- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended June 30, 1996.
Commission file number 33-87280
RENAISSANCE COSMETICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1396287
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
955 Massachusetts Avenue
Cambridge, Massachusetts 02139
(Address of principal executive offices) (Zip Code)
(617) 497-5584
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of August 12, 1996, there were outstanding 721,168 shares
of the registrant's common stock, $.01 par value per share.
- --------------------------------------------------------------------------------
<PAGE>
INDEX
Page
PART I - FINANCIAL INFORMATION................................................4
Item 1. Financial Statements........................................4
Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 1996
(unaudited) and March 31, 1996........................6
Consolidated Statements of Operations for the
quarter ended June 30, 1996 and 1995 (unaudited).......8
Consolidated Statements of Cash Flows for the three
months ended June 30, 1996 and 1995 (unaudited)........9
Notes to Unaudited Consolidated Financial Statements.......11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............13
PART II - OTHER INFORMATION..................................................22
Item 1. Legal Proceedings..........................................22
Item 2. Changes in Securities......................................22
Item 3. Defaults Upon Senior Securities............................22
Item 4. Submission of Matters to a Vote of Security-Holders........23
Item 5. Other Information..........................................23
Item 6. Exhibits and Reports on Form 8-K...........................23
2
<PAGE>
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-Q, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
typically identified by their inclusion of phrases such as "the Company
anticipates," "the Company believes" and other phrases of similar meaning. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others: general economic and business conditions;
competition; development and operating costs; advertising and promotional
efforts; brand awareness; acceptance of new product offerings; changes in
business strategy or development plans; quality of management; availability,
terms, and development of capital; and other factors referenced in this Form
10-Q.
3
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the financial
statements contained on the immediately following seven pages.
4
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
ITEM I. FINANCIAL STATEMENTS:
Consolidated Balance Sheets 6
Consolidated Statements of Operations 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 11
5
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (PAGE 1 OF 2 PAGES)
- --------------------------------------------------------------------------------
JUNE 30,
1996 MARCH 31,
(UNAUDITED) 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,573,050 $ 1,431,809
Marketable securities 78,452 173,604
Accounts receivable - net 28,789,720 34,557,409
Inventories 32,583,462 30,236,739
Prepaid expenses and other current assets 13,734,579 6,539,828
------------ ------------
Total current assets 82,759,263 72,939,389
PROPERTY, PLANT AND EQUIPMENT - Net 14,457,830 14,535,363
DEFERRED FINANCING COSTS - Net 7,907,363 8,006,782
OTHER ASSETS - Net 12,174,123 12,242,090
INTANGIBLE ASSETS - Net 76,087,760 76,895,294
------------ ------------
TOTAL ASSETS $193,386,339 $184,618,918
============ ============
- Continued on next page -
See notes to consolidated financial statements.
6
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (PAGE 2 OF 2 PAGES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- Continued from prior page -
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 59,000,000 $ 57,000,000
Accounts payable 13,613,349 19,462,868
Accrued expenses 13,627,251 15,157,127
Other current liabilities 2,700,000 2,700,000
------------- -------------
Total current liabilities 88,940,600 94,319,995
------------- -------------
LONG-TERM LIABILITIES
Long-term debt 67,403,749 67,322,944
Minimum royalty obligation 4,735,562 4,686,039
Deferred tax liability 140,619 140,619
------------- -------------
Total long-term liabilities 72,279,930 72,149,602
------------- -------------
TOTAL LIABILITIES 161,220,530 166,469,597
------------- -------------
COMMITMENTS AND CONTINGENCIES
SENIOR EXCHANGEABLE REDEEMABLE
PREFERRED STOCK - SERIES A:
Par value $.01 - authorized, 100,000 shares;
issued 20,000 shares at June 30, 1996, net of
issuance costs 19,091,667 --
REDEEMABLE PREFERRED STOCK:
Par value $.01 - authorized 40,000 shares; issued,
11,594 shares at June 30, 1996; 10,503 shares at
March 31, 1996 12,048,897 11,697,624
COMMON STOCKHOLDERS' EQUITY:
Common stock, par value $.01 - authorized,
3,000,000 shares; issued 726,818 shares 7,268 7,268
Notes receivable from sale of common stock (517,609) (517,609)
Additional paid-in capital 26,786,732 26,786,732
Treasury stock, at cost (5,650 shares) (210,000) (210,000)
Deficit (24,244,736) (19,563,738)
Cumulative translation adjustment (796,410) (50,956)
------------- -------------
Total common stockholders' equity 1,025,245 6,451,697
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 193,386,339 $ 184,618,918
============= =============
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
JUNE 30,
1996 1995
NET SALES $ 30,687,893 $ 26,634,548
COST OF GOODS SOLD 11,506,087 9,430,183
------------ ------------
Gross profit 19,181,806 17,204,365
------------ ------------
OPERATING EXPENSES:
Selling 11,332,298 9,165,946
General and administrative 5,799,903 3,977,056
Amortization of intangible and other assets 1,367,545 1,189,026
------------ ------------
Total operating expenses 18,499,746 14,332,028
------------ ------------
OPERATING INCOME 682,060 2,872,337
INTEREST EXPENSE (INCOME):
Interest expense 5,200,987 4,434,301
Interest income (170,369) (68,234)
------------ ------------
LOSS BEFORE INCOME TAXES (4,348,558) (1,493,730)
INCOME TAX (BENEFIT)/PROVISION (155,500) 121,429
------------ ------------
NET LOSS (4,193,058) (1,615,159)
PREFERRED STOCK DIVIDENDS 487,940 289,785
------------ ------------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (4,680,998) $ (1,904,944)
============ ============
NET LOSS PER COMMON SHARE $ (6.49) $ (2.65)
============ ============
WEIGHTED AVERAGE SHARES 721,168 720,093
============ ============
OUTSTANDING
See notes to consolidated financial statements.
8
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (PAGE 1 OF 2 PAGES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (4,193,058) $ (1,615,159)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 869,334 524,365
Amortization of intangible assets 807,534 802,436
Amortization of minimum royalty and other assets 618,073 386,590
Amortization of deferred financing costs 726,187 545,766
Accrued interest on senior notes, subordinated
seller notes and minimum royalty obligation 314,915 317,454
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable 5,767,689 (6,046,162)
Inventories (2,346,723) (5,558,562)
Prepaid expenses and other assets (7,744,857) (1,542,723)
Accounts payable (5,849,519) (1,858,075)
Accrued expenses (1,529,876) 2,649,485
Other (745,454) 127,149
------------ ------------
Net cash used in operating activities (13,305,755) (11,267,436)
------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of marketable securities -- (96,868)
Sale of marketable securities 95,152 14,950
Capital expenditures (791,801) (2,173,587)
------------ ------------
Net cash used in investing activities (696,649) (2,255,505)
------------ ------------
</TABLE>
- Continued on next page -
See notes to consolidated financial statements
9
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (PAGE 2 OF 2 PAGES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- Continued from prior page -
<S> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from notes payable 2,000,000 8,800,000
Payment of minimum royalty obligation (184,587) --
Net proceeds of issuance of redeemable preferred
stock - Series A 18,955,000 --
Payment of deferred financing costs (626,768) --
------------ ------------
Net cash provided by financing activities 20,143,645 8,800,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,141,241 (4,722,941)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,431,809 7,001,170
------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 7,573,050 $ 2,278,229
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,806,534 $ 1,168,106
============ ============
Income taxes $ 26,657 $ 458,151
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-
CASH FINANCING TRANSACTIONS:
Accrued dividends and accretion on redeemable
preferred stocks $ 487,940 $ 289,785
============ ============
</TABLE>
See notes to consolidated financial statements
10
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements of Renaissance Cosmetics, Inc.
(the "Company") include the accounts of the Company and its
wholly-owned subsidiaries, Cosmar Corporation, Houbigant Ltee, and Dana
Perfumes Corporation ("Dana"). All significant intercompany activity
has been eliminated. The results of operations for the three months
ended June 30, 1996 are not necessarily indicative of the results to be
expected for any other interim period or for the entire year.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows
of the Company have been made on a consistent basis. Certain
information and footnote disclosures included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The unaudited
financial statements should be read in conjunction with management's
discussion and analysis of financial condition and results of operation
and the consolidated financial statements included in the Company's
Annual Report on Form 10K for the year ended March 31, 1996 filed with
the Securities and Exchange Commission. Certain reclassifications were
made to the 1995 financial statements to conform to the current
presentation.
2. INVENTORIES
The components of inventories are as follows:
1996 1996
Raw material and advertising supplies $19,072,547 $16,956,874
Work in process 1,594,037 2,860,139
Finished goods 11,916,878 10,419,726
----------- -----------
$32,583,462 $30,236,739
=========== ===========
The above components are shown net of excess and obsolete inventory
reserves of $1,623,000 and $1,540,000 at June 30, 1996 and March 31,
1996, respectively. At June 30, 1996 and March 31, 1996 approximately
62.8% and 60.7%, respectively, of the Company's inventories are stated
at the lower of LIFO cost or market. The excess of current replacement
cost over the stated LIFO value was $0 at June 30, 1996 and March 31,
1996, respectively.
3. NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, which is effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees in
Notes to Annual Financial Statements and encourages (but does not
require) compensation cost to be measured based on the fair value of
the equity instrument
11
<PAGE>
awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock-based compensation
awards to employees and will disclose the required pro forma effect on
net income and earnings per share in its annual financial statements.
4. SUBSEQUENT EVENTS
a. Pending Acquisitions
On June 27, 1996, the Company, through its wholly-owned
subsidiary Cosmar, entered into a stock purchase agreement (the "GAC
Acquisition") with Great American Cosmetics, Inc. ("GAC") and Messrs.
Larry Pallini and Vincent Carbone, the sole shareholders of GAC to
acquire all of the issued and outstanding capital stock of GAC which
acquisition if consummated is to be effective on and as of May 1, 1996.
On August 6, 1996, the Company, its newly-formed wholly owned
subsidiary, Renaissance Acquisition, Inc. ("RAI"), and MEM Company,
Inc. ("MEM"), entered into an agreement and plan of merger (the "MEM
Acquisition Agreement") pursuant to which RAI will be merged into MEM
and each outstanding share of MEM common stock (the "MEM Stock"), other
than dissenter's shares, will be converted into the right to receive
$7.50 per share in cash (and each share subject to a stock option will
be converted into the right to receive the difference between $7.50 per
share and the per share exercise price of such option) (the "MEM
Acquisition"). The aggregate consideration for the MEM Stock (including
the purchase price for the outstanding MEM stock options that will be
cashed out in the MEM Acquisition) is approximately $33.8 million,
including repayment of MEM's indebtedness (which estimate is based on
the balance of such indebtedness at June 30, 1996). Such amount of
indebtedness is expected to be higher (and could be materially higher)
on the date the MEM Acquisition is closed.
b. Proposed Series B Preferred Stock Financing
The Company recently entered into a securities purchase
agreement with certain investors pursuant to which the Company will
issue to those investors up to 80,000 Units, each of which consists of
one share of the Company's 14.0% Senior Redeemable Preferred Stock,
Series B, par value $0.01 per share (the "Series B Preferred Stock"),
and 2.693 Warrants to purchase 2.693 shares of the Company's Common
Stock. The Offering of the Units is expected to be consummated prior to
the closing of the GAC Acquisition and the MEM Acquisition.
The net proceeds from the sale of the Units will be used to
redeem the outstanding shares of the Company's Series A Preferred
Stock, including accrued dividends thereon, to finance the GAC
Acquisition and the MEM Acquisition and the remaining net proceeds will
be used for general corporate purposes.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This discussion and analysis relates to the results of operations of
Renaissance Cosmetics, Inc. (the "Company") and its major operating divisions,
Dana (the Company's domestic "Fragrance" business), Cosmar (the Company's
domestic "Cosmetics" business) and International (the Company's "International"
business) resulting from the following acquisitions consummated by the Company
(collectively, the "Acquisitions"), each of which acquisitions is discussed in
greater detail in Item 1 of the Company's Form 10-K for the year ended March 31,
1996 under the caption "Acquisitions."
1. The Houbigant Acquisition (July and August 1994), in which the
Company entered into various license agreements pursuant to which it obtained
certain exclusive rights to manufacture and distribute Chantilly, Lutuce, Alyssa
Ashley, Raffinee, Demi-Jour, Parfums Parquet French Vanilla, and other mass
market fragrances formerly marketed by Houbigant, Inc. (the "Houbigant
Fragrances").
2. The Cosmar Acquisition (August 1994), in which the Company acquired
its artificial fingernail products and related fingernail care accessories
business.
3. The Dana Acquisition (December 1994), in which the Company acquired
a group of companies engaged in the manufacturing of Tabu, Ambush, Canoe, Canoe
Sport and certain other mass-market fragrance and fragrance products.
4. The ACB Acquisition (December 1994), in which the Company acquired
the rights to manufacture and market the Houbigant Fragrances in Canada and
which, when combined with the Houbigant Acquisition, gave the Company the
worldwide rights to manufacture and market the Houbigant Fragrances.
OPERATIONS FOR THE PERIOD APRIL 1, 1996 THROUGH
JUNE 30, 1996, AND THE PERIOD APRIL 1, 1995
THROUGH JUNE 30, 1995
NET SALES. The Company's net sales were (in 000's, except %'s):
1996 1995
DIVISION NET SALES % OF TOTAL NET SALES % OF TOTAL
- -------------------- ------- --------- ------- ---------
Fragrance $10,963 35.7% $12,275 46.1%
Cosmetic 11,751 38.3% 10,233 38.4%
International 7,974 26.0% 4,127 15.5%
------- --------- ------- ---------
$30,688 100.0% $26,635 100.0%
13
<PAGE>
Total Company sales increased 15.2% or $4,053, from $26,635 to $30,688.
Fragrance sales decreased 10.7% from $12,275 to $10,963 due in large part to
lower than expected sales resulting from the basic Christmas build programs
(sales of basic stock to retailers in addition to Christmas gift sets) in June
1996. Management attributes this decline to a corresponding significant increase
(compared to last year) in commitments from retailers for the Company's
Christmas gift sets which will begin shipping in August. Cosmetic sales
increased by 14.8% from $10,233 to $11,751. Contributing to this increase are
current year sales of new products such as Ultra-Gel and Nail Fetish which were
launched subsequent to last year's period, and continued strong sales of the
Company's existing products. International sales increased 93.2% from $4,127 to
$7,974 due to the inclusion of sales of Dana's Brazil division which was
acquired during December 1995, and from a 5.1% increase in other International
sales.
GROSS PROFIT. The Company's gross profits were (in 000's, except %'s):
1996 1995
DIVISION GROSS PROFIT % OF NET SALES GROSS PROFIT % OF NET SALES
- ---------------- ------- --------- ------------ -------------
Fragrance $ 7,512 68.5% $ 8,393 68.4%
Cosmetic 7,011 59.7% 6,464 63.2%
International 4,659 58.4% 2,347 56.9%
------- --------- ------- ---------
$19,182 62.5% $17,204 64.6%
Gross profit margin in the Fragrance businesses remained relatively
stable at 68.5% compared with 68.4%. The decrease in gross profit margin in the
Cosmetic business to 59.7% from 63.2% is the result of lower sales of
higher-margin Pro-Ten Nail Lacquer (launched during the first quarter of 1995)
and an increase in lower-margin promotional sales on the Company's base products
done in conjunction with new product launches. The gross profit margin increase
in the International division to 58.4% from 56.9% is attributable to higher
sales and an increase in the proportion of direct international sales (versus
exports) to total international sales.
SELLING EXPENSE. The Company's selling expenses in the first quarters
of fiscal 1996 and fiscal 1995 were $11,332,000 (36.9% of net sales) and
$9,166,000 (34.4% of net sales), respectively. The increase in selling expenses
as a percentage of sales is principally attributable to increased advertising
and promotional spending relating to the Company's strategy of reinvigoration of
existing brand equities and the introduction of complementary new products.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
in the first quarter of fiscal 1996 and fiscal 1995 were $5,800,000 (18.9% of
net sales) and $3,977,000 (14.9% of net sales), respectively. The increase in
general and administrative expenses is attributable to higher legal, audit and
other professional fees and to the addition of key personnel by the Company to
both its corporate and operating divisions in anticipation of future operating
needs.
14
<PAGE>
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of
intangible and other assets was $1,368,000 (4.5% of net sales) and $1,189,000
(4.5% of net sales) for the first quarter of fiscal 1996 and fiscal 1995,
respectively.
OPERATING INCOME. Operating income for the first quarters of fiscal
1996 and 1995 was $682,000 (2.2% of net sales) and $2,872,000 (10.8% of net
sales), respectively. Management believes an additional measurement; earnings
before interest, taxes, depreciation and amortization ("EBITDA") is useful and
meaningful to an understanding of the operating performance of the Company.
However, EBITDA should not be considered by the reader as an alternative to net
income (loss) as an indicator of the Company's operating performance or to cash
flows as a measurement of liquidity. EBITDA is detailed in the table below:
(in 000's) 1996 1995
------ ------
Operating Income $ 682 $2,872
Add Amortization 1,368 1,189
Add Depreciation 869 525
------ ------
EBITDA $2,919 $4,586
EBITDA % of Net sales 9.5% 17.2%
EBITDA declined $1,667 in the first quarter of fiscal 1996 compared to
the first quarter of fiscal 1995 from $4,586 to $2,919 as a result of (i) lower
EBITDA at the Company's Dana division in fiscal 1996 compared to fiscal 1995 due
primarily to lower than expected sales resulting from the basic Christmas build
program, which management believes is due to a corresponding significant
increase in commitments from retailers for the Company's Christmas gift sets
which begin shipping in August, and (ii) an increase in general and
administrative expenses in fiscal 1996 compared to fiscal 1995 due to higher
legal, audit and professional fees and from the addition of key personnel at the
Company's corporate and operating divisions in anticipation of future operating
needs.
INTEREST EXPENSE. The Company's total interest expense for the first
quarters of fiscal 1996 and 1995 was $5,201,000 and $4,434,000, respectively;
while cash interest for the periods was $4,152,000 and $3,571,000, respectively.
Interest expense consists of:
15
<PAGE>
CASH INTEREST PAID OR ACCRUED (IN 000'S) 1996 1995
- ------------------------------------------------------ ------ ------
Interest on Senior Notes $2,234 $2,234
Interest on Sellers Notes (Payable in 2002) 108 100
Interest on Credit Facility 1,791 1,228
Other Interest 19 9
------ ------
Total Cash Interest Expense $4,152 $3,571
NON-CASH INTEREST EXPENSES
- --------------------------
Accretion of Senior Notes and Seller Notes $ 81 $ 62
Amortization of Deferred Financing Costs 726 546
Accretion of Interest on Obligations for
Minimum Royalty Payment 242 255
------ ------
Total Non-Cash Interest Expenses $1,049 $ 863
Total Interest Expenses $5,201 $4,434
INCOME TAX (BENEFIT)/EXPENSE.
Income tax (benefit)/expense were ($155,500) and $121,429 for the first
quarter of fiscal 1996 and fiscal 1995, respectively. The effective tax rates
differ from the United States federal income tax rate of 35% due to state and
foreign income taxes and limitations on utilization of federal income tax
benefits.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW. Net cash used by the Company in operating activities for the
three months ended June 30, 1996 was $13,305,755, consisting primarily of a Net
Loss of $4,193,058, less the impact of non-cash items impacting Net Loss of
$3,336,043; an increase in operating assets of inventories and prepaid expenses
and other assets of $2,346,723 and $7,744,857, respectively, and a decrease in
accounts payable and accrued expenses of $5,849,519 and $1,529,876,
respectively, less the impact of decrease in accounts receivable of $5,767,689.
Net cash used in investing activities was $696,649, consisting
primarily of capital expenditures. Net cash provided by financing activities was
$20,143,645, consisting primarily of net proceeds from the Company's credit
facility (the "Existing Credit Facility") ($2,000,000) and the issuance of
Series A Preferred Stock ($18,955,000). The net increase in cash and cash
equivalents was $6,141,241. As of June 30, 1996, the Company had outstanding
institutional indebtedness of $126.4 million including $59.0 million under its
Existing Credit Facility, $29.0 million of which is related to the revolving
credit portion. On September 8, 1995, the revolving credit portion of the
Company's Existing Credit Facility was amended to increase the Company's
availability to $30.0 million from $20.0 million. Due to the nature of the
fragrance/cosmetics industry, both the Company's need for working capital and
its income stream are seasonal. The most significant
16
<PAGE>
liquidity requirements occur prior to the sales surge in connection with the
production of inventory and shipment to customers in advance of the year-end
holiday sales season and other events such as new launches.
On May 29, 1996, the Company entered into a Securities Purchase
Agreement with a Fund, under which the Company issued $20.0 million aggregate
value of Series A Senior Exchangeable Redeemable Preferred Stock (Series A
Preferred). If the Series A Preferred remains outstanding on or after August 31,
1998, it will be exchangeable, at the option of the Company, into an equal
amount of Senior Notes. The Series A Preferred has a dividend of 12% per annum,
payable quarterly in cash or additional preferred stock at the option of the
Company. The Holders of Series A Preferred may exercise an option to purchase
4.6% of the fully diluted outstanding shares of Common Stock of the Company for
$5.0 million.
