (the
"Company").
Securities: Senior Notes (the "Notes") to be issued under an
indenture (the "Indenture") between the Company
and American Stock Transfer & Trust Company, as
trustee (the "Trustee").
Principal Amount: Aggregate amount due and payable with
respect to the VSRs issued by the Company.
Maturity: Up to three years from date of issu-
ance.
Interest; Redemption: A rate of interest and redemption pro-
visions determined in good faith by
the Board of Directors such that the
Notes will have in the opinion of an
Independent Financial Expert a market
value as of the date of issuance on a
fully distributed basis equal to 100%
of its principal amount. Such deter-
mination will be supported by a writ-
ten opinion delivered to the Board of
Directors by an Independent Financial
Expert (as such term is defined in the
VSR Agreement). Interest will be pay-
able in cash semiannually in arrears.
Covenants: Pursuant to the Indenture, the Company
shall covenant (i) to pay the princi-
pal of and interest on the Notes
promptly when due; (ii) to furnish the
Trustee and holders of the Notes with
information, documents and other re-
ports required to be filed with the
SEC under Sections 13 and 15(d) of the
Securities Exchange Act of 1934, as
amended; and (iii) not to engage in
any affiliated transaction on other
than arm's-length terms.
Ranking: The Notes will not be subordinated to
any other indebtedness of the Company and will
rank pari passu with all other unsubordinated
indebtedness of the Company (provided that the
Company
88
<PAGE>
shall not be prohibited from issuing
secured indebtedness).
Successor Company
Provisions: The Company shall not consolidate or
merge with or into, or sell all or
substantially all of its assets to,
any Person unless (i) the surviving or
transferee Person is a Person orga-
nized under the laws of the United
States or any state thereof and shall
expressly assume the obligations under
the Indenture and (ii) immediately
after giving effect to such transac-
tion no default shall have occurred
and being continuing.
Events of Default: Failure to pay principal when due;
failure to pay interest within 30 days
of when due; failure to comply with
the Successor Company provisions; de-
fault in the performance of any other
covenant for a period of 90 days after
notice thereof; and events of bank-
ruptcy, insolvency or reorganization
with respect to the Company.
Registration; TIA;
Listing: The issuance of the Notes shall have
been registered under the Securities
Act of 1933, as amended; the Indenture
shall have been qualified under the
Trust Indenture Act of 1939, as amend-
ed; and the Notes shall have been ap-
proved for listing, subject to offi-
cial notice of issuance, on a national
securities exchange or on NASDAQ.
Additional Terms: The Indenture shall contain such other
provisions, where applicable, as are
consistent with the VSR Agreement.
89
<PAGE>
MAFCO CONSOLIDATED GROUP INC.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations
before income taxes $13,326 $13,023 $15,487 $23,813 $32,794
Plus: Fixed charges 15,288 18,303 29,125 30,321 30,011
------- ------- ------- ------- -------
Earnings available to cover fixed
charges $28,614 $31,326 $44,612 $54,134 $62,805
======= ======= ======= ======= =======
Fixed charges:
Interest expense $13,947 $16,503 $26,495 $27,538 $27,174
Amortization of deferred charges 1,149 1,565 2,009 2,044 2,095
Portion of rental expense
representative of an interest
factor 192 235 621 739 742
------- ------- ------- ------- -------
Fixed Charges $15,288 $18,303 $29,125 $30,321 $30,011
======= ======= ======= ======= =======
Coverage ratio 1.9x 1.7x 1.5x 1.8x 2.1x
<CAPTION>
Six Months Ended Pro Forma
---------------------------- --------------------------------
July 2, 1995 June 30, 1996 December 31, 1995 June 30, 1996
------------ ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Earnings from continuing operations
before income taxes $18,059 $25,273 $16,500 $15,400
Plus: Fixed charges 14,961 14,218 15,942 7,374
------- ------- ------- -------
Earnings available to cover fixed
charges $33,020 $39,491 $32,442 $22,774
======= ======= ======= =======
Fixed charges:
Interest expense $13,600 $12,836 $14,200 $ 6,600
Amortization of deferred charges 990 1,008 1,000 400
Portion of rental expense
representative of an interest
factor 371 374 742 374
------- ------- ------- -------
Fixed Charges $14,961 $14,218 $15,942 $ 7,374
======= ======= ======= =======
Coverage ratio 2.2x 2.8x 2.0x 3.1x
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries of Mafco Consolidated Group Inc.
Subsidiary State of Incorporation
---------- ----------------------
Consolidated Cigar Holdings Inc. Delaware
Consolidated Cigar Corporation Delaware
Jamaica Tobacco Manufacturing Jamaica
Company (1995) Limited
Triple C Marketing Inc. Delaware
Tabacos San Andres S.A. de C.V. Honduras
Congar International Corporation Delaware
Tabacalera de Garcia Ltd. Bermuda
Cuban Cigar Brands NV Netherlands Antilles
Direct Products Inc. Delaware
MCG Intermediate Holdings Inc. Delaware
PA Abex Acquisition Limited Canada
PA Abex Acquisition Canada Inc. Canada
Cleveco Inc. Delaware
Abco Canada Holdings Inc. Delaware
PA Defense Systems Inc. Delaware
New Abco Holdings Inc. Delaware
PA Partners, L.P. Delaware
Henley Shareholder Services Inc. Delaware
Henley Residence Inc. Delaware
Liberty Lane Real Estate, Inc. Delaware
Newco K.M.B. Corporation Florida
Pershing Park, Inc. Delaware
SCSA, Inc. Delaware
Garden City Fan of Canada Limited Canada
Garden City Fan & Blower de Mexico Mexico
S.A. de D.V.
Power Control Technologies Inc. Delaware
PCT International Holdings Inc. Delaware
Pneumo Abex Corporation Delaware
Jensen-Kelly Corporation Delaware
American Brake Shoe Company Delaware
NWL Control Systems, Inc. Michigan
Stanray Corporation Delaware
NWL Service Corp. Delaware
Flavors Holdings Inc. Delaware
Boam Produce (Europe) Est. Liechtenstein
Rishmac Produce & Export Co. Iran
Mafco International Inc. Delaware
Choube-Shirin Export Company Ltd. Iran
Mafco Establishment Liechtenstein
Extraits Vegetaux et Derives, S.A. France
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 9, 1996, in the Registration Statement (Form
S-1, No. ___) 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
October 31, 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
October 31, 1996
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Ronald O. Perelman
------------------------------------
RONALD O. PERELMAN
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Howard Gittis
------------------------------------
HOWARD GITTIS
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ James R. Maher
------------------------------------
JAMES R. MAHER
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Irwin Engelman
------------------------------------
IRWIN ENGELMAN
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Laurence Winoker
------------------------------------
LAURENCE WINOKER
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Philip E. Beekman
------------------------------------
PHILIP E. BEEKMAN
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Theo W. Folz
------------------------------------
THEO W. FOLZ
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Drew Lewis
------------------------------------
DREW LEWIS
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
31st day of October, 1996.
/s/ Jewel S. Lafontant-Mankarious
------------------------------------
JEWEL S. LAFONTANT-MANKARIOUS
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram C. Salig or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, in connection with the Mafco Consolidated Group Inc.
(the "Corporation") registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the undersigned as a director or officer
of the Corporation, and any amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
25th day of October, 1996.
/s/ Robert Sargent Shriver III
------------------------------------
ROBERT SARGENT SHRIVER III
<PAGE>
Exhibit 99.1
Report of Independent Public Accountants
To the Shareholders of Power Control Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Power Control
Technologies, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. 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 each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Detroit, Michigan
March 11, 1996