In addition to the $20.0 million Series A Preferred, on June 14, 1996,
the financial institution with which the Company has its Existing Credit
Facility agreed to increase its availability under the revolving credit facility
from $30.0 million to $40.0 million.
The Existing Credit Facility matures in December 1996. The Company is
seeking to secure a new credit facility (the "New Credit Facility") in order to
refinance the Existing Credit Facility which matures in December 1996 and to
provide capital for acquisitions and general corporate purposes. Although the
Company has not received a commitment letter from any financial institution or
entered into a binding agreement with respect to the New Credit Facility as of
the date of this report, the Company has received proposals from and commenced
discussions with prospective lenders. The Company is seeking to obtain a New
Credit Facility with approximately $100 million in maximum available borrowings.
However, the Company has no binding commitment from any financial institution,
and accordingly, there can be no assurance that such additional financing
alternatives will be available to the Company. If the Company is unable to
obtain the financing, it may be required to postpone and/or change significant
elements of its business strategy. In addition, although management believes
that the Company has made significant progress in improving sales and operating
efficiency, there can be no assurance that the Company's future performance will
not be adversely affected by economic, financial, and business factors not
subject to its control.
Proposed Series B Preferred Stock Financing. The Company recently
entered into a securities purchase agreement (the "Securities Purchase
Agreement") with certain investors pursuant to which the Company will issue to
those investors up to 80,000 Units, each of which consists of one share of the
Company's 14.0% Senior Redeemable Preferred Stock, Series B, par value $0.01 per
share (the "Series B Preferred Stock"), and 2.693 Warrants (the "Warrants") to
purchase 2.693 shares of the Company's Common Stock. Annual dividends of $140
per share on the Series B Preferred Stock will be cumulative and payable
quarterly in arrears on February 15, May 15, August 15 and November 15 of each
year, commencing November 15, 1996. Dividends may, at the option of the Company,
be paid in cash or by issuing additional shares of Series B Preferred Stock with
an aggregate liquidation preference equal to the amount of such dividends
through August 31, 2002, and in cash thereafter; provided that in the event that
the Company's existing Senior Notes issued pursuant to the Company's existing
Indenture are redeemed, dividends shall be paid in cash on the first dividend
17
<PAGE>
payment date following the earlier of one year from the date of such redemption
or August 31, 2002. The Series B Preferred Stock has a liquidation preference of
$1,000 per share, plus accrued and unpaid dividends thereon.
The net proceeds from the sale of the Units will be used to redeem the
outstanding shares of Series A Preferred Stock, including accrued dividends
thereon, to finance the GAC Acquisition (including repayment of debt and the
payment of fees and expenses related thereto), which acquisition is described
below and is subject to satisfaction of the conditions to closing contained in
the GAC Acquisition Agreement (described below), to consummate the MEM
Acquisition (including the repayment of debt and the payment of fees and
expenses related thereto), which acquisition is described below and is subject
to the satisfaction of the conditions to closing contained in the MEM
Acquisition Agreement (described below) and the Company having entered into the
New Credit Facility, and the remaining net proceeds will be used for general
corporate purposes.
The Offering of the Units is expected to be consummated prior to the
closing of the Acquisitions and the New Credit Facility. There can be no
assurance that the Acquisitions will be completed or that the Company will be
successful in obtaining the New Credit Facility. The GAC Acquisition Agreement
and the MEM Acquisition Agreement are subject to customary closing conditions.
In addition, the Company does not expect to consummate the MEM Acquisition until
it has entered into the New Credit Facility. In the event that the New Credit
Facility is secured, the Company intends to use borrowings thereunder to repay
all indebtedness outstanding under the Existing Credit Facility and for general
corporate purposes. In the event that the GAC Acquisition or the MEM Acquisition
is not completed, the Company expects to use the excess net proceeds from the
above-described offering of Units that would have been used to finance the GAC
Acquisition or the MEM Acquisition to repay indebtedness under the Existing
Credit Facility and to finance additional acquisitions that the Company expects
to make in the future.
Pending Acquisition of Great American Cosmetics, Inc. On June 27, 1996,
the Company, through its wholly-owned subsidiary Cosmar, entered into a stock
purchase agreement (the "GAC Acquisition Agreement") with Great American
Cosmetics, Inc. ("GAC"), and Messrs. Larry Pallini and Vincent Carbone, the sole
shareholders of GAC (the "Sellers"), to acquire all of the issued and
outstanding capital stock of GAC (the "GAC Acquisition"), which acquisition if
consummated is to be effective on and as of May 1, 1996.
GAC is a privately-owned company formed in 1990 that outsources,
markets, distributes, advertises, promotes and merchandises mid-priced,
mass-marketed lipsticks, eye make-up, nail polish products and related
accessories sold under the Nat Robbins trademark. According to GAC's audited
financial statements, GAC had revenues of approximately $7.8 million and net
income of approximately $1.1 million for the year ended December 31, 1995.
The purchase price for the GAC Acquisition is $15.25 million in cash,
$14.25 million of which is payable to the Sellers at the closing and the
remaining $1.0 million of which is payable into escrow to secure the Sellers'
post-closing obligation to indemnify Cosmar for breaches of the Sellers'
representations, warranties and covenants contained in the GAC Acquisition
Agreement. The
18
<PAGE>
Company has deposited $600,000 with an escrow agent (the "Deposit"), which may
be applied in full toward the purchase price at the closing of the GAC
Acquisition. If the GAC Acquisition is not consummated on or before August 31,
1996, the GAC Acquisition Agreement will be terminated and the Deposit will be
returned to the Company unless the failure to complete the GAC Acquisition by
such date was as a result of the Company's failure to obtain financing for the
transaction, in which case the Sellers shall be entitled to retain the Deposit
as liquidated damages. In connection with the closing of the GAC Acquisition,
the Company will repay approximately $1.6 million of GAC indebtedness (the "GAC
Bank Debt") (which estimate is based on indebtedness at March 31, 1996). Such
amount of indebtedness is expected to be lower on the closing date of such
acquisition. Also, in connection with the closing, GAC will repay to the Sellers
the amount outstanding under certain shareholder loans, which were $181,500 at
March 31, 1996.
The GAC Acquisition Agreement contains certain conditions to closing,
including the delivery of legal opinions, the absence of any orders, decrees or
injunctions preventing or delaying the closing, the execution of the consulting
agreements referred to below and the Company having obtained financing on terms
acceptable to it. Although the Company expects such conditions will be
satisfied, there can be no assurance that the GAC Acquisition will be completed.
The Company is entitled to indemnification under the GAC Acquisition for losses
suffered as a result of any breach by the Sellers of any representation,
warranty, covenant or agreement contained in the GAC Acquisition Agreement. The
Company may not seek indemnification until it has claims exceeding 1% of the
purchase price at which point the Sellers shall be responsible for all amounts
in excess of $50,000. Neither Seller is liable for indemnification in an amount
in excess of the amount of consideration received by him.
Cosmar has agreed to retain Messrs. Pallini and Carbone as consultants
to Cosmar and its affiliates upon consummation of the GAC Acquisition. Mr.
Pallini's consulting agreement is for a term of three (3) years with annual
compensation of $200,000 per year, payable in thirty-six (36) equal monthly
installments. Mr. Carbone's consulting agreement is for a term of one (1) year
with annual compensation of $150,000, payable in twelve (12) equal monthly
installments.
Pending Acquisition of MEM Company, Inc. On August 6, 1996, the
Company, its newly-formed wholly owned subsidiary, Renaissance Acquisition, Inc.
("RAI"), and MEM Company, Inc. ("MEM"), entered into an agreement and plan of
merger (the "MEM Acquisition Agreement") pursuant to which RAI will be merged
into MEM and each outstanding share of MEM common stock (the "MEM Stock"), other
than dissenter's shares, will be converted into the right to receive $7.50 per
share in cash (and each share subject to a stock option will be converted into
the right to receive the difference between $7.50 per share and the per share
exercise price of such option) (the "MEM Acquisition"). The aggregate
consideration for the MEM Stock (including the purchase price for the
outstanding MEM stock options that will be cashed out in the MEM Acquisition) is
approximately $33.8 million, including repayment of MEM's indebtedness (which
estimate is based on the balance of such indebtedness at June 30, 1996). Such
amount of indebtedness is expected to be higher (and could be materially higher)
on the date the MEM Acquisition is closed.
19
<PAGE>
MEM, a publicly-traded American Stock Exchange company, distributes a
diversified line of fragrances and toiletries in the mass market distribution
channel. MEM's products are marketed under the nationally advertised trademarks
English Leather(R), British Sterling(R), Heaven Sent(R), LOVE's(R),
Tinkerbell(R), Acqu di Selva(R), Timberline(R), Love's Frenzy(R) and Love's
Clean & Natural product lines. Tom Fields, Ltd. ("Tom Fields"), a division of
MEM, manufactures and markets a line of children's cosmetics and accessories
principally under the trademark Tinkerbell(R). A subsidiary, Tom Fields (U.K.)
Ltd., markets this line of children's products in the United Kingdom and
elsewhere in Europe. The principal market for MEM's products is the United
States. According to MEM's audited financial statements, MEM had net sales of
approximately $44.8 million and a net loss of approximately $30 million for the
year ended December 31, 1995. According to MEM's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, one national customer accounted for 13%
of net sales in 1995 and 14% of net sales in 1994 and the loss of such customer
would have a material adverse effect. According to MEM's Form 10-Q for the
quarter ended June 30, 1996, net sales declined to $9.2 million during the six
months ended June 30,1996 from $11.0 million during the prior year's comparable
period and the net loss for the period increased to $4.4 million from $3.2
million in the prior year's comparable period.
The MEM Acquisition Agreement does not provide for indemnification of
the Company for losses suffered as a result of breaches of representations,
warranties, covenants and agreements, and no escrow has been set aside for such
indemnification. The MEM Acquisition Agreement contains standard representations
and warranties for a transaction of this type, all of which will terminate upon
the effectiveness of the MEM Acquisition. Under the terms of the MEM Acquisition
Agreement, at or prior to the closing, the Company is required to establish a
stay bonus program for selected employees of MEM. Also, prior to the closing,
MEM may establish its own stay bonus program, and, if the MEM Acquisition
Agreement is terminated by MEM as a result of the Company's breach of its
obligations thereunder or the MEM Acquisition does not close because the Company
fails to obtain financing, the Company has agreed to reimburse MEM for such stay
bonus program up to an aggregate amount of $500,000. The consummation of the MEM
Acquisition will be subject to customary closing conditions, including the
approval of the stockholders of MEM, the receipt of requisite regulatory and
third party consents and approvals, the absence of an order, decree or
injunction preventing the transaction, the receipt of a fairness opinion from
MEM's independent investment banking firm, the accuracy of all representations
and warranties, the performance of all covenants and agreements, the receipt of
legal opinions, the absence of material adverse changes and the obtaining by the
Company of financing to complete the MEM Acquisition on terms acceptable to it.
The MEM Acquisition Agreement may be terminated by MEM if the MEM
Acquisition is not completed by November 30, 1996 or at any time (i) if required
by MEM's board of directors in the exercise of its fiduciary duties or (ii) if
the Company has defaulted in the performance of the MEM Acquisition Agreement
and such default remains uncured for 30 days after notice thereof.
If the MEM Acquisition is not consummated because MEM terminates the
MEM Acquisition Agreement as a result of exercising its fiduciary out at a time
when the Company and RAI are in compliance with all of their representations,
warranties, covenants and agreements contained therein
20
<PAGE>
and within 12 months from the date of the MEM Acquisition Agreement, MEM
consummates or enters into an agreement or other arrangement to consummate an
acquisition transaction with any party other than the Company, MEM will be
obligated to pay to the Company the sum of $1.0 million.
If the MEM Acquisition is not consummated because the Company or RAI
terminates the MEM Acquisition Agreement as a result of the failure to close the
financing for the MEM Acquisition, the Company will be obligated to pay MEM the
sum of $1.0 million.
The Company does not intend to effect the MEM Acquisition unless and
until it obtains the New Credit Facility. In addition, consummation of the MEM
Acquisition may require the consent of holders of a majority of the principal
amount of the Senior Notes.
An action (seeking class action certification) was filed on July 31,
1996, on behalf of the shareholders of MEM against MEM and four of its current
and former directors, alleging that the compensation offered to the shareholders
in the MEM Acquisition is inadequate and grossly unfair and that the defendants
violated their fiduciary duties by not seeking additional potential purchasers
for MEM. The actions seeks, among other things, a court order requiring the
defendants to seek other purchasers, or, if the MEM Acquisition is consummated,
damages. MEM has advised the Company that MEM believes that this action is
without merit and that it intends to vigorously defend such action.
Also on August 6, 1996, the Company entered into a definitive
employment agreement with Gay Mayer, the current Chairman, Chief Executive
Officer and President of MEM, pursuant to which the Company will retain Mr.
Mayer as an officer of the Company following the effective time of the MEM
Acquisition. Mr. Mayer's employment agreement will be for a term of 30 months at
an annual salary of $250,000, payable in equal semi-monthly payments. The
Company has agreed to grant an option to Mr. Mayer to acquire 5,000 shares of
the Company's common stock upon the closing of the MEM Acquisition. The per
share exercise price of the option will be equal to $104.00.
There can be no assurance that the Company will complete either the GAC
Acquisition or the MEM Acquisition.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ACB Litigations. In April 1995, the Company and Houbigant, Inc. secured
a temporary restraining order barring the importation or sale in the United
States of certain trademarked goods in an action (the "New York action") now
pending in the United States District Court for the Southern District of New
York against ACB Fragrances and Cosmetics, Inc., and ACB Mercantile Inc. (the
"ACB Companies"), the principals of the ACB Companies, and V&B Distributors,
Harold Schiff, A. Rosenblum Sales, Inc. and Bernard Rosenblum (the "Resellers").
The claims against the Resellers have been settled. In June 1995, the ACB
Companies filed an answer asserting counterclaims for, INTER ALIA, defamation,
conspiracy, and cancellation of trademarks. In October 1995 and January 1996 the
court granted the Company's motion to dismiss as to all counts of ACB's
counterclaims against the Company and its affiliates except for three counts
against the Company's Canadian affiliate, Houbigant (1995) Ltee ("PPI-Canada"),
for breach of contract and tortious interference with business relations, and
two counts against the Company and its affiliates for tortious interference.
In May 1995, PPI-Canada filed suit in the Superior Court of the
District of Montreal, Canada against the ACB Companies and the principals of the
ACB Companies, seeking damages and/or restitution in the amount of approximately
$8,000,000 (Canadian) for breach of contract and fraud in connection with the
Company's acquisition of substantially all of the assets of the ACB Companies in
December 1994 (the "Canadian action").
The parties to the New York action and the Canadian action and others
have agreed to a settlement of all the litigations. Under the settlement, all
claims and counterclaims, including the remaining ACB counterclaims, will be
dismissed and a payment will be made to the Company in the sum of
(U.S.)$850,000. The payment of the $850,000 will be made substantially
contemporaneously with the Company's obligation to pay $2.7 million in
connection with the purchase of certain inventory from Houbigant in 1994 and
other matters.
Atlantis Litigation. The Company is a defendant in a lawsuit filed in
New York State Supreme Court in March 1995 by Atlantis International, Ltd.
("Atlantis") and Brian Appel. The complaint alleges defamation and intentional
interference with Atlantis' contractual and business relationships, and seeks
damages allegedly suffered in the amount of $6,000,000 and punitive damages in
the amount of $1,000,000. The Company has been given an indefinite extension of
time to answer or move against the complaint but intends to vigorously defend
this lawsuit and believes that it has substantial and meritorious defenses.
ITEM 2. CHANGES IN SECURITIES.
N/A.
22
<PAGE>
EXHIBIT NO.
DESCRIPTION OF DOCUMENT
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
N/A.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
N/A.
ITEM 5. OTHER INFORMATION.
N/A.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are included in Item 6:
Exhibit No. Description Of Document
- ----------- -----------------------
10.70 Stock Purchase Agreement among Cosmar Corporation, a Delaware
corporation ("Cosmar"), Larry Pallini, Vincent Carbone and Great
American Cosmetics, Inc., a New York corporation ("Great
American"), entered into on June 27, 1996 and effective on and as
of May 1, 1996, providing for the acquisition by Cosmar of all of
the capital stock of Great American.
10.71 Agreement and Plan of Merger among the Company, Renaissance
Acquisition, Inc., a New York corporation ("RAI"), and MEM
Company, Inc., a New York corporation ("MEM"), dated as of August
6, 1996.
10.72 Stockholder Agreement among the Company, RAI and the holders of
the Common Stock of MEM, dated August 7, 1996.
10.73 Employment Agreement between the Company and Gay A. Mayer, dated
August 6, 1996.
10.74 Employment Agreement between the Company and Thomas V. Bonoma,
dated August 6, 1996.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarterly
period ended June 30, 1996.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RENAISSANCE COSMETICS, INC.
Dated: August 14, 1996 By: /s/ THOMAS T.S. KAUNG
---------------------
Thomas T.S. Kaung
Group Vice-President, Finance
and Chief Financial Officer
24
<PAGE>
FORM 10-Q
For the Quarter Ended June 30, 1996
RENAISSANCE COSMETICS, INC.
Commission File Number 33-87280
-------------------------
EXHIBITS
-------------------------
The following exhibits are filed with this Form 10-Q and appear below:
Exhibit No. Description Of Document Page
- ----------- ----------------------- ----
10.70 Stock Purchase Agreement among Cosmar Corporation,
a Delaware corporation ("Cosmar"), Larry Pallini,
Vincent Carbone and Great American Cosmetics,
Inc., a New York corporation ("Great American"),
entered into on June 27, 1996 and effective on and
as of May 1, 1996, providing for the acquisition
by Cosmar of all of the capital stock of Great
American.
10.71 Agreement and Plan of Merger among the Company,
Renaissance Acquisition, Inc., a New York
corporation ("RAI"), and MEM Company, Inc., a New
York corporation ("MEM"), dated as of August 6,
1996.
10.72 Stockholder Agreement among the Company, RAI and
the holders of the Common Stock of MEM, dated
August 7, 1996.
10.73 Employment Agreement between the Company and Gay
A. Mayer, dated August 6, 1996.
10.74 Employment Agreement between the Company and
Thomas V. Bonoma, dated August 6, 1996.
27.1 Financial Data Schedule.
25
STOCK PURCHASE AGREEMENT
BY AND AMONG
COSMAR CORPORATION (AS BUYER),
LARRY PALLINI AND VINCENT CARBONE (AS SELLERS)
AND
GREAT AMERICAN COSMETICS, INC. (THE COMPANY)
ENTERED INTO ON JUNE 27, 1996
AND
EFFECTIVE ON AND AS OF MAY 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Shares ........................................ 1
1.1 Purchase and Sale .............................................. 1
1.2 Purchase Price for the Acquired Shares ......................... 2
1.3 Pre-Closing Deposits ........................................... 2
1.4 Payment of Purchase Price ...................................... 2
2. Time and Place of the Closing; Closing Date; and Effective Date .... 3
2.1 Time and Place of the Closing; Closing Date .................... 3
2.2 Effective Date ................................................. 4
3. Representations and Warranties of the Sellers ...................... 4
3.1 Authority of the Sellers ....................................... 4
3.2 Authority of the Company ....................................... 4
3.3 Enforceability ................................................. 4
3.4 Ownership of Stock; Corporate Structure ........................ 5
3.5 Existence and Qualification .................................... 5
3.6 Capitalization ................................................. 5
3.7 Consents and Approvals; No Violation ........................... 6
3.8 Material Contracts ............................................. 6
3.9 Financial Statements ........................................... 8
3.10 Absence of Undisclosed Liabilities ............................. 9
3.11 Equipment and Other Tangible Property Used in the Business ..... 9
3.12 Owned Real Property ............................................ 10
3.13 Leased Real Property ........................................... 10
3.14 Intangible Assets .............................................. 10
3.15 Receivables .................................................... 11
3.16 Complete Business .............................................. 11
3.17 Capital Improvements ........................................... 12
3.18 Absence of Certain Changes ..................................... 12
3.19 Litigation ..................................................... 14
3.20 Insurance ...................................................... 14
3.21 Employee Benefit Plans ......................................... 14
3.22 Environmental Matters .......................................... 16
i
<PAGE>
3.23 Deliveries of Documents; Corporate Records .................... 17
3.24 Tax Matters ................................................... 18
3.25 Compliance with Laws; Permits. Etc ............................ 19
3.26 Conflicts ..................................................... 20
3.27 Customers and Suppliers ....................................... 20
3.28 Labor Matters ................................................. 20
3.29 Bank Accounts ................................................. 21
3.30 Officers and Directors ........................................ 21
3.31 Employees ..................................................... 21
3.32 Subsidiaries .................................................. 21
3.33 Product Claims ................................................ 21
3.34 Warranties and Returns ........................................ 21
3.35 No Brokers .................................................... 22
3.36 Absence of Certain Business Practices ......................... 22
4. Representations and Warranties by the Buyer ........................ 22
4.1 Authority of the Buyer ......................................... 22
4.2 Enforceability ................................................. 23
4.3 Existence and Qualification .................................... 23
4.4 Consents and Approvals; No Violation ........................... 23
4.5 No Brokers ..................................................... 24
4.6 Buyer's Inspection, Etc ........................................ 24
5. Further Agreements of the Parties .................................. 24
5.1 Certain Pre-Closing Acts of the Company ........................ 24
5.2 Transactions with Affiliates ................................... 26
5.3 Payment of Taxes Etc ........................................... 26
5.4 Access to Books and Records; Due Diligence ..................... 27
5.5 Payment of Certain Costs, Expenses, Etc ........................ 28
5.6 Consents ....................................................... 29
5.7 Filings ........................................................ 29
5.8 Additional Agreements .......................................... 29
5.9 Consulting Agreements .......................................... 29
5.10 Repayment of Certain Debt and Receivables ..................... 30
5.11 Exclusive Dealing Period ...................................... 30
5.12 Cooperation in Obtaining Audited Financial Statements
Following theClosing Date .................................... 30
5.13 Escrow Agreement .............................................. 30
5.14 Schedules Updates ............................................. 31
ii
<PAGE>
6. Closing Conditions ............................................ 31
6.1 Conditions to Obligation of the Buyer ................... 31
6.2 Conditions of the Sellers to Closing .................... 32
7. Deliveries at Closing ......................................... 33
7.1 Deliveries by the Buyer ................................. 33
7.2 Deliveries by the Sellers ............................... 34
7.3 Deliveries by the Escrow Agent .......................... 35
8. Indemnification ............................................... 35
8.1 Survival of Representations, Warranties and Agreements .. 35
8.2 Indemnification by the Sellers .......................... 36
8.3 Indemnification by the Buyer ............................ 37
8.4 Procedure for Indemnification for Third Party Claims .... 37
8.5 Procedure for Indemnification for Party Claims .......... 38
8.6 Right of Set-Off; Remedies Cumulative ................... 39
9. Termination ................................................... 39
9.1 Termination ............................................. 39
9.2 Effect of Termination ................................... 39
10. Miscellaneous ................................................. 40
10.1 Amendment and Modification ............................. 40
10.2 Waiver of Compliance; Consents ......................... 40
10.3 Notices ................................................ 40
10.4 Assignment ............................................. 42
10.5 Governing Law .......................................... 42
10.6 Counterparts; Facsimile Signatures ..................... 43
10.7 Interpretation; Construction ........................... 43
10.8 Entire Agreement ....................................... 44
10.9 Specific Performance ................................... 44
10.10 Severability ........................................... 44
10.11 Press Releases and Public Announcements ................ 44
10.12 No Third Party Beneficiaries ........................... 45
10.13 Headings ............................................... 45
10.14 Incorporation of Schedules and Exhibits ................ 45
11. Definitions ................................................... 45
iii
<PAGE>
SCHEDULES
1.4 Purchase Price Allocation
3.4 Ownership of Company Common Stock
3.5 Existence and Qualification
3.6 Capitalization
3.7 Consents and Approvals
3.8 Material Contracts
3.11 Assets Used in the Business
3.13 Leased Real Property
3.14 Intangible Assets
3.15 Receivables
3.16 Complete Business
3.17 Capital Improvements
3.18 Absence of Certain Changes
3.19 Litigation
3.20 Insurance
3.21 Employee Benefit Plans
3.22 Environmental Matters
3.24 Tax Matters
3.25 Compliance with Laws
3.26 Conflicts
3.27 Customers and Suppliers
3.29 Bank Accounts
3.30 Officers and Directors
3.31 Employees
3.33 Product Claims
3.34 Warranties and Returns
5.1 Certain Pre-Closing Acts
5.2 Transactions with Affiliates
iv
<PAGE>
EXHIBITS
Exhibit A-1 - Closing Escrow Agreement
Exhibit A-2 - Pre-Closing Escrow Agreement
Exhibit B - Consulting Agreements
Exhibit C-1 - Opinion of Sellers' Counsel
Exhibit C-1 - Opinion of Sellers' HSR Counsel
Exhibit D - Opinion of Buyer's Counsel
Exhibit E - Buyer's Bring Down Certificate
Exhibit F - Seller's Bring Down Certificate
Exhibit G - Press Release
v
<PAGE>
206274.010(TAX)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is entered into on this 27th
day of June, 1996 (the "Execution Date"), by and among (1) Cosmar Corporation, a
Delaware corporation (the "Buyer"), (2) Larry Pallini and Vincent Carbone
(individually referred to herein as a "Seller" and collectively referred to
herein as the "Sellers") and (3) Great American Cosmetics, Inc., a New York
corporation (the "Company").
The Sellers collectively own all of the issued and outstanding common
stock, no par value (the "Company Common Stock") of the Company, in the amounts
set forth opposite their respective names on Schedule 3.4.
The Company is engaged in the business of producing, outsourcing,
packaging, marketing, distributing, advertising, promoting, merchandising and
selling cosmetics products to the mass markets, including, but not limited to,
nail polish, lipstick, eyeliners, mascara, make-up and related accessories sold
under various brand names, including, but not limited to, "NAT ROBBINS" (all of
the foregoing activities, whether current, proposed or contemplated, being
collectively referred to herein as the "Business"). Larry Pallini and Vincent
Carbone are each currently employed by the Company in the Business.
The Sellers desire to sell, and the Buyer desires to purchase, all of
the Company Common Stock on the terms set forth below. Capitalized terms used
herein and not otherwise defined, shall have the meanings set forth in Section
11 hereof.
It is therefore agreed as follows:
1. Purchase and Sale of Shares.
1.1 Purchase and Sale. Upon the terms and subject to the conditions
of this Agreement, at the Closing, each of the Sellers (as applicable) shall
sell, assign, transfer, convey and deliver to the Buyer, and the Buyer shall
purchase, acquire and accept from each of the Sellers, all shares of Company
Common Stock owned by the Sellers (the "Acquired Shares"), which shall
constitute all of the outstanding capital stock of the Company, free and clear
of all Liens.
1.2 Purchase Price for the Acquired Shares. The aggregate purchase
price to be paid by the Buyer for the Acquired Shares shall be $15,250,000 (the
"Purchase Price"). Of
<PAGE>
the total Purchase Price, $14,250,000 ( the "Cash Portion") shall be paid in
cash at the Closing (as set forth in Section 1.4 below) and $1,000,000 (the
"Deferred Portion") shall be placed in the closing escrow (the "Closing Escrow")
with Todtman, Young, Tunick, Nachamie, Hendler & Spizz, P.C. (the "Escrow
Agent"), to be paid to the Buyer or the Sellers, as the case may be, in
accordance with the terms of the Closing Escrow Agreement, a copy of which is
attached as Exhibit A-1 hereto (the "Closing Escrow Agreement").
1.3 Pre-Closing Deposits. Prior to the Closing, on the dates set
forth below, the Buyer shall make the following deposits (the "Pre-Closing
Deposits") with the Escrow Agent in cash, bank or certified check or by wired
funds (the "Pre-Closing Escrow") to be held and disbursed pursuant to the terms
of that certain Pre-Closing Escrow Agreement (a copy of which is attached as
Exhibit A-2 hereto (the "Pre-Closing Escrow Agreement")) and this Section 1.3
and Section 1.4 hereof:
(a) On the Execution Date, Buyer shall pay $300,000 to the Escrow
Agent to be held and distributed in accordance with the terms of the Pre-Closing
Escrow Agreement (the "Initial Deposit"). In the event that the Pre-Closing
Deposit of $300,000 is not delivered in the form set forth above, then the
effectiveness of this Agreement shall be subject to collection of such funds,
and if such funds are not immediately available upon presentment of the check or
other instrument, then this Agreement shall be null and void as if it was never
binding or in effect.
(b) on the First Extension Date (as defined in Section 2 below),
provided that the Buyer makes the Buyer's First Extension Election (as defined
in Section 2 below), Buyer shall pay an additional $150,000 to the Escrow Agent
to be held and distributed in accordance with the terms of the Pre-Closing
Escrow Agreement (the "Second Deposit"); and
(c) on the Buyer's Second Extension Date (as defined in Section 2
below), provided that the Buyer makes the Buyer's Second Extension Election (as
defined in Section 2 below), the Buyer shall pay an additional $150,000 to the
Escrow Agent to be held and distributed in accordance with the terms of the
Pre-Closing Escrow Agreement (the "Third Deposit").
1.4 Payment of Purchase Price. The Purchase Price shall be paid in
cash on the dates set forth below, by bank or certified check or wired funds, as
follows:
(a) at Closing, amounts set forth on Schedule 1.4 shall be paid
to each of the Sellers reflecting, in the aggregate, the Purchase Price less
$500,000, in each case;
2
<PAGE>
(b) at Closing, $1 million, representing the $500,000 from each
Seller referenced in subsection (a) above, shall be paid to the Escrow Agent
(the "Closing Deposit");
(c) at Closing, the Pre-Closing Deposits and all earnings (held
in the Pre- Closing Escrow) thereon shall be paid to the Buyer; however, at the
Closing, the parties hereto can agree to net out the figures and apply the
Pre-Closing Deposits to the Purchase Price in lieu of following the procedures
set forth above requiring the return of the Pre-Closing Deposits; and
(d) the Escrow Agent shall pay to the Sellers and/or the Buyer,
as the case may be, the amounts due and owing to each of them in accordance with
the terms of, and at the times set forth in, the Closing Escrow Agreement.
2. Time and Place of the Closing; Closing Date; and Effective Date.
2.1 Time and Place of the Closing; Closing Date. The consummation of
the transactions contemplated under this Agreement (the
"Closing") shall take place at 9:30 a.m., New York time, at the offices of the
Escrow Agent, on a date (which shall not be later than July 15, 1996) mutually
agreeable to the Buyer and the Sellers, unless a later date is agreed to in
writing by the Buyer and the Sellers (the "Closing Date"); provided, however,
that, notwithstanding anything in this Agreement to the contrary, the Buyer
shall have the right, in its sole discretion, to delay the Closing Date (a)
until a date no later than August 5, 1996, upon delivery at least five (5)
calendar days prior to July 15, 1996 of written notice to the Sellers of such
delay and the payment by the Buyer, along with such notice, of $150,000 to the
Escrow Agent to be held and disbursed in accordance with the terms of the
Pre-Closing Escrow Agreement and Section 1.4 hereof (the "Buyer's First
Extension Election," the date of such election being referred to herein as the
"First Extension Date"), and (b) until no later than August 31, 1996, upon
delivery at least five (5) calendar days prior to August 5,1996 of written
notice to the Sellers of such second extension and the payment by the Buyer,
along with such notice, of an additional $150,000 to the Escrow Agent to be held
and disbursed in accordance with the terms of the Pre-Closing Escrow Agreement
and Section 1.4 hereof (the "Buyer's Second Extension Election," the date of
such election being referred to herein as the "Second Extension Date").
Notwithstanding anything in the immediately preceding sentence to the contrary,
the Closing Date shall occur no later than the third business day immediately
following the closing of the Buyer's financing described in Section 6.1(h) below
(but in no event later than August 31, 1996, subject to the termination
provisions set forth in Section 9 below).
2.2 Effective Date. Notwithstanding anything herein to the contrary,
the consummation of the transactions contemplated herein shall be effective on
and as of May 1, 1996 (the "Effective Date"), without regard to the actual
Closing Date.
3
<PAGE>
3. Representations and Warranties of the Sellers. Each Seller,
jointly and severally, represents and warrants to the Buyer as follows:
3.1 Authority of the Sellers. Each of the Sellers has the full right
and capacity to enter into and perform this Agreement and each of the following
agreements, undertakings or instruments to which it is a party: the Consulting
Agreements referred to in Section 5.9 below, the Pre-Closing Escrow Agreement
referred to in Section 1.3 above, the Closing Escrow Agreement referred to in
Section 1.2 above and each and every other agreement, undertaking, document or
other instrument being executed and delivered by either of the Sellers in
connection with or pursuant to this Agreement, the Closing under this Agreement
or any of the transactions contemplated by this Agreement (collectively with
this Agreement, the "Acquisition Documents"). The representations and warranties
in the preceding sentence are made by each Seller only as to himself and as to
the Company.
3.2 Authority of the Company. The Company has the full corporate
power and authority to enter into and perform each of the Acquisition Documents
to which it is a party. The execution and delivery of each of the Acquisition
Documents to which the Company is a party and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company and no other proceedings on the part
of the Company are necessary to authorize each of the Acquisition Documents to
which it is a party or the consummation of the transactions contemplated
thereby.
3.3 Enforceability. Each of the Acquisition Documents has been duly
executed and delivered by each Seller a party thereto and the Company and
constitutes the valid and binding agreement of each Seller a party thereto and
the Company enforceable against him and the Company in accordance with its
terms, except that such enforcement may be limited by (a) applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting creditors' rights
generally, (b) equitable rules or principles affecting the enforcement of
obligations generally, whether at law or in equity, or (c) the exercise of the
discretionary powers of any court before which may be brought any proceeding
seeking equitable remedies, including without limitation specific performance
and injunctive relief. The representations and warranties in the preceding
sentence are made by each Seller only as to himself and as to the Company.
3.4 Ownership of Stock; Corporate Structure. Each Seller is the
record and beneficial owner of the number of shares issued by the Company as set
forth opposite his name on Schedule 3.4, free and clear of any and all Liens.
The representations and warranties in the preceding sentence are made by each
Seller only as to himself and as to the Company.
4
<PAGE>
3.5 Existence and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business and to own and operate its assets and properties as
conducted and operated. Except as disclosed on Schedule 3.5, the Company is duly
qualified to conduct business and is in good standing in each jurisdiction where
it is required to be qualified under the laws of each such jurisdiction.
3.6 Capitalization.
(a) The authorized capital stock of the Company is as set forth
on Schedule 3.6. All of the issued and outstanding shares of capital stock of
the Company are owned of record and beneficially as set forth on Schedule 3.4.
No other shares of the capital stock of the Company are, or at the time of the
Closing will be, outstanding. All of the Acquired Shares are duly authorized for
issuance, are validly issued, and are fully paid and nonassessable, with no
personal liability attaching thereto and each of the Acquired Shares is, and at
the Closing will be, free and clear of all mortgages, pledges, security
interests, liens, charges, encumbrances, equities, claims, options, rights,
restrictions on transfers (except those imposed by applicable United States
federal and state securities laws) and encumbrances of any nature whatsoever
(collectively, "Liens").
(b) Except as set forth in Schedule 3.6, there are no outstanding
options, warrants or rights or agreements of any kind to acquire any shares of
any class of capital stock of the Company, and there are no outstanding
securities convertible into or exchangeable for any shares of any class of
capital stock of the Company, nor does the Company have any obligation to issue
or enter into any such options, warrants, rights, agreements or securities.
There are no existing proxies, agreements or arrangements of any kind that
require or permit any shares of the Company to be voted by or at the discretion
of anyone other than the record owner.
3.7 Consents and Approvals; No Violation. Except as disclosed in
Schedule 3.7, the execution, performance and delivery of each of the Acquisition
Documents by each Seller a party thereto, the consummation of the transactions
contemplated under each of the Acquisition Documents by each Seller a party
thereto and the compliance by each Seller with the provisions of each of the
Acquisition Documents to which he is a party will not (a) require either Seller
to make any filing or registration with, or obtain any other permit,
authorization, consent or approval of, any governmental or regulatory
authority,; (b) conflict with or breach any provision of the articles of
incorporation or by-laws of the Company; (c) conflict with, violate or breach
any provision of, or constitute a material default (or an event which, with
notice or lapse of time or both, would constitute a material default) under, any
of the terms, covenants, conditions or provisions of, or give rise to a right to
terminate or accelerate or
5
<PAGE>
increase the amount of payment due under, any Material Contract (as defined in
Section 3.8(b) below), including, but not limited to, any instrument, commitment
or obligation to which either Seller is a party, or by which either of them or
any of their respective properties or assets may be bound, except for such as to
which requisite waivers or consents either have been obtained (and copies
thereof delivered to the Buyer) or the obtaining of which has been expressly
waived in writing by the Buyer; (d) conflict with, result in a breach or
violation of, or constitute a default under any Material Contract applicable to
the Company, to which either Seller or the Company may be a party or by which
either of the Sellers or the Company may be bound or affected; (e) result in the
creation of any Lien on any asset of the Company or on any of the Acquired
Shares; (f) violate any order, writ, injunction, decree, judgment, or ruling of
any court or governmental authority applicable to the Company or to any of the
Acquired Shares; or (g) violate any statute, law, rule or regulation applicable
to the Company or either of the Sellers.
3.8 Material Contracts.
(a) Schedule 3.8 sets forth a complete and correct list of all
Material Contracts of the Company.
(b) "Material Contracts" includes any Contract (as defined below)
that (i) provides for aggregate future payments by the Company of more than
$20,000; (ii) was entered into other than in the ordinary course of business and
which provides for aggregate future payments by the Company of more than
$10,000; (iii) has an unexpired term exceeding twelve (12) months and may not be
canceled upon less than thirty (30) days notice without any liability, penalty
or premium on the part of the Company; (iv) was entered into by the Company with
either of the Sellers, an officer, director or any employee of the Company or
any person with whom any of the foregoing persons has any relation by blood or
marriage, direct or indirect ("Relation"), or any corporation or other entity in
which any of the foregoing persons has any interest, and provides for aggregate
future payments by the Company of more than $5,000 per Seller, officer,
director, employee or Relation; (v) constitutes a collective bargaining or other
labor agreement; (vi) guarantees or indemnifies or otherwise causes the Company
to be liable for the obligations or liabilities of another; (vii) involves the
borrowing or lending of money excluding leases of equipment to the Company in
the ordinary course of business and excluding employee advances, all of which
are reflected in the books and records of the Company; (viii) involves an
agreement with any bank, finance company or similar organization for the sale of
any products of the Company on credit; (ix) involves the sale by or to the
Company of products or services on consignment; (x) is or contains a power of
attorney; (xi) contains any renegotiation or redetermination provisions; (xii)
restricts the Company from carrying on its respective businesses as presently
conducted anywhere in the world; (xiii) requires or is otherwise contingent upon
the payment of commissions or compensation to any person who is not party to
such contract, agreement, lease, understanding or commitment (e.g., a broker, an
6
<PAGE>
agent, etc.); (xiv) contains any warranty terms in addition to the warranties
normally given in connection with the sale of the Company's products; or (xv) is
a lease of real property involving the Company as either a lessor or lessee.
True and complete copies of all Material Contracts listed on Schedule 3.8 have
been delivered to the Buyer.
(c) The term "Contract" includes any contract, agreement,
understanding, commitment, mortgage, debt instrument, security agreement,
license, guarantee, lease, charter, franchise, power of attorney, agency and
other agreement (whether or not in writing).
(d) The Contracts to which the Company is a party and that are
not listed on Schedule 3.8 do not involve the payment by the Company of more
than $20,000 per year in the aggregate (excluding purchase orders not included
in Schedule 3.8) and are not otherwise material, individually or in the
aggregate, to the Company, the Business or the Acquired Shares.
(e) There is not, and has not been, claimed or alleged by any
person, with respect to any Material Contract, any existing material default, or
material event of default, or event that with notice or lapse of time or both
would constitute a material default or material event of default on the part of
the Company or on the part of the other party or parties thereto. The Material
Contracts (i) are in full force and effect, (ii) constitute the legal, valid and
binding obligations of the Company and (iii) to the knowledge of the Sellers,
constitute the legal, valid and binding obligations of the other parties
thereto. No other party to a Material Contract has asserted the right, and, to
the knowledge of the Sellers, no basis exists for the assertion of any right, to
renegotiate the terms or conditions of any Material Contract, except upon the
normal expiration date thereof. Except as set forth in Schedule 3.7, no consent,
approval, authorization or waiver from, or notice to, any other party is
required to maintain in full force and effect all of the Material Contracts,
other than such consents and waivers as have been obtained and copies of which
have been delivered to the Buyer and are unconditional and in full force and
effect and such notices as have been duly given.
(f) Schedule 3.8 lists all existing Material Contracts (whether
or not in writing) between the Company and any unrelated third party for the
production and/or manufacturing by such unrelated third party of Inventory for
the Company. Neither the Sellers nor any officer or director of the Company has
any actual knowledge of the production or manufacturing of (i) counterfeit,
unauthorized knock-off or unauthorized copies of any Company Inventory or other
goods or property owned by the Company or (ii) the manufacture and or production
of Company products by any unrelated third party in excess of the manufacturing
or production quotas agreed to (whether or not in writing) by such third party
with the Company.
7
<PAGE>
3.9 Financial Statements.
(a) The Sellers have previously furnished, or caused to be
furnished, to the Buyer (i) the unaudited balance sheet of the Company (the
"Interim Balance Sheet"), and the unaudited statements of income and retained
earnings and cash flow of the Company (the "Interim Operating Statements"), all
for the three (3) month period ended March 31, 1996, and (ii) the unaudited
balance sheets of the Company as of December 31, 1995 (the "1995 Balance
Sheet"), 1994 and 1993, and the unaudited statements of income and retained
earnings and of cash flows as of December 31, 1995 (the "1995 Operating
Statements"), 1994 and 1993, together with the notes thereto, as reviewed by
Deutsch, Marin & Company, the Company's independent certified public
accountants. The foregoing financial statements are collectively referred to
herein as the "Financial Statements". (Hereinafter, the Interim Balance Sheet
and Interim Operating Statements shall collectively be referred to as the "March
31, 1996 Financial Statements".)
(b) Each of the balance sheets included in the Financial
Statements presents fairly the assets and liabilities of the Company, as of the
respective date thereof, in conformity with GAAP, except that the unaudited
financial statements do not include all footnotes required by GAAP and do not
necessarily contain all required adjustments, none of which will be material.
Each of the statements of income and retained earnings and each of the
statements of cash flows included in the Financial Statements presents fairly
the results of operations and cash flows, respectively, of the Company for the
respective periods thereof in accordance with GAAP, except that the Financial
Statements do not include all footnotes required by GAAP.
3.10 Absence of Undisclosed Liabilities. To the knowledge of each of
the Sellers, the Company does not have as of the Closing Date any liabilities
other than those that (a) are set forth or fully reserved against in the
Financial Statements; or (b) were incurred since the date of the Interim Balance
Sheet in the ordinary course of business, none of which singly or in the
aggregate is materially adverse to the Business or to the operations, condition
or prospects of the Company; or (c) arise and accrue after Closing under
Material Contracts disclosed on Schedule 3.8; or (d) arise under Contracts that
are not Material Contracts.
3.11 Equipment and Other Tangible Property Used in the Business.
(a) The Company has good, marketable and valid title, free and
clear of any and all Liens, to all material equipment and other tangible
property used in the Business or presently located on its premises (a complete
list of all such items of property is included on Schedule 3.11), except for (i)
the leased items of material personal property listed as such on Schedule 3.11,
(ii) the leased items of material real property listed on Schedule 3.13, (iii)
the
8
<PAGE>
Liens set forth as such on Schedule 3.11 and (iv) Liens, if any, for current
taxes not yet due and payable. Except as set forth on Schedule 3.11, the Company
does not use any equipment and other tangible property (real or personal) in the
Business owned or leased by, or, with respect to such property, owe any amount
to or have any contract with or commitment to, either of the Sellers or any
director, officer, employee, agent, or representative of the Company or family
members.
(b) The equipment and other tangible personal property used in or
relating to the Business is in good operating condition and in good condition of
maintenance and repair (subject to ordinary wear and tear), is adequate for use
in the conduct of the Business as presently conducted and conforms to all
applicable ordinances, rules and regulations including all building, zoning and
other laws.
(c) An item of property is considered "material" for purposes of
this Section 3.11 if its replacement fair market value is more than $3,500,
excluding any tangible property.
3.12 Owned Real Property. The Company does not own any real property.
3.13 Leased Real Property. Schedule 3.13 lists and briefly describes
all real property leased by the Company. Each such item of real property is used
exclusively in the Business. The real property leased by the Company is
adequate, sufficient and suitable for its present uses and purposes, and the
transactions contemplated by this Agreement will not adversely affect the
Company' right to use those properties for the same purpose and to the same
extent as they were being used by the Company prior to the date of this
Agreement. Except as disclosed on Schedules 3.7 and 3.13, all such real property
leases will continue, following the Closing, to be legal, valid, binding,
enforceable and in full force and effect. No party to a real property lease has
repudiated any provision or, to the knowledge of the Sellers, is in breach or
default of a real property lease. To the Sellers' knowledge, no event has
occurred which, with notice or the lapse of time, would constitute a breach or
default under a real property lease, other than the transactions contemplated by
this Agreement.
3.14 Intangible Assets.
(a) Schedule 3.14 sets forth a list of (x) all patents,
trademarks, trade names, trade dress rights, service names, service marks,
copyrights, logos, franchises and permits, designs, rights and similar rights,
authorizations and applications therefor (including registration and
applications for registration thereof, (collectively, the "Rights") owned by the
Company and used in the Business specifying as applicable: (i) the title of such
Right; (ii) the owner of such Right; and (iii) each jurisdiction by or in which
such Right has been issued or
9
<PAGE>
registered, or in which an application for such issuance or registration, has
been filed, including the respective registration or application date and
number, and (y) all license agreements with respect to any Rights as to which
any of the Company is licensor or licensee ("Licenses") specifying for each such
License a complete listing and summary description, including the licensor and
licensee thereunder, the particular Rights under license, the term thereof, and
all royalties paid or received thereunder by each of the Company since January
1, 1992 (broken down by applicable period thereunder). The Rights listed in
Schedule 3.14 are all the Rights which are used in the conduct of the Business
as currently conducted or as proposed to be conducted and, to the Sellers'
knowledge, do not infringe upon, and are not inconsistent with, the rights of
any third party. Except as set forth in Schedule 3.14, the Company has not been
sued or threatened with suit, for infringement, violation or breach of any such
Rights, and to the knowledge of each of the Sellers, no basis exists for any
such suit and neither of the Sellers is aware of any infringement, violation or
breach of such Rights or Licenses by any other person. All of such rights may be
used by the Company after the Closing without the consent or approval of any
person and without violating the rights of any third party.
(b) The Company owns any and all right, title and interest in and
to the trade names and related trademarks set forth on Schedule 3.14 (shown as
owned by the Company thereon), including, but not limited to, the trade name
"NAT ROBBINS", in the United States and worldwide in connection with the
Business.
(c) To the Sellers' knowledge, the Company has not interfered
with, infringed upon or misappropriated the Rights of any third parties and, to
the knowledge of the Sellers, no third party has interfered with, infringed upon
or misappropriated any Rights of the Company.
(d) True and complete copies of all Rights agreements listed on
Schedule 3.14 have been delivered to the Buyer.
3.15 Receivables. The trade accounts and other receivables of the
Company, as set forth in the March 31, 1996 Financial Statements, are bona fide
receivables, arose out of arms' length transactions, and are collectible, except
to the extent set forth in Schedule 3.15 hereto.
3.16 Complete Business. The real property, personal property and
intangible assets owned or leased by the Company represent all of the assets
historically used in and necessary to conduct the Business in the manner in
which it has been conducted by the Company. Except as disclosed in Schedule
3.16, no part of the Business is conducted by or through any person or entity
other than the Company. Except as set forth in Schedule 3.16, the Company does
not own, lease or license any asset, and is not a party to any contract,
10
<PAGE>
arrangement or understanding, that is not used exclusively in the operation of
the Business. No entity (corporate or otherwise) other than the Company (other
than independent sales representatives retained by the Company) had or has any
interest or involvement related to the Business as it is currently conducted or
has been conducted during the periods covered by the Financial Statements. The
consummation of the transactions expressly contemplated by this Agreement will
result in the transfer to the Buyer of all that is necessary and sufficient to
permit the Buyer to operate the Business in a manner identical to the operation
of the Business by the Sellers.
3.17 Capital Improvements. Schedule 3.17 contains a description of
each capital improvement, construction, renovation or expenditure for new or
used equipment or similar project in excess of $5,000 (other than routine
maintenance and repair) with respect to the assets and properties of the Company
which is in process or for which any contract has been entered into or for which
any legally binding commitment by the Company has been made or purchase order
issued (the "Capital Improvements"). All other capital improvements of the
Company in process or for which any contract has been entered into or for which
any commitment has been made or purchase order issued and which are not required
to be set forth in Schedule 3.17 will not require annual payments in excess of
$10,000 in the aggregate.
3.18 Absence of Certain Changes. Except as contemplated by this
Agreement or as set forth in Schedule 3.18, since December 31, 1995 there has
not been, occurred or arisen:
(a) any liability or obligation incurred by the Company other
than in the ordinary course of business;
(b) any payment, discharge or satisfaction of any claim,
liability or obligation (absolute, accrued, contingent or otherwise) of the
Company except (i) pursuant to existing contractual commitments or (ii) in the
ordinary course of business;
(c) any action taken by any of the Sellers which has or could
result in the creation of a Lien on any of the assets of the Company other than
in the ordinary course of business;
(d) any debt or receivable in excess of $5,000 cancelled or any
claims or rights of substantial value waived by the Company except for fair
consideration in the ordinary course of business;
11
<PAGE>
(e) any sale, transfer or other disposition of any right, title
or interest in or to any of the properties or assets of the Company (real,
personal or mixed, tangible or intangible) except for the sale of inventory or
other immaterial assets in the ordinary course of business;
(f) any declaration, payment or setting aside for payment of any
dividend or other distribution (whether in cash, stock or property) in respect
of the capital stock of the Company, any direct or indirect redemption, purchase
or other acquisition of shares of such capital stock or any split, combination
or reclassification of such capital stock (other than the transactions
contemplated by this Agreement);
(g) (i) any approval or action to put into effect any general
increase in any compensation or benefits payable to any class or group of
employees of the Company, any increase in the compensation payable or to become
payable to any director, officer or key employee or any payment, grant or
accrual to or for the benefit of any director, officer or key employee of any
bonus, service award, percentage compensation or other benefit, in each case
other than raises given since January 1, 1996 in the ordinary course and as set
forth in Schedule 3.18 or (ii) any adoption or amendment of any employee pension
benefit plan, employee welfare benefit plan or foreign employee benefit plan, or
any severance agreement or employment contract to which any director or officer
of the Company is a party;
(h) any change in any accounting principle or method of election
for tax purposes used by the Company;
(i) any amendment or change in the articles of incorporation or
by-laws of the Company;
(j) any material adverse change in the business or financial
condition of the Company;
(k) any prepayment of any obligation of the Company, except in
the ordinary course of business;
(l) any guarantee, indemnity or other obligation of the Company
causing the Company to be liable for the obligations or liabilities of another;
(m) any damage, destruction or loss, whether or not covered by
insurance, materially adverse to the assets or business of the Company; or
(n) any agreement, whether in writing or otherwise, to take any
action described in this Section 3.18.
12
<PAGE>
3.19 Litigation. Except as set forth on Schedule 3.19, (a) there are
no private or governmental law suits, claims or actions or administrative
proceedings (i) pending against the Company, or (ii) to the knowledge of the
Sellers, threatened against the Company or (iii) pending or threatened against
the transactions contemplated by this Agreement or the Sellers with respect to
the transactions contemplated by this Agreement, (b) nor are there any
judgments, decrees or orders either naming the Company or enjoining the Company
in respect of the acquisition of any securities, rights or property of any kind
or in respect of the conduct of business in any area. None of the matters listed
in Schedule 3.19, if adversely determined against the Company, might,
individually or in the aggregate, have an adverse effect on the business,
operations, working capital, financial condition, revenues, assets, liabilities
(whether absolute, contingent or otherwise), reserves or prospects of the
Company.
3.20 Insurance. Schedule 3.20 sets forth the insurance coverage
maintained by the Company on its plant, property and equipment and other assets
and properties, and all other policies of insurance owned or maintained by the
Sellers on or in connection with the Business, including all policies or binders
of fire, liability, vehicular, title, professional, errors and omission and
other insurance, specifying the insurer, the type of insurance, the amount of
coverage, the deductible amount, if any, the expiration date and the policy
number. Except for amounts deductible under such policies of insurance and
described in Schedule 3.20, the Company is not and has not been prior to the
date hereof, subject to liability as a self-insurer. Except as set forth in
Schedule 3.20, there are no claims pending or, to the knowledge of each of the
Sellers, threatened under any of said policies or disputes with underwriters
regarding coverage under such policies. Since January 1, 1993, the Company has
not been denied insurance coverage or been offered insurance only at a
commercially prohibitive premium. All of the policies disclosed on Schedule 3.20
are valid and binding and in full force and effect, and there is no breach or
default with respect to any provision contained in any such policy. True and
complete copies of all insurance policies set forth on Schedule 3.20 have been
delivered to the Buyer.
3.21 Employee Benefit Plans.
(a) Neither the Company nor either of the Sellers maintains or
contributes to any employee pension benefit plans (as defined in section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")). The
only welfare benefit plan (as defined in section 3(1) of ERISA), bonus, stock
purchase, stock ownership, stock option, deferred compensation, incentive,
severance, termination or other compensation plan or arrangement, and other
employee fringe benefit plans presently maintained by, or contributed to by the
Company or either Seller for the benefit of any employee of the Company (the
"Benefit Plans"), are those set forth in Schedule 3.21. True and complete copies
of all Benefit Plans listed on Schedule 3.21 have been delivered to the Buyer.
13
<PAGE>
(b) The Company and each of the Benefit Plans are in compliance
with all applicable provisions of ERISA, and those provisions of the Internal
Revenue Code of 1986, as amended (the "Code") applicable to the Benefit Plans.
(c) All premium payments or other contributions to, and payments
from, the Benefit Plans which may have been required to be made in accordance
with the Benefit Plans have been timely made. All such premiums or other
contributions to the Benefit Plans, and all payments under the Benefit Plans,
except those to be made by an insurer, for any period ending before the Closing
Date that are not yet, but will be, required to be made are properly accrued and
reflected on the 1995 Balance Sheet or are set forth in Schedule 3.21.
(d) All reports, returns and similar documents with respect to
the Benefit Plans required to be filed with any government agency or distributed
to any Benefit Plan participant have been duly and timely filed or distributed,
as the case may be.
(e) At no time has (i) the Company or (ii) any other employer
that is, or, at any relevant time, was together with the Company, treated as a
"single employer" under section 414(b), 414(c) or 414(m) of the Code, incurred
any liability which could subject Buyer or the Company to any liability under
section 4062,4063 or 4064 of ERISA.
(f) At no time has the Company contributed, or been required to
contribute to, any multiemployer pension plan, within the meaning of section
3(37) of ERISA.
(g) The Company has not incurred nor is it reasonably likely to
incur any liability with respect to any plan or arrangement that would be
included within the definition of "Benefit Plan" hereunder but for the fact that
such plan or arrangement was terminated before the date of this Agreement.
(h) The Company does not maintain and never has maintained and
does not contribute, never has contributed and never has been required to
contribute to any Benefit Plan providing medical, health or life insurance or
other welfare benefits for current or future retired or terminated employees,
their spouses or their dependents other than a plan that is set forth on
Schedule 3.21.
3.22 Environmental Matters.
(a) The Company holds no environmental permits, certificates,
licenses, approvals, registrations and authorizations ("Permits") in connection
with the Business. To the best of the Company's and Sellers' knowledge, the
Company has complied with and is not in violation of any applicable
environmental statutes, rules, regulations, ordinances and orders of
14
<PAGE>
any federal, state, local or foreign governmental or regulatory agency or
authority or court, including those relating to Hazardous Substances.
(b) The Company has not received any request for information,
notice of claim, complaint, demand or notification that it is or may be
potentially responsible with respect to any investigation or clean-up of any
threatened or actual Release of any Hazardous Substance.
(c) To the best of Company's and Sellers' knowledge, without
inquiry, and except as set forth in Schedule 3.22, the Company has not managed
or handled any hazardous or toxic or polluting substance (a "Hazardous
Substance") on any property now or previously owned, operated or leased by the
Company.
(d) To the best of Company's and Sellers' knowledge, without
inquiry, and except as set forth in Schedule 3.22, no Hazardous Substance
managed by the Company has come to be located at any site which is listed or
proposed for listing under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or the
Comprehensive Environmental Response Compensation and Liability Information
System ("CERCLIS") or on any similar state list, or which is the subject of
federal, state or local enforcement actions or other investigations which may
lead to claims against the Company or the Buyer for clean-up costs, remedial
work, damages to natural resources or for personal injury claims, including, but
not limited to, claims under CERCLA.
(e) To the best of Company's and Sellers' knowledge, without
inquiry, the Company has not released, spilled, leaked, discharged, disposed of,
pumped, poured, emitted, emptied, injected, leached, dumped or allowed to escape
any Hazardous Substance ("Release") at, on, about or under at any property now
or formerly owned, operated or leased by the Company.
(f) To the best of Company's and Sellers' knowledge, without
inquiry, there are no environmental liens on any properties owned or leased by
the Company and no actions by any federal, state, local or foreign governmental
or regulatory agency or authority have been taken or are in process or pending
which could subject any of such properties to such liens.
(g) To the best of Company's and Sellers' knowledge, without
inquiry, and except as set forth in Schedule 3.22, there have been no
environmental inspections, investigations, studies, audits, tests, reviews or
other analyses conducted in relation to any property or business now or
previously owned, operated or leased by the Company.
15
<PAGE>
(h) Neither of the Sellers knows, without inquiry, of any facts
or circumstances related to environmental matters concerning the existing or
previously owned properties or businesses of the Company that could lead to any
future environmental claims, liabilities or responsibilities against the Company
or the Buyer.
(i) The Buyer understands and acknowledges that neither the
Sellers nor the Company (i) has actual knowledge relating to the operations of
LPD Packaging and Distribution Corp. ("LPD"), (ii) has a representative on the
premises of LPD, (iii) is legally authorized to exercise control and in fact
exercises no control over the operations of LPD, and (iv) is aware of any
environmental problem or condition which could give rise to any environmental
problem at the LPD facility in Middletown, New York.
3.23 Deliveries of Documents; Corporate Records.
(a) Each Seller has delivered, or caused to be delivered, to the
Buyer true, correct and complete copies of all documents, instruments,
agreements, contracts and records referred to in the schedules to this Agreement
and copies of the certificates or articles of incorporation and all amendments
thereto and the by-laws, as amended, of the Company. The minute and stock record
books of the Company contain true, correct and complete copies of the records of
all meetings and consents in lieu of a meeting of the Board of Directors (and
any committee thereof and voting shareholders of the Company since the dates of
their incorporation).
(b) The stock ledger and transfer books of the Company are
complete and correct and properly reflect all transfers of the capital stock of
the Company.
3.24 Tax Matters.
(a) Except as disclosed on Schedule 3.24, the Company has timely
filed (after giving effect to all extensions) all of its federal, foreign, state
and local Tax Returns required to be filed on or before the date hereof. All Tax
Returns filed by the Company are true, correct and complete and the Company has
timely paid all Taxes shown to be due and payable on such Tax Returns or on any
Tax statement (including real estate tax statements) to the extent that the same
have become due and payable on or before the Closing. Except as disclosed on
Schedule 3.24, the Company has complied in all respects with all applicable
laws, rules and regulations relating to the reporting, payment, collection and
withholding of Taxes and has timely and properly collected or withheld and
timely paid over to the proper governmental authorities all Taxes required to be
so collected or withheld and paid over. Since January l, 1993, the Company has
not been a member of any affiliated, consolidated, combined or unitary group, or
joined with any other entity in the filing of a consolidated or combined Tax
Return.
16
<PAGE>
(b) The Sellers have delivered, or caused to be delivered, to the
Buyer copies of all federal, state and local income and franchise Tax Returns of
the Company for all periods ending in calendar years 1993, 1994 and 1995,
together with copies of all reports of federal, foreign, state, and local Tax
authorities relating to any audit or examination of such Tax Returns or any
action or proceeding assessment or collection relating thereto. Except as set
forth in Schedule 3.24, the Company is not a party to, and is not expected to
become a party to, any pending or threatened audit, examination, action or
proceedings, assessment or collection of Taxes by any governmental authority
relating to the business and operations of the Company.
(c) Except as set forth in Schedule 3.24, there are no Tax
sharing agreements to which the Company is a party or by which the Company is
affected and the Company does not have any liability to any Seller or to any
taxing authority or third party for or with respect to Taxes for any taxable
period ending on or prior to Closing, except as set forth in this Agreement. No
statute of limitations with respect to the assessment or collection of any Tax
of the Company has been waived or extended. The Company is not a "consenting
corporation" under section 341(f)(1) of the Code. The Company has never made or
been required to be treated as having made an election under section 338 of the
Code. The Company is not a party to any contract which may require any payment
which will not be deductible under section 280G of the Code and no such payment
has been made by the Company.
(d) For purposes of this Agreement, the term "Taxes" shall mean
all taxes, levies or other like assessments, charges or fees (including water,
sewer and garbage assessments, charges or fees), and shall include, without
limitation, any and all income, gross receipts, excise, property, sales, use, ad
valorem, transfer, profits, severance, stamp, occupation, capital stock,
occupancy, license, payroll, withholding, employment, unemployment, estimated,
social security and franchise or other governmental taxes, imposed by the United
States, or any state, county, local or foreign government or subdivision or
agency thereof on the Company and/or its business activities; and such term
shall include any interest, penalties or additions to tax attributable to such
assessments.
(e) For purposes of this Agreement, the term "Tax Returns" shall
mean all returns (including information returns and amended returns),
declarations, reports, estimates and statements regarding Taxes, which are or
were required to be filed under federal, foreign, state or local law or which
were actually filed.
3.25 Compliance with Laws; Permits. Etc.
(a) Except as described in Schedule 3.25, the Company is in
material compliance with, and no material default or material violation exists
under laws applicable to the business, operations and properties of the Company,
which would have a material adverse
17
<PAGE>
effect on the Company (including, but not limited to, the federal Occupational
Safety and Health Administration and all laws, rules and regulations relating
thereto), and the Company has received no notice of any action, suit,
proceeding, hearing, demand or notice, and the Sellers have no knowledge of any
investigation, charge, complaint or claim, being filed or commenced against the
Company alleging any material failure so to comply. The Company is not, and none
of the transactions contemplated under this Agreement are, subject to any
existing judgment, order or decree entered in any lawsuit, governmental or legal
proceeding, and, to the Sellers' knowledge, no investigations by any
governmental authority, have been conducted (other than by the Sellers or the
Company) during the two years prior to the date of this Agreement, in connection
with the Business, other than an audit currently being performed by the Internal
Revenue Service. The Company has duly filed all material reports and returns
required to be filed with governmental authorities and obtained all material
governmental or regulatory permits and licenses and all other material
governmental consents which are required in connection with and related to the
Business, with the exception of filing a Certificate of Authority to do business
in the State of Florida. Such permits, licenses and consents are in full force
and effect, will remain in full force and effect after the Closing, and no
proceedings for the suspension or cancellation of any of them is pending or, to
the knowledge of the Sellers, threatened. Schedule 3.25 contains a complete list
or description or all of such permits, license and consents.
(b) To the knowledge of each of the Sellers, all of the products
manufactured or sold by the Company or in connection with the Business are fit
for the use or uses intended, have been manufactured, produced, distributed and
sold in all material respects in compliance with all laws and requirements of
laws.
3.26 Conflicts. Except as set forth in Schedule 3.26, neither of the
Sellers nor any officer or director of the Company (a) has or within the past
three (3) years has had any direct or indirect interest in (i) any entity which
transacts any business with the Company or (ii) any property, asset or right
that is used in the conduct of the Business of the Company or (b) has or within
the past three (3) years has had any contractual relationship with the Company,
other than such relationship as relates to being such officer or director of the
Company.
3.27 Customers and Suppliers. Schedule 3.27 (i) sets forth a list of
the sales of the Company for the twelve (12) month period ended December 31,
1995, and indicates the approximate total sales to each of the 25 largest
customers of the Business during said period; and (ii) sets forth a list of the
25 largest suppliers of the Business during the same period. Except as set forth
in Schedule 3.27, there has not been any material adverse change in the business
relationship of the Company with any such customer or supplier, and neither of
the Sellers is aware of any threatened loss of any such customer or supplier or
the basis for any such loss. Neither of the Sellers nor the Company has any
Contracts with any such customers or suppliers, other than Material Contracts.
To the knowledge of each of the Sellers, the
18
<PAGE>
consummation of the transactions contemplated by this Agreement will not result
in any customer or supplier materially reducing or terminating its business with
the Company. The business relationship of the Company with each such customer or
supplier is an arms' length relationship and no affiliation, relationship or
transaction (financial or otherwise) exists or has existed, directly or
indirectly, between any such parties (or officers, directors, employees or
agents of such parties) except as is expressly described in the Material
Contracts relating thereto.
3.28 Labor Matters. There are no labor strikes, slowdowns or
stoppages or other labor troubles pending or threatened with respect to the
employees of the Company; no representation questions exist; no collective
bargaining agreement binding on the Company restricts the Company from
relocating or closing any or all of its business or operations; there are no
grievances asserted which might have an adverse effect upon the Business, or the
financial condition or prospects of the Company, nor is there pending any
arbitration proceeding arising out of or under any labor union agreement; and
the Company has not experienced any work stoppage during the last three (3)
years.
3.29 Bank Accounts. Schedule 3.29 sets forth the names and locations
of all banks, depositories and other financial institutions in which the Company
has an account or safe deposit box and the names of all persons authorized to
draw thereon or to have access thereto.
3.30 Officers and Directors. Schedule 3.30 sets forth the names and
titles of the directors and officers of the Company.
3.31 Employees. Schedule 3.31 contains a list of all persons
receiving compensation from the Company or any affiliates of the Company in
excess of $15,000 per annum and a description of the compensation and the
components thereof of which each such person presently is or in the future will
be entitled. None of such persons has indicated to the officers of the Company
any intent to leave the employ of the Company.
3.32 Subsidiaries. The Company does not own, directly or indirectly,
any capital stock or other equity securities of any corporation or have any
other equity or ownership interest or investment in any business or other
entity. At Closing, the Company will not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any other
equity or ownership interest or investment in any business or entity.
3.33 Product Claims. No product liability claim is pending
or, to the knowledge of the Sellers, threatened (a) against the Company or
against any other party with respect to the products of the Business or (b) with
respect to Inventory in the Company's possession on the Closing Date. Schedule
3.33 lists all service and product liability claims seeking damages in excess of
$1,000 asserted against the Company (or in respect of which the
19
<PAGE>
Company received notice) with respect to the products of the Business or the
Company during the last three (3) years; and the claims not listed on Schedule
3.33 do not aggregate more than $5,000.
3.34 Warranties and Returns. Schedule 3.34 sets forth a
summary of the present practices and policies followed by the Company with
respect to warranties and returns of any products manufactured or sold by it,
whether such practices are oral or in writing or are deemed to be legally
enforceable. Except as set forth on Schedule 3.34, there is not presently, nor
has there been since January l, 1993, any failure or defect in any product sold
by the Company that has required, or that may require, a general recall or
replacement campaign or similar action with respect to such product or a
reformulation or change of such product, nor has there been any acceptance of
returned or defective goods of the Company in excess of $10,000 in the aggregate
for all such transactions with respect to products sold by them during the
three-year calendar period ended December 31, 1995, nor will returned or
defective goods exceed $10,000 in the aggregate with respect to products of the
Business sold during the three-year period commencing on the Closing Date and
such returned or defective goods will be limited to those customary and in the
ordinary course of business.
3.35 No Brokers. Neither the Sellers nor the Company has retained or
utilized the services of any broker, finder or other similar agent or
representative in connection with the transactions contemplated by this
Agreement.
3.36 Absence of Certain Business Practices. Neither of the Sellers
nor any officer, director, employee or agent of the Company or any other person
acting on the Sellers' behalf or the Company's behalf, has, directly or
indirectly, within the past three (3) years, other than in the ordinary course
of business, given or agreed to give any significant gift, inducement or similar
benefit to any customer, vendor, supplier, distributor, manufacturer, producer
or other third party doing business (or which has done business) with the
Company or with whom the Company is doing (or has done) business or any other
person who is may be in a position to help or hinder the Business (or assist the
Company in connection with any aspect of its Business) which (a) might subject
the Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding or (b) if not continued in the future, might materially
and adversely affect the Company's assets, Business or its operations or
prospects or which might subject the Company to suit or penalty in any private
or governmental litigation or proceeding or (c) would constitute a violation of
the Foreign Corrupt Practices Act of 1977, as amended, or similar law.
4. Representations and Warranties by the Buyer. The Buyer
represents and warrants to the Sellers as follows:
20
<PAGE>
4.1 Authority of the Buyer. The Buyer has the full corporate power
and authority to enter into and perform each of the Acquisition Documents to
which it is a party. The execution and delivery of each of the Acquisition
Documents to which the Buyer is a party and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Buyer and no other proceedings on the part of the Buyer are
necessary to authorize each of the Acquisition Documents to which it is a party
or the consummation of the transactions contemplated thereby.
4.2 Enforceability. Each of the Acquisition Documents to which the
Buyer is a party has been duly executed and delivered by the Buyer and
constitutes the valid and binding agreement of the Buyer enforceable against it
in accordance with its terms, except that such enforcement may be limited by (a)
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally, (b) equitable rules or principles
affecting the enforcement of obligations generally whether at law or in equity
or (c) the exercise of the discretionary powers of any court before which may be
brought any proceeding seeking equitable remedies, including without limitation
specific performance and injunctive relief.
4.3 Existence and Qualification. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business and to own and operate its assets and properties as
conducted and operated. The Buyer is duly qualified to conduct business and is
in good standing in each jurisdiction wherein it is required to be qualified
under the laws of such jurisdiction.
4.4 Consents and Approvals; No Violation. The execution, performance
and delivery by the Buyer of each of the Acquisition Documents, the consummation
by the Buyer of the transactions contemplated thereby and the compliance by the
Buyer with the provisions thereof will not (a) require the Buyer to make any
filing or registration with, or obtain any other permit, authorization, consent
or approval of, any governmental or regulatory authority; (b) conflict with or
breach any provision of the charter or by-laws of the Buyer; (c) conflict with,
violate or breach any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, any of
the terms, covenants, conditions or provisions of, or give rise to a right to
terminate or accelerate or increase the amount of payment due under, any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument, commitment or obligation to which the
Buyer is a party, or by which it or any of its properties or assets may be
bound, except for such as to which requisite waivers or consents either have
been obtained (and copies thereof delivered to the Sellers) or the obtaining of
which has been expressly waived in writing by the Sellers; (d) conflict with,
result in a breach or violation of, or constitute a default under any agreement
applicable to the Buyer, to which the Buyer may be party or by which the Buyer
may be bound
21
<PAGE>
or affected; (e) result in the creation of any Lien on any asset of the Buyer;
(f) violate any order, writ, injunction, decree, judgment, or ruling of any
court or governmental authority, applicable to the Buyer; or (g) violate any
statute, law, rule or regulation applicable to the Buyer.
4.5 No Brokers. The Buyer has not retained or utilized the services
of any broker, finder or other similar agent or representative in connection
with the transactions contemplated by this Agreement.
4.6 Buyer's Inspection, Etc. Buyer acknowledges that it has had the
opportunity to inspect Company's premises and to conduct its due diligence
investigation and is not relying upon any representations, warranties or
promises other than those set forth in this Agreement it being understood,
however, that Buyer's due diligence activities do not limit its right to rely on
the written representations, warranties, covenants and agreements of the Sellers
herein.
5. Further Agreements of the Parties.
5.1 Certain Pre-Closing Acts of the Company. Except as otherwise
provided in or contemplated by this Agreement or agreed to by the Buyer in
writing or as set forth in Schedule 5.1, neither of the Sellers shall, during
the period from the date hereof to and including the Closing Date, permit the
Company to:
(a) allow any of its assets to be subjected to any Lien, except
in the ordinary course business;
(b) sell, transfer, lease, license, abandon or dispose of any of
its assets, or agree to do any of the foregoing, except for the sale of
inventory in the ordinary course of business consistent with past practice;
(c) borrow any money, incur any debt for borrowed money,
guarantee any debt, incur any liability or agree to any of the foregoing where
the payments to be made by it would exceed $5,000 individually or $25,000 in the
aggregate, except for borrowings or liabilities incurred in the ordinary course
of business consistent with past practice;
(d) other than in the ordinary course of business and pursuant to
customary arrangements consistently followed and except as required by law or
the terms of any of the employee benefit plans set forth on Schedule 3.21,
institute or amend, or agree to institute or amend, any bonus, pension, option,
deferred compensation, retirement payment, profit sharing or like arrangement to
or for the benefit of any of its employees, officers, directors, agents or
consultants;
22
<PAGE>
(e) except as set forth on Schedule 3.18, increase the
compensation payable or to become payable to any of its directors, employees,
officers, agents or consultants, other than raises in the ordinary course of
business;
(f) enter into or amend, or agree to enter into or amend, any
employment agreement (other than employees at will) or severance agreement with
any employee;
(g) make any change in any of its present accounting methods or
practices;
(h) issue or sell, or agree to issue or sell, any shares of its
capital stock, or issue or sell, or agree to issue or sell, any securities
convertible into, or options with respect to, or warrants to purchase or rights
to subscribe for, any shares of its capital stock;
(i) effect, or agree to effect, any recapitalization,
reclassification, stock dividend, stock split or like change in capitalization;
(j) declare, pay or make, or set aside for payment or making, any
dividend or other distribution in respect of its capital stock or redeem,
purchase or otherwise acquire, or agree to redeem, purchase or otherwise
acquire, any of its capital stock;
(k) settle or agree to settle, any claim, action, suit or
proceeding involving the payment or receipt by it of more than $5,000;
(l) enter into any contract, lease, agreement, arrangement,
understanding or commitment, or incur or agree to incur any liability or make
any capital expenditure, in any instance where the payments to be made by it
would exceed $5,000 individually or $10,000 in the aggregate (other than for
purchase of raw materials or inventory in the ordinary course of business and
consistent with past practice and for binding commitments made prior to the date
hereof);
(m) except for the extension of credit to customers purchasing
goods in the ordinary course of business, loan or advance, or agree to loan or
advance, any sum of money to any party;
(n) amend its articles of incorporation or by-laws;
(o) dissolve or liquidate itself or acquire, merge or consolidate
with or into any other corporation or entity;
23
<PAGE>
(p) except as expressly permitted under this Agreement, pay any
debt that at any time may be due and owing by it to any Seller or any of
affiliate of a Seller other than in the ordinary course of business consistent
with prior practice;
(q) directly or indirectly purchase or otherwise acquire, hold or
invest in the securities of any person, or enter into any partnership, joint
venture or other entity or business arrangement with or make any equity
investment in any person, or offer or agree to do so, except for: (i) securities
issued or guarantied by the United States of America; (ii) deposits in domestic
commercial banks that have, or are members of a group of domestic commercial
banks that has, consolidated total assets of not less than $1,000,000,000, or
investments in the certificates of deposit, commercial paper or other
permissible market rate instruments offered by any such bank, the holding
companies of any such banks or any subsidiary of any such holding companies;
(iii) normal business banking accounts in federally insured institutions; and
(iv) commercial paper or other debt securities rated not less than "A" or its
equivalent by Standard & Poor's Corporation or Moody's Investors Service; or
(r) make or revoke any Tax election that may adversely affect any
Tax payable by the Company.
5.2 Transactions with Affiliates. Except for (a) cash salaries,
bonuses and management fees paid by the Company to the Sellers after December
31, 1995 at the same annual rate as previously paid during the same period
during the previous year or (b) pursuant to raises given on or after January l,
1996 in the ordinary course of business and as disclosed on Schedule 3.18 or (c)
other permitted transactions described on Schedule 5.2, the Sellers shall not
permit the Company to directly or indirectly enter into any transaction or other
business dealings with, or use any asset or property belonging to, any affiliate
of the Company.
5.3 Payment of Taxes Etc. The Sellers shall, on behalf of the
Company (a) duly and timely file (or cause to be filed) all Tax Returns required
to be filed by, on behalf of or including the Company from and after the date
hereof and on or before the Closing Date (taking into account valid extensions
of the time to file), (b) timely pay (or cause to be paid) all Taxes with
respect to each such Tax Return and (c) from and after the date hereof and
continuing to and including the Closing Date, timely withhold or collect, and
pay over (or cause to be withheld, collected and paid over) to the proper taxing
authority all Taxes required to be so withheld, collected and paid over for
which the Company is or may be liable. The Sellers covenant that such Tax
Returns shall be true, complete and correct in all material respects and the
Sellers shall furnish the Buyer with a copy of each such Tax Return before it is
filed. The Company shall not make, amend or revoke any election with respect to
any Tax matter without the prior written consent of Buyer. The Sellers shall
promptly notify Buyer of any application for extension of time to file any Tax
Return. The Sellers shall cause the Company to reserve
24
<PAGE>
all Taxes in accordance with GAAP in the aggregate adequate to cover any and all
Taxes (whether or not disputed and whether or not due) of the Company with
respect to all taxable periods ending on or before the Closing Date computed as
of the last day of the taxable period, including all Taxes arising out of
transactions entered into or factual matters existing prior thereto. Each of the
Sellers shall continue to be responsible for filing his own Tax Returns and
paying his, her or its own Taxes, with respect to all periods, either before or
after the Closing, and Buyer shall have no liability therefor.
If any claim for Taxes relating to the Company involving a tax year
which ends on or before or includes the Closing Date is asserted in writing
against the Company, the Buyer shall notify the Sellers promptly after receipt
of such notice, and shall provide the Sellers with copies of all documents
relating to such claim. If any Seller receives any communication from a taxing
authority which could affect the Tax liability of the Company for any period,
the Sellers shall promptly notify the Buyer in writing of such fact and shall
provide the Buyer with copies of all documents relating to such claim.
The parties shall cooperate fully with each other in connection with any
Tax audit or proceeding of any Company taxable period that ends on or before or
includes the Closing Date.
5.4 Access to Books and Records; Due Diligence.
(a) From and after the date hereof, at all reasonable times as
the Buyer may request, the Sellers shall permit representatives designated by
the Buyer, in a manner not materially disruptive to the Business, for the
purpose of performing due diligence with respect to the Company and its
Business, to (i) have full and unrestricted access to the premises, properties,
operations, books, records, contracts, and documents (including financial, tax,
budget, projections, auditors' work papers and such other information as the
Buyer may reasonably request) of and pertaining to the Company, (ii) make copies
of, or excerpts from, those books, records, contracts and documents and (iii)
discuss the accounts, assets, Business, operations, properties or condition,
financial or otherwise, of the Company with its respective officers, directors,
employees, accountants, attorneys and agents.
(b) At the Closing, all of the books and records relating to the
Company will be at the main office of the Company at 99 Seaview Boulevard, Suite
312, Port Washington, New York 11005. After the Closing, the Buyer and the
Sellers shall make reasonably available to the other upon notice and during
normal business hours (including, with respect to clause (i) below, the right to
make copies) (i) any and all such books and records including, without
limitation, any as are reasonably necessary to respond to inquiries regarding
the Company from regulatory authorities, or to defend claims or otherwise
indemnify the Sellers
25
<PAGE>
or the Buyer, as the case may be, under the terms of this Agreement or to
prepare required financial statements, and (ii) in connection with the other
party's review of any such books and records and preparation of financial
statements, any and all personnel as are reasonably requested by such other
party, who will render all assistance as may reasonably be requested in that
regard without cost or expense to the other party; provided, however, that the
party conducting such investigation shall pay all out-of-pocket costs and
expenses with respect thereto. For a period of seven (7) years following the
Closing Date, neither the Sellers nor the Buyer shall dispose of, alter or
destroy any such books, records and other data without giving thirty (30) days'
prior notice to the other party to permit it or him at its/his expense, to
examine, duplicate or repossess such books and records.
5.5 Payment of Certain Costs, Expenses, Etc.
(a) From and after the date of execution of this Agreement,
except for up to $100,000 of fees incurred by professionals on behalf of the
Sellers and the Company, the Sellers shall not permit the Company to incur
(whether by actual payment or accrual) any costs or expenses for legal,
accounting or other professional fees and disbursements of such professionals in
connection with the transactions contemplated by this Agreement.
(b) Except as set forth in Section 5.5(a) above, whether or not
the transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby will be paid by the party incurring such costs and expenses; provided,
however, that nothing contained in this Section 5.5(b) shall relieve any party
of any liability for a breach of a covenant set forth in this Agreement.
5.6 Consents. Each of the parties hereto will use his or its best
efforts to obtain consents of all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement; provided, however, that the foregoing shall not constitute a
limitation upon the covenants and obligations of any of the Sellers and the
Buyer otherwise expressly set forth in this Agreement. In addition, the Company
will file a Certificate of Authority to conduct business in Florida prior to the
Closing.
5.7 Filings. The Buyer and the Sellers shall each cause to be made,
as promptly as practicable, any necessary filing and submissions under the laws
of any domestic or foreign jurisdiction to the extent to which the provisions
thereof are applicable to each party in connection with the transactions
contemplated by this Agreement and each will cooperate with the other in causing
all such filings and submissions to be made timely.
5.8 Additional Agreements. Each of the parties hereto agrees to use
its or his best efforts to take, or cause to be taken all reasonable action, and
to do, or cause to be done,
26
<PAGE>
all things necessary, proper or advisable under applicable laws and regulations,
to consummate and make effective the transactions contemplated by this Agreement
as expeditiously as practicable. If at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties shall take or cause to be taken all such
necessary action, including, without limitation, the execution and delivery of
such further instruments and documents as may be reasonably requested by any
party for such purposes or otherwise to complete or perfect the transactions
contemplated hereby.
5.9 Consulting Agreements. In consideration of the payment of the
Purchase Price by the Buyer to the Sellers hereunder, as part of the reason the
Buyer is entering into and executing this Agreement and in view of the
relationship of the individual Sellers, at the Closing, each Seller shall enter
into a consulting agreement with the Company and/or the Buyer (pursuant to which
the Company and/or the Buyer will obtain the right to each Seller's consulting
services) each of which (a) will be substantially in the form of Exhibit B
hereto (the "Consulting Agreements") and (b) each of which will contain
confidentiality, non-competition and non-solicitation provisions.
5.10 Repayment of Certain Debt and Receivables. At or prior to the
Closing, (a) the Sellers shall cause all amounts owing to the Company from any
of the Sellers to be repaid in full to the Company and (b) the Sellers shall
cause the Company to repay to the Sellers all amounts owing by the Company to
the Sellers.
5.11 Exclusive Dealing Period. Sellers agree that from and after the
date of execution of this Agreement through the earlier of the Closing or the
termination of this Agreement in accordance with Section 9 below, Sellers will
not, and will not permit the Company, to solicit, encourage or discuss any
Acquisition Proposal (as defined below) or supply any non-public information
concerning the Company, the Business, the Company's assets and properties, or
any other matter pertaining to the Company's operations to any person who may be
contemplating an Acquisition Proposal, or disclose to any person (other than
representatives and legal and accounting advisors on strictly a "need-to-know"
basis, and then only if they agree to be bound by the terms of this Section
5.11) the existence or terms of this Agreement or the discussions between the
Sellers, the Company and the Buyer. An "Acquisition Proposal" is any proposal,
other than the transactions contemplated in this Agreement, for (a) any merger
or other business combination involving the Company or (b) the acquisition (by
whatever means) of more than twenty percent (20%) of (i) the stock of the
Company or (ii) the assets of the Company or (c) dissolution or liquidation of
the Company.
5.12 Cooperation in Obtaining Audited Financial Statements Following
the Closing Date. For a period of twelve (12) months immediately following the
Closing Date, Sellers agree to (a) cooperate with, reasonably assist and to
furnish to the Buyer such financial
27
<PAGE>
and operating data and such other financial information as Buyer shall
reasonably request form to time for the purpose of preparing audited financial
statements of the Buyer for periods ending on prior to the Closing Date and (b)
provide management representations to Buyer's auditors with respect to the
Financial Statements provided that such auditors apply GAAP on a basis
consistent with the Company's standard practices for the periods preceding the
Closing Date.
5.13 Escrow Agreement. Simultaneously with the execution of this
Agreement, each of the Sellers, the Escrow Agent and the Buyer shall execute and
deliver the Pre-Closing Escrow Agreement, and the Buyer shall pay the Initial
Deposit to the Escrow Agent as provided for in Section 1.3(a) above. At Closing,
each of the Sellers, the Escrow Agent and the Buyer shall execute and deliver
the Closing Escrow Agreement and the Buyer shall deliver the Closing Deposit to
the Escrow Agent as provided for in Section 1.4(b) above.
5.14 Schedules Updates. Sellers shall be permitted to update, edit,
amend, add items to delete items from or otherwise change the Schedules attached
hereto (which shall be marked "DRAFT - June 27, 1996") at any time on or before
the date which is five (5) business days prior to the Closing Date, such changes
to give effect only to corrections or omissions to the Schedules as of the date
of this Agreement. The Sellers shall promptly deliver any and all updated
Schedules to the Buyer; provided, however, that the Sellers shall deliver the
final Schedules to the Buyer (which shall be marked "Final Schedules") no later
than five (5) business days immediately prior to the Closing Date and shall have
no right to further update, amend, add items to, delete items from or otherwise
change such Final Schedules after their delivery to the Buyer.
6. Closing Conditions.
6.1 Conditions to Obligation of the Buyer. The obligations of the
Buyer to effect the transactions contemplated hereby shall be subject to the
fulfillment, or the waiver in writing by the Buyer, at or prior to the Closing,
of the conditions set forth below. Each of the Sellers shall use all reasonable
efforts to cause each of those conditions to be satisfied.
(a) Each of the Sellers shall have executed and delivered to the
Buyer his respective Consulting Agreement.
(b) All amounts owing to the Company by either of the Sellers
shall have been cancelled or otherwise terminated, by such means as are
acceptable to the Sellers and the Company in their sole and absolute discretion.
28
<PAGE>
(c) All amounts owing to either of the Sellers by the Company
shall have been repaid in full.
(d) The Buyer shall have received the opinion of Todtman, Young,
Tunick, Nachamie, Hendler & Spizz, P.C. in substantially the form of Exhibit C-1
(the "Opinion of Sellers' Counsel").
(e) The Buyer shall have received the opinion of Howrey & Simon
in substantially the form of Exhibit C-2 (the "Opinion of Sellers' HSR
Counsel").
(f) The Buyer shall have received all closing documents referred
to in Section 7.1 below (such documents to be in form and substance satisfactory
to the Buyer and its counsel) and all corporate, legal and other proceedings and
related matters in connection with the execution, delivery and performance of
this Agreement shall have been reasonably satisfactory to such counsel.
(g) The Buyer shall have received the written resignations of
each officer and each director of the Company.
(h) The Buyer shall have closed the financing of the transactions
herein contemplated on terms and conditions and in such amounts as shall be
acceptable to the Buyer, in its sole and absolute discretion.
(i) There shall be no order, decree or injunction of a court of
competent jurisdiction which prevents or delays the consummation of the
transactions contemplated by this Agreement.
(j) The Buyer shall have received from the Escrow Agent the
Pre-Closing Deposits and the earnings thereon through the Closing Date pursuant
to Section 1 above.
(k) The Buyer shall have received the executed Termination of the
Shareholder's Agreement dated July 1, 1994, between Larry Pallini and Vincent
Carbone.
(l) The Buyer shall have received from each of Larry Pallini and
Christine Tsaktsiris written withdrawals resigning as signatories to the
Company's bank accounts set forth on Schedule 3.29.
6.2 Conditions of the Sellers to Closing. The obligations of the
Sellers to effect the transactions contemplated hereby shall be subject to the
fulfillment, or the waiver in
29
<PAGE>
writing by the Sellers, at or prior to the Closing, of the conditions set forth
below. The Buyer shall use all reasonable efforts to cause each of those
conditions to be satisfied.
(a) The Sellers shall have received all of the payments to be
paid at the Closing pursuant to Section 1 above.
(b) The Company shall have executed and delivered the Consulting
Agreements with each of the Sellers.
(c) The Sellers shall have received the opinion of Brownstein
Hyatt Farber & Strickland, P.C. in substantially the form of Exhibit D (the
"Opinion of Buyer's Counsel").
(d) The Sellers shall have received all closing documents
referred to in Section 7.2 below (such documents to be in form and substance
satisfactory to the Sellers and their counsel) and all corporate, legal and
other proceedings and related matters in connection with the execution, delivery
and performance of this Agreement shall have been reasonably satisfactory to
such counsel.
(e) There shall be no order, decree or injunction of a court of
competent jurisdiction which prevents or delays the consummation of the
transactions contemplated by this Agreement.
(f) All waiting periods under any law, regulation, rule or order
applicable to any of the transactions contemplated by this Agreement shall have
expired or been terminated.
(g) Each Seller shall have received an unqualified written
release ("Chase Release") from the Chase Manhattan Bank with respect to the
Company's obligations to the Chase Manhattan Bank ("Chase Manhattan Bank
Obligations) or such obligations shall be satisfied by the Closing Date.
7. Deliveries at Closing.
7.1 Deliveries by the Buyer. At the Closing, the Buyer will deliver,
or cause to be delivered, to the Sellers (or the Escrow Agent, as the case may
be) the following items:
(a) bank, certified or cashiers checks or wire transfers for all
payments to be made to the Sellers, and the Closing Deposit to be made to the
Escrow Agent, pursuant to Section 1 above;
30
<PAGE>
(b) the Opinion of Buyer's Counsel;
(c) the Consulting Agreements with each of the Sellers duly
executed by the Company;
(d) a certificate as to the continuing accuracy of the
representations and warranties of the Buyer and the performance by the Buyer
with the covenants required to be performed by the Buyer at or prior to the
Closing, dated as of the Closing Date, in the form of Exhibit E, duly executed
by the Buyer;
(e) a certificate, dated as of the Closing Date, executed by the
Secretary of the Buyer, certifying the respective certificate or articles of
incorporation and by-laws and the incumbency of the officers of the Buyer;
(f) such other certificates and other evidence as Sellers may
reasonably request; and
(g) the Chase Release shall have been delivered to each of the
Sellers or the Chase Manhattan Bank Obligations shall have been repaid, as the
case may be.
7.2 Deliveries by the Sellers. At the Closing, the Sellers will
deliver or cause to be delivered to the Buyer the following items:
(a) stock certificates evidencing the Acquired Shares, with stock
transfer powers duly endorsed in blank and free and clear of all Liens;
(b) the Opinion of Sellers' Counsel and the Opinion of Sellers'
HSR Counsel;
(c) a certificate as to the continuing accuracy of the
representations and warranties of the Sellers and the performance by the Sellers
with the covenants required to be performed by the Sellers at or prior to the
Closing, dated as of the Closing Date, in the form of Exhibit F duly executed by
the Sellers;
(d) "good standing" documents, including certifications by each
of their respective jurisdictions of incorporation and qualification, of the
current payment of taxes and of the valid incorporation and good standing of the
Company;
31
<PAGE>
(e) a certificate, dated as of the Closing Date, executed by the
Secretary of the Company, certifying the by-laws and incumbency of the officers
of the Company;
(f) a copy, certified by the Secretary of State of the state of
the Company's incorporation, of the Company's certificate of incorporation and
all amendments thereto;
(g) resignations of each of the officers and directors of the
Company;
(h) the Consulting Agreements with the Sellers, duly executed by
the Sellers; and
(i) such other certificates and other evidence as Buyer may
reasonably request.
7.3 Deliveries by the Escrow Agent. At the Closing, the Escrow Agent
will deliver or cause to be delivered to the Buyer the Pre-Closing Deposits and
the earnings thereon through the Closing Date.
8. Indemnification.
8.1 Survival of Representations, Warranties and Agreements.
(a) Subject to Section 8.1(c) below, all representations,
warranties, covenants and agreements of the parties contained in any Acquisition
Document shall survive the Closing and any investigation at any time made by or
on behalf of any other party and, if any representation, warranty or covenant of
any party hereto is incorrect as of May 1, 1996, the consummation of this
Agreement shall be without prejudice to the rights of the other parties hereto
pursuant to this Agreement.
(b) As used in this Section 8, any reference to a representation,
warranty, covenant or agreement contained in any Section of this agreement shall
also mean a representation, warranty, covenant or agreement in each and every
Acquisition Document.
(c) Notwithstanding the provisions of Section 8.1(a) above, all
representations and warranties of the parties contained in any Acquisition
Document shall expire, terminate and be of no force and effect (nor provide the
basis for any claim) and no party shall have any obligation to indemnify under
this Section 8 unless written notice of any claim resulting
32
<PAGE>
from any breach thereof is received prior to two (2) years after the date
hereof; provided, however, that:
(i) with respect to claims resulting from a breach
of any covenant or agreement or of any representation or warranty of any of the
Sellers under any Acquisition Document relating to Taxes (including under
Sections 3.24, 5.1 or 5.3 hereof) (a "Tax Claim"), written notice of any such
Tax Claim must be received prior to the expiration of the statutory period
during which a taxing authority may bring a claim against any Company or with
respect to any other property or right acquired for Taxes which are the subject
of any such Tax Claim and the Buyer or the Company shall have the right to
extend any such statutory period;
(ii) with respect to claims resulting from a
breach of any covenant or of any representation or warranty contained in any of
Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 or 3.33 hereof, no such time limitation
shall be applicable (except the applicable statute of limitations for a claim
thereunder);
(iii) with respect to claims resulting from a
breach of any covenant or agreement or of any representation or warranty of any
of the Sellers under any Acquisition Document relating to employee benefit plans
(including under Sections 3.21, 3.31 or 5.1(d) hereof) (a "Benefits Claim"),
written notice of any such Benefits Claim must be received prior to six (6)
years after the date hereof;
(iv) with respect to claims resulting from a
breach of any covenant or agreement or of any representation or warranty of any
of the Sellers under any Acquisition Document relating to environmental matters
(including under Sections 3.22, or 5.1) (an "Environmental Claim"), written
notice of any such Environmental Claim must be received prior to six (6) years
after the date hereof; and
(v) with respect to any claim of actual fraud
against a Seller, no such time limitation shall be applicable.
8.2 Indemnification by the Sellers.
(a) The Sellers each shall, jointly and severally, indemnify,
defend and hold the Buyer, the Company (after the Closing Date) and any
director, officer, employee, agent, advisor, parent, shareholder, subsidiary or
affiliate of the Buyer (each a "Buyer Indemnitee") harmless from, against and
with respect to any and all demands, claims, actions or causes of action,
assessments, liabilities, losses, costs, damages, penalties, charge or expense,
including, without limitation, interest, penalties and reasonable counsel and
accountants' fees, disbursements and expenses (collectively, "Indemnifiable
Losses") arising out of, or related to,
33
<PAGE>
any breach by any of the Sellers of any representation or warranty made by any
of the Sellers in this Agreement, or the failure on the part of any of the
Sellers to fully, faithfully and timely perform all covenants to be performed by
them or him under this Agreement.
(a) Notwithstanding the foregoing, (i) no claim shall be made
under this Section 8.2 if the Closing occurs on or before July 15, 1996, unless
and until such claims exceed $100,000, at which point the Sellers shall be
liable for any amounts in excess of $50,000, (ii) no claim shall be made under
this Section 8.2 if the Closing occurs after July 15, 1996, unless and until
such claims exceed one percent (1%) of the Purchase Price, at which point the
Sellers shall be liable for any amounts in excess of $50,000, and (iii) except
as stated in the following sentence, in no event (except for actual fraud) shall
any Seller be liable for more than the amount of consideration received by him
(as applicable) under this Agreement.
8.3 Indemnification by the Buyer. The Buyer hereby agrees to
indemnify, defend and hold each Seller, his heirs and assigns, harmless from,
against and with respect to any and all Indemnifiable Losses arising out of, or
related to, (i) any breach by the Buyer of any of the representations or
warranties made by the Buyer in this Agreement or any Acquisition Document, or
the failure on the part of the Buyer to fully, faithfully and timely perform all
covenants to be performed by it under this Agreement or any Acquisition Document
or arising from the conduct of the business or operations of the Company so
occurring on or after the Closing or (ii) any allegation or claim made against
either of the Sellers relating to the Company's proposed financing contemplated
by this Agreement, including but not limited to any Indemnifiable Losses arising
out of or based upon an untrue statement or alleged untrue statement or omission
or alleged omission in any of the offering documents related thereto.
8.4 Procedure for Indemnification for Third Party Claims.
(a) If a party entitled to be indemnified pursuant to this
Agreement (an "Indemnitee") receives notice of the assertion by a third party of
any claim or of the commencement by any such person of any action or proceeding
(a "Third Party Claim") with respect to which another party hereto (an
"Indemnifying Party") is obligated to provide indemnification, the Indemnitee
shall give the Indemnifying Party prompt notice thereof after becoming aware of
such Third Party Claim in reasonable detail and shall indicate the amount
(estimated if necessary) of the Indemnifiable Loss that has been or may be
sustained by the Indemnitee and shall provide the Indemnifying Party with a
reasonable right to cure the same. The rights of the Indemnitee to be
indemnified or compensated hereunder in respect of any Third Party Claim will
only be affected by its failure to give prompt notice to the Indemnifying Party
of such Indemnitee, in its reasonable discretion, believes that because of its
relationship with the third party it must participate therein, then in such
event the participation of the Indemnitee shall be at the expense of the
Indemnifying Party. The Indemnitee shall make available to the
34
<PAGE>
Indemnifying Party during normal business hours and for reasonable periods, any
personnel and any books, records or other documents within its control that are
necessary or appropriate for such defense.
(b) If the parties are unable to resolve their differences with
respect to a Third Party Claim within ten (10) days after the Indemnitee
notifies the Indemnifying Party of such Third Party Claim, the Indemnifying
Party shall either:
(i) assume full responsibility for such event or
claim after first either delivering to the Indemnitee (A) a complete written
release from all concerned parties of any liability of the Indemnitee in form
and substance satisfactory to the Indemnitee or, (B) in some other manner
providing evidence satisfactory to the Indemnitee confirming the Indemnifying
Party's obligation to hold the Indemnitee harmless from such Third Party Claim;
or
(ii) assume the defense of such Third Party Claim;
provided, however, that the Indemnifying Party may not settle or compromise any
Third Party Claim unless it first delivers to the Indemnitee a complete written
release in the manner described in Section 8.4(b)(i) above; and if the
Indemnifying Party elects to compromise or settle the Third Party Claim, the
Indemnitee may nonetheless participate in the defense of such Third Party Claim
and retain its own legal counsel and the Indemnifying Party shall be responsible
for the payment of the reasonable expenses of the Indemnitee's legal counsel; or
(iii) permit the Indemnitee to resist or dispose
of any liability of the Indemnifying Party from such Third Party Claim in such
manner as the Indemnitee deems appropriate through negotiation, settlement or
litigation and the Indemnifying Party shall be responsible for the payment of
all such negotiation, settlement and/or litigation costs and all of the
Indemnitee's legal expenses associated therewith within five (5) business days
after receiving written notice thereof from the Indemnitee.
8.5 Procedure for Indemnification for Party Claims.
(a) Any claim on account of a Indemnifiable Loss which does not
result from a Third Party Claim (a "Party Claim") shall be asserted by written
notice given by the Indemnitee to the Indemnifying Party. The Indemnifying Party
shall have a period of thirty (30) days after the Indemnitee notifies the
Indemnifying Party of such Party Claim, within which to respond thereto. If the
Indemnifying Party does not respond within such 30-day period, the Indemnifying
Party shall be deemed to have accepted responsibility to make payment, and shall
have no further right to contest the validity of such claim. If the Indemnifying
Party responds within such 30-day period and rejects such claim in whole or in
part, the parties agree to submit 35
<PAGE>
their dispute to the American Arbitration Association ("AAA") for resolution
within ten (10) days after the termination of such 30-day period. Each party to
a Party Claim (treating the Sellers together as one party for this purpose)
shall be entitled to select one arbitrator. The two arbitrators selected by the
Buyer and the Sellers shall select a third arbitrator. The three-arbitrator
panel shall render its decision within sixty (60) days of the date that a Party
Claim is submitted to them for resolution. The decision of the AAA three-member
arbitration panel shall be final, binding on, conclusive with respect to and
non-appealable by the parties. In addition, the three-member arbitration panel
shall award legal fees and costs to the prevailing party in the arbitration.
8.6 Right of Set-Off; Remedies Cumulative. Subject to the
limitations set forth in the Acquisition Documents, and in Section 8 of this
Agreement, the Buyer shall have the right to set-off the amount of any and all
Indemnifiable Losses (subject to the $100,000 threshold amount referred to in
Section 8.2 above) against any sums otherwise payable to any of the Sellers,
hereunder or under any other Acquisition Document. The remedies provided herein
shall be cumulative and shall not preclude assertion by any party hereto of any
other rights or the seeking of any other remedies against any other party
hereto.
36
<PAGE>
9. Termination.
9.1 Termination. This Agreement may be terminated at any time prior
to the Closing by mutual consent of the Buyer and the Sellers. The Buyer shall
have the right to terminate this Agreement at any time on or before the
scheduled Closing Date in the event Buyer shall not have closed the financing of
the transactions contemplated herein on terms and conditions and in such amounts
as shall be acceptable to the Buyer in its sole and absolute discretion.
9.2 Effect of Termination.
(a) Except as otherwise expressly provided herein, upon the
termination of this Agreement in accordance with Section 9.1 above, this
Agreement shall forthwith become null and void, without any liability on the
part of either party hereto, or any subsidiaries or affiliate of or any officer,
directors or employees of either party to the other; provided, however, that
nothing herein shall relieve any party of any liability after Closing for a
breach of any representation, warranty or covenant set forth in this Agreement.
(b) Nothing herein shall diminish the obligations of the parties
to use all reasonable efforts to cause the conditions set forth in Sections 6.1
and 6.2 hereof to be satisfied.
(c) Notwithstanding anything herein to the contrary, if the
Closing shall not have occurred on or before July 15, 1996 (or any extension
thereof in accordance with Section 2 hereof) as a result of the Buyer not having
closed the financing of the transactions contemplated herein on terms and
conditions and in such amounts as are acceptable to the Buyer, in its sole and
absolute discretion, then the Sellers shall be entitled to retain and the Escrow
Agent shall distribute to the Sellers, in such amounts as the Sellers indicate
to the Escrow Agent in a writing signed by both of the Sellers, the full amount
of the Pre-Closing Deposits, such amounts to be treated as liquidated damages
for loss of a bargain and not as a penalty and Buyer shall have no further
liability of any kind whatsoever for breach of this Agreement and/or failure to
close the transactions contemplated herein.
10. Miscellaneous.
10.1 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of both of the Sellers and
the Buyer.
10.2 Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of or estoppel with respect to any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of a party, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 10.2.
10.3 Notices. All notices, requests, demands, claims and other
communications hereunder shall be given in writing. Any notice, request, demand,
claim or other communication hereunder shall be effective upon receipt and shall
be addressed as follows:
If to the Buyer, to:
Cosmar Corporation
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attn: Thomas V. Bonoma, Chairman, President and
Chief Executive Officer
Telephone Number: 212-751-3700
Telecopy Number: 212-371-7868
37
<PAGE>
with a copy to:
John L. Ruppert, Esq.
Brownstein Hyatt Farber & Strickland, P.C.
Twenty-Second Floor
410 Seventeenth Street
Denver, Colorado 80202-4437
Telephone Number: 303-534-6335
Telecopy Number: 303-623-1956
If to the Sellers, to:
Mr. Larry Pallini
304A Main Street
Roslyn, New York 11576
Mr. Vincent Carbone
19150 Cloister Lake Lane
Boca Raton, Florida 33491
with a copy to:
Martin Todtman, Esq.
Todtman, Young, Tunick, Nachamie,
Hendler & Spizz, P.C.
425 Park Avenue
New York, New York 10022
Telephone Number: 212-754-9000
Telecopy Number: 212-754-6262
If to the Company, to:
Great American Cosmetics, Inc.
99 Seaview Boulevard, Suite 312
Port Washington, New York 11005
Telephone Number: (516) 621-0010
Telecopy Number: (516) 621-2980
38
<PAGE>
with a copy (prior to Closing) to:
Todtman, Young, Tunick, Nachamie,
Hendler & Spizz, P.C.
425 Park Avenue
New York, New York 10022
Telephone Number: 212-754-9000
Telecopy Number: 212-754-6262
with a copy (after Closing) to:
John L. Ruppert, Esq.
Brownstein Hyatt Farber & Strickland, P.C.
Twenty-Second Floor
410 Seventeenth Street
Denver, Colorado 80202-4437
Telephone Number: 303-534-6335
Telecopy Number: 303-623-1956
Any party may send any notice, request, demand, claim or other
communication hereunder to the intended recipient at the address set forth above
using any means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
10.4 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto, their
heirs and legal representatives and their respective successors and permitted
assigns, and shall also inure to the benefit of the investors in and the lenders
to the Buyer, the Company or the Business.
10.5 Governing Law. This Agreement shall be governed by the laws of
the state of New York (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies
and all disputes hereunder shall be resolved in the state or federal courts in
New York, New York.
39
<PAGE>
10.6 Counterparts; Facsimile Signatures. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document. Each party
hereto agrees to be bound by its own facsimile signature and to accept and be
bound by the facsimile signature of the other parties to this Agreement.
10.7 Interpretation; Construction.
(a) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden or proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
(b) As used in this Agreement: (i) the term "person" shall mean
and include an individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof; (ii) the term "subsidiary" when used in reference to any other
person shall mean any corporation of which a majority of the outstanding
securities having ordinary voting power to elect the board of directors of such
corporation are owned directly or indirectly by such other person; (iii) the
term "affiliate" shall have the meaning set forth in Rule 12b-2 of the General
Rules and Regulations promulgated under the Securities Exchange Act of 1934;
(iv) the term "family member" of any person shall mean any direct or indirect,
natural or adopted, parent, child, sibling, counsel, uncle, or aunt, or family
member thereof, of such person, whether by blood, marriage, in-law status or
otherwise and whether such relationship is full or in part; and (v) the term
"including" shall mean "including without limitation".
(c) Any reference to any federal, state, local or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
(d) The parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any party has
breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty or covenant.
10.8 Entire Agreement. This Agreement, including the schedules and
exhibits hereto and the documents, schedules, certificates and instruments
referred to herein and therein,
40
<PAGE>
embodies the entire agreement and understanding of the parties hereto in respect
of the transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings other than
those expressly set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such transactions. Any disclosure made in any Schedule delivered
pursuant to this Agreement shall be deemed to have been disclosed for purposes
of any other Schedule hereto; provided, however, that Seller agrees to use its
reasonable best efforts to ensure that each Schedule hereto is accurate and
complete in all material respects on a stand-alone basis.
10.9 Specific Performance. Each of the parties hereto acknowledges
and agrees that the Buyer, on the one hand, and the Sellers, on the other hand,
would be irreparably damaged in the event of any of the provisions of this
Agreement were not performed in accordance with their specific terms or where
otherwise breached. Accordingly, each of the parties hereto agrees that they
each shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having subject matter jurisdiction, in
addition to any other remedy to which such party may be entitled, at law or in
equity.
10.10 Severability. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of any other
provision hereof.
10.11 Press Releases and Public Announcements. No earlier than July 1,
1996, the Buyer and Sellers will issue a press release in the form annexed
hereto as Exhibit G ("Press Release"). In addition, the Buyer shall concurrently
file a current report on Form 8-K with the Securities and Exchange Commission
with respect to the transactions contemplated by this Agreement ("Form 8- K").
Following the issuance of the Press Release and filing of the Form 8-K, the
Buyer may answer questions in the trade concerning the execution of this
Agreement, but the Buyer may not disclose the specific terms hereof without the
prior written consent of the Sellers and the Company.
10.12 No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any person other than the parties hereto and their
respective successors and permitted assigns.
10.13 Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
41
<PAGE>
10.14 Incorporation of Schedules and Exhibits. The Schedules and
exhibits identified in this Agreement are incorporated herein by reference and
made a part hereof.
11. Definitions.
"1995 Balance Sheet" shall have the meaning set forth in Section 3.9(a).
"1995 Operating Statements" shall have the meaning set forth in Section
3.9(a).
"AAA" shall have the meaning set forth in Section 8.5.
"Acquired Shares" shall have the meaning set forth in Section 1.1.
"Acquisition Documents" shall have the meaning set forth in Section 3.1.
"Acquisition Proposal" shall have the meaning set forth in Section 5.11.
"Agreement" shall mean this Stock Purchase Agreement.
"Benefit Plans" shall have the meaning set forth in Section 3.21(a).
"Benefits Claim" shall have the meaning set forth in Section
8.1(c)(iii).
"Business" shall have the meaning set forth in the introductory
paragraphs hereto.
"Buyer" shall mean Cosmar Corporation, a Delaware corporation.
"Buyer Indemnitee" shall have the meaning set forth in Section 8.2(a).
"Buyer's First Extension Election" shall have the meaning set forth in
Section 2.
"Buyer's Second Extension Election" shall have the meaning set forth in
Section 2.
"CERCLA" shall have the meaning set forth in Section 3.22(d).
"CERCLIS" shall have the meaning set forth in Section 3.22(d).
"Capital Improvements" shall have the meaning set forth in Section 3.17.
42
<PAGE>
"Cash Portion" shall have the meaning set forth in Section 1.2.
"Chase Manhattan Bank Obligations" shall have the meaning set forth in
Section 6.2(g).
"Chase Release" shall have the meaning set forth in Section 6.2(g).
"Closing" shall have the meaning set forth in Section 2.
"Closing Date" shall have the meaning set forth in Section 2.
"Closing Deposit" shall have the meaning set forth in Section 1.4(b).
"Closing Escrow" shall have the meaning set forth in Section 1.2.
"Closing Escrow Agreement" shall have the meaning set forth in Section
1.2.
"Code" shall have the meaning set forth in Section 3.21(b).
"Company" shall mean Great American Cosmetics, Inc., a New York
corporation.
"Company Common Stock" shall mean the common stock of the Company, no
par value.
"Consulting Agreements" shall have the meaning set forth in Section 5.9
and in the form attached as Exhibit B hereto.
"Contracts" shall have the meaning set forth in Section 3.8(c).
"Deferred Portion" shall have the meaning set forth in Section 1.2.
"Effective Date" shall have the meaning set forth in Section 2.2.
"ERISA" shall have the meaning set forth in Section 3.21(a).
"Environmental Claim" shall have the meaning set forth in Section
8.1(c)(iv).
"Escrow" shall have the meaning set forth in Section 1.2.
43
<PAGE>
"Escrow Agent" shall mean Todtman, Young, Tunick, Nachamie, Hendler &
Spizz, P.C.
"Execution Date" shall mean June 27, 1996.
"Financial Statements" shall have the meaning set forth in Section
3.9(a).
"First Extension Date" shall have the meaning set forth in Section 2.1
"Form 8-K" shall have the meaning set forth in Section 10.11.
"GAAP" shall mean generally accepted accounting principles, consistently
applied from period to period.
"Hazardous Substance" shall have the meaning set forth in Section
3.22(c).
"Indemnifiable Losses" shall have the meaning set forth in Section
8.2(a).
"Indemnifying Party" shall have the meaning set forth in Section 8.4(a).
"Indemnitee" shall have the meaning set forth in Section 8.4(a).
"Initial Deposit" shall have the meaning set forth in Section 1.3(a).
"Interim Balance Sheet" shall have the meaning set forth in Section
3.9(a).
"Interim Operating Statements" shall have the meaning set forth in
Section 3.9(a).
"LPD" shall have the meaning set forth in Section 3.22(i).
"Licenses" shall have the meaning set forth in Section 3.14(a).
"Liens" shall have the meaning set forth in Section 3.6(a).
"March 31, 1996 Financial Statements" shall have the meaning set forth
in Section 3.9(a).
"Material Contracts" shall have the meaning set forth in Section 3.8(b).
44
<PAGE>
"Opinion of Buyer's Counsel" shall have the meaning set forth in Section
6.2(c) and in the form attached as Exhibit D hereto.
"Opinion of Sellers' Counsel" shall have the meaning set forth in
Section 6.1(d) and in the form attached as Exhibit C-1 hereto.
"Opinion of Sellers' HSR Counsel" shall have the meaning set forth in
Section 6.1(e) and in the form attached as Exhibit C-2 hereto.
"Party Claim" shall have the meaning set forth in Section 8.5(a).
"Permits" shall have the meaning set forth in Section 3.22(a).
"Pre-Closing Deposits" shall have the meaning set forth in Section 1.3.
"Pre-Closing Escrow" shall have the meaning set forth in Section 1.3.
"Pre-Closing Escrow Agreement" shall have the meaning set forth in
Section 1.3.
"Press Release" shall have the meaning set forth in Section 10.11.
"Purchase Price" shall have the meaning set forth in Section 1.2.
"Relation" shall have the meaning set forth in Section 3.8(b).
"Release" shall have the meaning set forth in Section 3.22(e).
"Rights" shall have the meaning set forth in Section 3.14(a).
"Second Deposit" shall have the meaning set forth in Section 1.3(b).
"Second Extension Date" shall have the meaning set forth in Section 2.1.
"Seller(s)" shall mean Larry Pallini and Vincent Carbone.
"Tax Claim" shall have the meaning set forth in Section 8.1(c)(i).
"Tax Returns" shall have the meaning set forth in Section 3.24(e).
45
<PAGE>
"Taxes" shall have the meaning set forth in Section 3.24(d).
"Third Deposit" shall have the meaning set forth in Section 1.3(c).
"Third Party Claim" shall have the meaning set forth in Section 8.4(a).
46
<PAGE>
In WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Execution Date.
COSMAR CORPORATION
By: /s/ JOHN R. JACKSON
---------------------------
Name: JOHN R. JACKSON
Title: VICE PRESIDENT
LARRY PALLINI
/s/ LARRY PALLINI
------------------------------
VINCENT CARBONE
/s/ VINCENT CARBONE
------------------------------
GREAT AMERICAN COSMETICS, INC.
By: /s/ LARRY PALLINI
---------------------------
Name: LARRY PALLINI
Title: PRESIDENT
47
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RENAISSANCE COSMETICS, INC. ("PARENT"),
RENAISSANCE ACQUISITION, INC. ("RAI")
AND
MEM COMPANY, INC. ("COMPANY")
DATED AS OF AUGUST 6, 1996
<PAGE>
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
SECTION 1.1 The Merger....................................................1
SECTION 1.2 Effective Time of the Merger..................................1
ARTICLE II
THE SURVIVING AND PARENT CORPORATIONS
SECTION 2.1 Certificate of Incorporation..................................1
SECTION 2.2 By-laws.......................................................2
SECTION 2.3 Officers......................................................2
SECTION 2.4 Directors.....................................................2
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Shares in the Merger....................2
SECTION 3.2 Consideration.................................................3
SECTION 3.3 Cancellation of Company Common Stock Certificates.............3
SECTION 3.4 Closing.......................................................4
SECTION 3.5 Closing of the Company's Transfer Books.......................4
SECTION 3.6 Dissenting Shares.............................................4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.1 Organization and Qualification................................5
SECTION 4.2 Capitalization................................................5
SECTION 4.3 Subsidiaries..................................................6
SECTION 4.4 Authority; Non-Contravention; Approvals.......................6
SECTION 4.5 Reports and Financial Statements..............................8
SECTION 4.6 Absence of Undisclosed Liabilities............................8
SECTION 4.7 Absence of Certain Changes or Events..........................9
SECTION 4.8 Litigation....................................................9
i
<PAGE>
SECTION 4.9 Proxy Statement...............................................9
SECTION 4.10 No Violation of Law...........................................9
SECTION 4.11 Compliance with Agreements...................................10
SECTION 4.12 Taxes........................................................10
SECTION 4.13 Employee Benefit Plans; ERISA................................11
SECTION 4.14 Labor Controversies..........................................12
SECTION 4.15 Environmental Matters........................................13
SECTION 4.16 Title to Assets..............................................14
SECTION 4.17 Company Stockholders' Approval...............................15
SECTION 4.18 No Excess Parachute Payments.................................15
SECTION 4.19 Trademarks and Intellectual Property Compliance..............15
SECTION 4.20 Material Agreements..........................................16
SECTION 4.21 Transactions with Related Parties............................16
SECTION 4.22 Insurance....................................................16
SECTION 4.23 Receivables..................................................16
SECTION 4.24 Customers and Suppliers......................................17
SECTION 4.25 Product Liability Claims.....................................17
SECTION 4.26 Inventories..................................................17
SECTION 4.27 Warranties and Returns.......................................17
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND RAI
SECTION 5.1 Organization and Qualification...............................18
SECTION 5.2 Authority; Non-Contravention; Approvals......................18
SECTION 5.3 Litigation...................................................19
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger........19
SECTION 6.2 Acquisition Transactions.....................................21
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information........................................22
SECTION 7.2 Proxy Statement..............................................23
SECTION 7.3 Stockholder Approval.........................................23
ii
<PAGE>
SECTION 7.4 Expenses and Fees............................................24
SECTION 7.5 Agreement to Cooperate.......................................24
SECTION 7.6 Public Statements............................................25
SECTION 7.7 Stock Option Plans and Stock Options.........................25
SECTION 7.8 Notification of Certain Matters..............................25
SECTION 7.9 Directors' and Officers' Indemnification.....................25
SECTION 7.10 Corrections to the Proxy Statement...........................26
SECTION 7.11 Employment Agreements, Severance Agreements, Stay Bonuses
and Related Employment Matters.....................26
SECTION 7.12 Stockholder Agreement........................................27
SECTION 7.13 Parent Stay Bonus Program....................................27
SECTION 7.14 Company Stay Bonus Program...................................28
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger...28
SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger.............................................29
SECTION 8.3 Conditions to Obligations of Parent and RAI to Effect the
Merger.............................................30
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination..................................................31
SECTION 9.2 Effect of Termination........................................32
SECTION 9.3 Amendment....................................................32
SECTION 9.4 Waiver.......................................................32
ARTICLE X
TERMINATION OF REPRESENTATIONS AND WARRANTIES
SECTION 10.1 Termination of Representations and Warranties................32
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 Brokers......................................................33
SECTION 11.2 Notices......................................................33
SECTION 11.3 Interpretation...............................................34
iii
<PAGE>
SECTION 11.4 Miscellaneous................................................35
SECTION 11.5 Counterparts.................................................35
SECTION 11.6 Parties In Interest..........................................35
SECTION 11.7 Exhibits and Schedules.......................................35
iv
<PAGE>
EXHIBITS
Exhibit 7.12-1 Form of Stockholder Agreement
SCHEDULES
Schedule 2.3 List of Officers of the Surviving Corporation
Schedule 2.4 List of Directors of the Surviving Corporation
Schedule 4.2 Company Capitalization
Schedule 4.3 Company Subsidiaries
Schedule 4.4 Company Third Party Consents
Schedule 4.5 Company Reports and Financial Statements
Schedule 4.6 Certain Liabilities
Schedule 4.8 Company Litigation
Schedule 4.10 Violation of Laws by Company
Schedule 4.11 Company Compliance
Schedule 4.12 Company Taxes
Schedule 4.13 Company Employee Benefit Matters
Schedule 4.14 Company Labor Controversies
Schedule 4.15 Company Environmental Matters
Schedule 4.16 Company Assets
Schedule 4.18 Company Parachute Payments
Schedule 4.19 Company Intellectual Property Rights
Schedule 4.20 Company Material Agreements
Schedule 4.22 Company Insurance Policies
Schedule 4.23 Company Receivables
Schedule 4.24 Company Customers and Suppliers
Schedule 4.25 Company Product Liability Claims
Schedule 4.26 Company Inventories
Schedule 4.27 Company Warranties and Returns
Schedule 5.2 Parent and RAI Third Party Consents
Schedule 5.3 Parent Litigation
Schedule 7.11(a) Company Change of Control Agreements
Schedule 7.11(b) Company Employment Agreements
Schedule 7.11(c) Company Severance Agreements
Schedule 7.11(d) Company Stay Bonus Agreements
Schedule 7.11(e) Company Severance Policy
Schedule 11.1(a) Company's Buyer's Brokers Fees
Schedule 11.1(b) Patent's and RAI's Brokers Fees
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 6, 1996
(the "Agreement"), by and among RENAISSANCE COSMETICS, INC., a Delaware
corporation ("Parent"), RENAISSANCE ACQUISITION, INC., a New York corporation
and a wholly-owned subsidiary of Parent ("RAI"), and MEM COMPANY, INC., a New
York corporation (the "Company");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent and the Company have
determined that the merger of RAI with and into the Company (the "Merger") is
consistent with and in furtherance of the long-term business strategy of Parent
and the Company and is fair to, and in the best interests of, Parent and the
Company and their respective stockholders.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined in Section 1.2)
in accordance with the New York Business Corporation Law (the "BCL"), RAI shall
be merged with and into the Company and the separate existence of RAI shall
thereupon cease. The Company shall be the surviving corporation in the Merger
and is hereinafter sometimes referred to as the "Surviving Corporation."
SECTION 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in a
Certificate of Merger, in a form mutually acceptable to Parent and the Company,
to be filed with the Secretary of State of the State of New York in accordance
with the BCL (the "Merger Filing"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.5.
ARTICLE II
THE SURVIVING AND PARENT CORPORATIONS
SECTION 2.1 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Surviving Corporation shall be amended and restated at and
as of the Effective Time to read
<PAGE>
as did the Certificate of Incorporation of the RAI immediately prior to the
Effective Time (except that the name of the Surviving Corporation shall remain
unchanged).
SECTION 2.2 BY-LAWS. The By-laws of the Surviving Corporation
shall be amended and restated at and as of the Effective Time to read as did the
By-laws of the RAI immediately prior to the Effective Time (except that the name
of the Surviving Corporation shall remain unchanged).
SECTION 2.3 OFFICERS. The officers of the Surviving Corporation
shall be as designated in SCHEDULE 2.3, and such officers shall serve in
accordance with the By-laws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
SECTION 2.4 DIRECTORS. The directors of the Surviving Corporation
shall be as designated in SCHEDULE 2.4, and such directors shall serve in
accordance until the next annual meeting of the Surviving Corporation or until
their successors are duly elected and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF COMPANY SHARES IN THE MERGER. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any shares of Company Common Stock, par value $.05 per share of
the Company ("Company Common Stock"):
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares as defined
in Section 3.6) shall be converted into, and shall thereafter represent only,
the right to receive the Merger Consideration (as defined in Section 3.2).
(b) Each share of Company Common Stock owned by Parent or any
subsidiary of Parent or held in treasury by the Company or any Subsidiary of the
Company (each a "Non-Converting Share") immediately prior to the Effective Time,
if any, shall be cancelled and shall cease to exist from and after the Effective
Time.
(c) At the Effective Time, by virtue of the Merger and without
any action on the part of Parent as the sole stockholder of RAI, each issued and
outstanding share of common stock, no par value, of RAI ("RAI Common Stock")
shall be converted into one share of common stock, no par value, of the
Surviving Corporation.
(d) No share of Company Common Stock (other than Dissenting
Shares) shall be deemed to be outstanding or to have any rights other than those
set forth in this Section 3.1 after the Effective Time.
2
<PAGE>
SECTION 3.2 CONSIDERATION.
(a) The consideration to be issued in the Merger for each share
(or fraction thereof) of Company Common Stock shall be Seven Dollars and Fifty
Cents ($7.50) per share of Company Common Stock (the "Merger Consideration") to
be distributed in accordance with Section 3.3(c) below.
(b) The Merger Consideration shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split
or other change in the number of shares of Company Common Stock outstanding
prior to Closing (as defined in Section 3.5).
SECTION 3.3 CANCELLATION OF COMPANY COMMON STOCK CERTIFICATES.
(a) From and after the Effective Time, all Company Common Stock
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing shares
of Company Common Stock (other than Dissenting Shares as defined in Section
3.6(a) below) shall cease to have any rights with respect thereto, except the
right to receive in exchange therefor, upon surrender thereof to Registrar and
Transfer Company (the "Exchange Agent"), the amount of Merger Consideration to
which each holder of Company Common Stock is entitled pursuant to the terms
hereof.
(b) Promptly after the Effective Time, Parent shall make
available to the Exchange Agent the total amount of Merger Consideration
required to effect the exchanges referred to in paragraph (a) above.
(c) Promptly after the Effective Time, the Exchange Agent shall
mail to each holder of record of a certificate or certificates that immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock (other than Dissenting Shares as defined in Section 3.6(a) below) (the
"Company Certificates") (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon actual delivery of the Company Certificates
to the Exchange Agent) and (ii) instructions for use in effecting the surrender
of the Company Certificates in exchange for the Merger Consideration. Upon
surrender of Company Certificates for cancellation to the Exchange Agent,
together with a duly executed letter of transmittal and such other documents as
the Exchange Agent shall reasonably require, the holder of such Company
Certificates shall be entitled to receive in exchange therefore the Merger
Consideration into which the shares of Company Common Stock theretofore
represented by the Company Certificates so surrendered shall have been converted
pursuant to the provisions of Section 3.1, and the Company Certificates so
surrendered shall be cancelled.
(d) Promptly following the date which is nine (9) months after
the Effective Time, the Exchange Agent shall deliver to Parent all Merger
Consideration, property and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Company Certificate may surrender such
3
<PAGE>
Company Certificate to Parent and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefore the Merger Consideration
to which such person is entitled, without any interest thereon. Notwithstanding
the foregoing, none of the Exchange Agent, Parent, RAI or the Surviving
Corporation shall be liable to a holder of Company Common Stock for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
SECTION 3.4 CLOSING. The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place at a location
mutually agreeable to Parent and the Company on the third (3rd) business day
immediately following the date on which the last of the conditions set forth in
Article VIII hereof is fulfilled or waived, or at such other time and place as
Parent and the Company shall reasonably agree (the date on which the Closing
occurs is referred to in this Agreement as the "Closing Date").
SECTION 3.5 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At and after
the Effective Time, holders of Company Common Stock shall cease to have any
rights as stockholders of the Company, except for the rights described herein.
At the Effective Time, the stock transfer books of the Company shall be closed
and no transfer of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time shall thereafter be made. If, after the
Effective Time, subject to the terms and conditions of this Agreement, Company
Certificates formerly representing Company Common Stock are presented to Parent,
they shall be cancelled and exchanged for Merger Consideration in accordance
with this Article III.
SECTION 3.6 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, shares of Company Common Stock that are outstanding immediately prior
to the Effective Time and which are held by stockholders who have not voted such
shares in favor of the Merger or consented thereto in writing and who shall have
available to them and who shall have demanded properly in writing appraisal for
such shares of Company Common Stock in accordance with Sections and 623 and 910
of the BCL (collectively, the "Dissenting Shares") shall not be converted into
or represent the right to receive the Merger Consideration, but such
stockholders shall be entitled only to such rights as are granted by Section 910
of the BCL. Such stockholders shall be entitled to receive payment of the
appraised value of such shares of Company Common Stock held by them in
accordance with the provisions of such Section 910, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such shares of Company
Common Stock under such Section 910 shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive the Merger Consideration, without any interest thereon,
upon surrender, in the manner provided in Section 3.3, of the certificate or
certificates that formerly evidenced such shares.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands and
any other instruments served pursuant
4
<PAGE>
to the BCL and received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
BCL. The Company shall not, except with the prior written consent of Parent,
make any payment with respect to any demands for appraisal or offer to settle or
settle any such demands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and RAI as of the
date hereof as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York and has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted. The Company is qualified to do business and is in
good standing in each jurisdiction in which the properties 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 and in good
standing will not have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
the Company and its Subsidiaries taken as a whole (a "Company Material Adverse
Effect"). True, accurate and complete copies of the Company's Certificate of
Incorporation and By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to Parent.
SECTION 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
6,000,000 shares of Company Common Stock. As of August 5, 1996, 2,583,184 shares
of Company Common Stock were issued and outstanding. All of such issued and
outstanding shares of Company Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. No Subsidiary of the Company
holds any shares of the capital stock of the Company.
(b) Except as set forth on SCHEDULE 4.2 attached hereto, as of
the date hereof (i) there were no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement and also including any rights plan or
other anti-takeover agreement, obligating the Company or any Subsidiary of the
Company to issue, deliver or sell, or cause to be issued, delivered or sold or
otherwise to become outstanding, additional shares of the capital stock of the
Company or obligating the Company or any Subsidiary of the Company to grant,
extend or enter into any such agreement or commitment, and (ii) there are no
voting trusts, proxies or other agreements or understandings to which the
Company or any Subsidiary of the Company is a party or is bound with respect to
the voting of any shares of capital stock of the
5
<PAGE>
Company and, to the knowledge of the Company, there are no such trusts, proxies,
agreements or understandings by, between or among any of the Company's
stockholders with respect to Company Common Stock. There are no outstanding or
authorized stock appreciation rights, phantom stock, profit participation or
similar rights with respect to the Company.
SECTION 4.3 SUBSIDIARIES. SCHEDULE 4.3 lists all of the
corporations in which the Company owns, directly or indirectly, fifty percent
(50%) or more of the securities of such corporation that are entitled to vote at
a meeting of the stockholders thereof ("Subsidiaries"). Except where any failure
would not have a Company Material Adverse Effect, each direct and indirect
Subsidiary of the Company is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization and
has the requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each
Subsidiary of the Company is qualified to do business, and is in good standing,
in each jurisdiction in which the properties 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 and in good standing will not, when
taken together with all such other failures, have a Company Material Adverse
Effect. All of the outstanding shares of capital stock of each Subsidiary of the
Company are validly issued, fully paid, nonassessable and free of preemptive
rights and are owned directly or indirectly by the Company free and clear of any
liens, claims or encumbrances, except that such shares are pledged to secure the
Company's credit facilities. There are no subscriptions, options, warrants,
rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any Subsidiary of the Company, including any right of
conversion or exchange under any outstanding security, instrument or agreement.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to enter
into this Agreement and, subject to the Company Stockholders' Approval (as
defined in Section 7.3(a)) and the Company Required Statutory Approvals (as
defined in Section 4.4(c)), to consummate the transactions contemplated hereby.
This Agreement has been approved by the Board of Directors of the Company, and
no other corporate proceedings on the part of the Company are necessary to
authorize the execution and delivery of this Agreement or, except for the
Company Stockholders' Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and RAI, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by the Company
do not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with
6
<PAGE>
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or any of its Subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or By-laws of the
Company or any of its Subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any of its Subsidiaries is now a party or by which
the Company or any of its Subsidiaries or any of their respective properties or
assets may be bound. The consummation by the Company of the transactions
contemplated hereby will not result in any violation, conflict, breach,
termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence, subject (x) in the case of the terms, conditions or provisions
described in clause (ii) above, to obtaining (prior to the Effective Time) the
Company Required Statutory Approvals and the Company Stockholders' Approval and
(y) in the case of the terms, conditions or provisions described in clause (iii)
above, to obtaining (prior to the Effective Time) consents required from
lenders, lessors or other third parties described on SCHEDULE 4.4 attached
hereto. Excluded from the foregoing sentences of this paragraph (b), insofar as
they apply to the terms, conditions or provisions described in clauses (ii) and
(iii) of the first sentence of this paragraph (b), are such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Company Material Adverse Effect.
(c) Except for (i) the filings by Parent and the Company required
by the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (ii) the filing of the Proxy Statement (as defined in Section 4.9
below) with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii) the
making of the Merger Filing with the Secretary of State of the State of New York
in connection with the Merger, (iv) the filings and approvals required pursuant
to the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6 ET SEQ.
("ISRA") with respect to the real property of the Company located in New Jersey,
and (v) the other consents and filings described on SCHEDULE 4.4 attached hereto
(the filings and approvals referred to in clauses (i) through (v) are
collectively referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a Company Material Adverse Effect.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS. Except as set forth
on SCHEDULE 4.5 attached hereto, since December 31, 1993, the Company has filed
with the SEC all forms, statements, reports and documents (including all
exhibits, amendments and supplements
7
<PAGE>
thereto) required to be filed by it under each of the Securities Act, the
Exchange Act and the respective rules and regulations thereunder, all of which,
as amended if applicable, complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
The Company has previously delivered to Parent copies of its (a) Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, as filed with the SEC,
(b) proxy and information statements relating to (i) all meetings of its
stockholders (whether annual or special) and (ii) actions by written consent in
lieu of a stockholders' meeting from December 31, 1995, until the date hereof,
and (c) all other reports, including quarterly reports, or registration
statements filed by the Company with the SEC since December 31, 1995 (other than
Registration Statements filed on Form S-8) (the documents referred to in clauses
(a), (b) and (c) are collectively referred to as the "Company SEC Reports"). As
of their respective dates, the Company SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim consolidated financial
statements of the Company included in such reports (collectively, the "Company
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
the Company and its Subsidiaries as of the dates thereof and the results of
their operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
SECTION 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in the Company SEC Reports or in SCHEDULE 4.6 attached hereto, neither
the Company nor any of its Subsidiaries had at June 30, 1996, or has incurred
since that date, any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except: (a) liabilities, obligations or
contingencies (i) which are accrued or reserved against in the Company Financial
Statements or reflected in the notes thereto or (ii) which were incurred after
June 30, 1996 and were incurred in the ordinary course of business and
consistent with past practices or (iii) which were incurred in connection with
this Agreement and the transactions contemplated hereby and which exceed
individually $10,000 (all of which are listed on SCHEDULE 4.6 hereto); (b)
liabilities, obligations or contingencies which (i) would not, in the aggregate,
have a Company Material Adverse Effect, or (ii) have been discharged or paid in
full prior to the date hereof; and (c) liabilities and obligations which are of
a nature not required to be reflected in the consolidated financial statements
of the Company and its Subsidiaries prepared in accordance with generally
accepted accounting principles consistently applied and which were incurred in
the normal course of business.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date
of the most recent Company SEC Report, there has not been any change in the
business, operations, properties, assets, liabilities, condition (financial or
other) or results of operations of the Company and its Subsidiaries, taken as a
whole, including as a result of any change in capital structure, employee
compensation arrangement (including severance rights and benefit plans),
accounting method or applicable law which would, in the aggregate, have a
Company Material Adverse Effect.
8
<PAGE>
SECTION 4.8 LITIGATION. Except as referred to in the Company SEC
Reports or in SCHEDULE 4.8 attached hereto, there are no claims, suits, actions
or proceedings pending or, to the knowledge of the Company, threatened against,
relating to or affecting the Company or any of its Subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain the consummation of the
Merger or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to cause a Company Material
Adverse Effect. Except as referred to in the Company SEC Reports or in SCHEDULE
4.8 attached hereto, neither the Company nor any of its Subsidiaries is subject
to any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have any Company Material Adverse Effect.
SECTION 4.9 PROXY STATEMENT. None of the information supplied or
to be supplied by the Company or its Subsidiaries for inclusion in its proxy
statement to its stockholders (the "Proxy Statement") or any amendments thereof
or supplements thereto, at the time of the mailing of the Proxy Statement and
any amendments or supplements thereto, and at the time of the meetings of
stockholders of the Company to be held in connection with the transactions
contemplated by this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
SECTION 4.10 NO VIOLATION OF LAW. Except as disclosed in the
Company SEC Reports or in SCHEDULE 4.10 attached hereto, neither the Company nor
any of its Subsidiaries is in violation of or has been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in the Company SEC Reports, to the knowledge of the Company, no
investigation or review by any governmental or regulatory body or authority is
pending or threatened, nor has any governmental or regulatory body or authority
indicated to the Company an intention to conduct the same, other than, in each
case, those the outcome of which, as far as reasonably can be foreseen, will not
have a Company Material Adverse Effect. The Company and its Subsidiaries have
all permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively, the "Company Permits"), except
for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a Company Material Adverse Effect. The Company and its
Subsidiaries are not in violation of the terms of any Company Permit, except for
delays in filing reports or violations which, alone or in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
9
<PAGE>
SECTION 4.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in
the Company SEC Reports or in SCHEDULE 4.11 attached hereto, the Company and
each of its Subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with notice or lapse of time or action by a third party, could result in
a default under, (a) the respective charters, by-laws or similar organizational
instruments of the Company or any of its Subsidiaries; or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which the Company or any of its
Subsidiaries is a party or by which any of them is bound or to which any of
their property is subject, which breaches, violations and defaults, in the case
of clause (b) of this Section 4.11, would have, in the aggregate, a Company
Material Adverse Effect.
SECTION 4.12 TAXES. Except as disclosed in SCHEDULE 4.12, the
Company and its Subsidiaries have (i) duly filed with the appropriate
governmental authorities all Tax Returns (as defined below) required to be filed
by them for all taxable periods ending on or prior to the Effective Time, other
than those Tax Returns the failure of which to file would not have a Company
Material Adverse Effect, and such Tax Returns are true, correct and complete in
all material respects, and (ii) duly paid in full or made adequate provision in
the most recent Company Financial Statements for the payment of all Taxes (as
defined below) for all taxable periods ending at or prior to the Effective Time
(whether or not shown on any Tax Return), except where the failure to pay such
Taxes would not have a Company Material Adverse Effect. The liabilities and
reserves for Taxes reflected in the Company balance sheet included in the latest
Company SEC Report are expected to be adequate to cover all Taxes for all
periods ending at or prior to the Effective Time and there are no material liens
for Taxes upon any property or asset of the Company or any Subsidiary thereof,
except for liens for Taxes not yet due. There are no notices of deficiency or
assessments from the IRS or any other governmental taxing authority with respect
to Taxes of the Company or any of its Subsidiaries which, if decided adversely,
singly or in the aggregate, would have a Company Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate Subsidiary of the Company.
Neither the Company nor any of its corporate Subsidiaries has, with regard to
any assets or property held, acquired or to be acquired by any of them, filed a
consent to the application of Section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code").
For purposes of this Agreement, the term "Taxes" shall mean all
taxes, including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and such term shall include any interest, fines, penalties or additional
amounts and any interest in respect of any additions, fines or penalties
attributable or imposed or with respect to any such taxes, charges, fees, levies
or other assessments.
10
<PAGE>
For purposes of this Agreement, the term "Tax Return" shall mean
any return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
SECTION 4.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in the Company SEC Reports or as
disclosed in SCHEDULE 4.13 attached hereto, the Company and its Subsidiaries do
not maintain or contribute to or have any obligation or liability to or under
any employee benefit plans, programs, arrangements and practices covering
employees of the Company and its Subsidiaries (or their beneficiaries) (such
plans, programs, arrangements and practices of the Company and its Subsidiaries
being referred to as the "Company Plans"), including employee benefit plans
within the meaning set forth in Section 3(3) of ERISA, or other similar material
arrangements for the provision of benefits (excluding any "Multi-employer Plan"
within the meaning of Section 3(37) of ERISA or a "Multiple Employer Plan"
within the meaning of Section 413(c) of the Code). SCHEDULE 4.13 attached hereto
lists all Multi-employer Plans and Multiple Employer Plans which any of the
Company or its Subsidiaries maintains or to which any of them makes
contributions or has any liability, contingent or otherwise.
(b) Except as disclosed in the Company SEC Reports and except to
the extent that there would be no Company Material Adverse Effect, (i) neither
the Company nor any of its Subsidiaries has engaged in any prohibited
transaction within the meaning of Section 406 or 407 of ERISA or Section 4975 of
the Code with respect to any of the Company Plans that could reasonably be
expected to result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Company Material Adverse Effect, (ii) except for
premiums due, there is no outstanding material liability, whether measured alone
or in the aggregate, under Title IV of ERISA with respect to any of the Company
Plans, (iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Company Plans
subject to Title IV of ERISA other than in a "standard termination" described in
Section 4041(b) of ERISA, (iv) none of the Company Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Company Plans ended prior to the date of this
Agreement, (v) the present value of all accumulated benefit obligations under
each of the Company Plans which is subject to Title IV of ERISA did not, as of
its latest valuation date, exceed the then current value of the assets of such
plan allocable to such benefit liabilities by more than the amount, if any,
disclosed in the Company SEC Reports as of December 31, 1995, based upon
reasonable actuarial assumptions currently utilized for such Company Plan, (vi)
each of the Company Plans has been operated and administered in all material
respects in accordance with applicable laws during the period of time covered by
the applicable statute of limitations, (vii) each of the Company Plans which 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 and, to the
knowledge of the Company, such determination has not been modified, revoked or
limited by failure to satisfy any condition thereof or by a subsequent amendment
thereto or a failure to amend, except that it may be necessary to make
additional amendments retroactively to maintain the "qualified" status of such
Company Plans, and
11
<PAGE>
the period for making any such necessary retroactive amendments has not expired,
(viii) with respect to Multi-employer Plans, neither the Company nor any of its
Subsidiaries has, made or suffered a "complete withdrawal" or a "partial
withdrawal," as such terms are defined in Sections 4203, 4204 and 4205 of ERISA,
respectively, and, to the knowledge of the Company and its Subsidiaries, no
event has occurred which presents a material risk of a complete or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) to the knowledge of the
Company and its Subsidiaries, there are no material pending or threatened claims
involving any of the Company Plans other than claims for benefits in the
ordinary course, and (x) the Company and its Subsidiaries have no current
material liability, whether measured alone or in the aggregate, for plan
termination or complete withdrawal or partial withdrawal under Title IV of ERISA
based on any plan to which any entity that would be deemed one employer with the
Company and its Subsidiaries under Section 4001 of ERISA or Section 414 of the
Code contributed during the period of time covered by the applicable statute of
limitations (the "Company Controlled Group Plans"). None of the Company
Controlled Group Plans has an "accumulated funding deficiency" (as defined in
Section 302 of ERISA and 412 of the Code).
(c) The Company SEC Reports, as supplemented by SCHEDULE 4.13
attached hereto, contain a true and complete summary or list of or otherwise
describe all material employment contracts and other employee benefit
arrangements with "change of control" or similar provisions and all severance
agreements with executive officers.
SECTION 4.14 LABOR CONTROVERSIES. Except as set forth in the
Company SEC Reports or as disclosed in SCHEDULE 4.14 attached hereto, (a) there
are no material controversies pending or, to the knowledge of the Company,
threatened between the Company or its Subsidiaries and any representatives of
any of their employees, (b) to the knowledge of the Company, there are no
material organizational efforts presently being made involving any of the
presently unorganized employees of the Company or its Subsidiaries, (c) the
Company and its Subsidiaries have, to the knowledge of the Company, complied in
all material respects with all laws relating to the employment of labor,
including, without limitation, any provisions thereof relating to wages, hours,
collective bargaining, and the payment of social security and similar taxes, and
(d) no person has, to the knowledge of the Company, asserted that the Company or
any of its Subsidiaries is liable in any material amount for any arrears of
wages or any taxes or penalties for failure to comply with any of the foregoing,
except for such controversies, organizational efforts, non-compliance and
liabilities which, singly or in the aggregate, could not reasonably be expected
to cause a Company Material Adverse Effect.
SECTION 4.15 ENVIRONMENTAL MATTERS. To the Company's knowledge
and except as set forth in the Company SEC Reports or as disclosed in SCHEDULE
4.15 attached hereto, (i) the Company and its Subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws (as
defined below), including, without limitation, having all permits, licenses and
other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties owned
by the Company or any of its Subsidiaries contains any Hazardous Substance (as
defined below) as a result of any activity of the Company or any of its
Subsidiaries in amounts exceeding the levels permitted by applicable
12
<PAGE>
Environmental Laws, (iii) neither the Company nor any of its Subsidiaries has
received any notices, demand letters or requests for information under CERCLA
(as hereinafter defined) from any Federal, state, local or foreign governmental
entity or third party indicating that the Company or any of its Subsidiaries may
be in violation of, or liable under, any Environmental Law in connection with
the ownership or operation of their businesses, (iv) there are no civil,
criminal or administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries relating to any
violation, or alleged violation, of any Environmental Law, (v) no reports have
been filed, or are required to be filed, by the Company or any of its
Subsidiaries concerning the release, or threatened release, of any Hazardous
Substance under any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company or any of its
Subsidiaries as a result of any activity of the Company or any of its
Subsidiaries during the time such properties were owned, leased or operated by
the Company or any of its Subsidiaries, except in compliance with any applicable
Environmental Law or a permit issued by any environmental regulatory agency,
(vii) there are no underground storage tanks on, in or under any properties
owned by the Company or any of its Subsidiaries and no underground storage tanks
have been closed or removed from any of such properties during the time such
properties were owned, leased or operated by the Company or any of its
Subsidiaries, (viii) there is no asbestos or asbestos containing material
present in any of the properties owned by the Company and its Subsidiaries, and
no asbestos has been removed from any of such properties during the time such
properties were owned, leased or operated by the Company or any of its
Subsidiaries, and (ix) neither the Company, its Subsidiaries nor any of their
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, with respect to the foregoing clauses (i)
through (ix), except for violations, non-compliances, liabilities or conditions
at the properties owned or operated by the Company or its Subsidiaries that,
singly or in the aggregate, would not reasonably be expected to have a Company
Material Adverse Effect.
For purposes of this Agreement, "Environmental Law" means any
Federal, state, local or foreign law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"), the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste
Disposal and the Federal Toxic Substances Control Act, the Federal
13
<PAGE>
Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and
Health Act of 1970, each as amended and as in effect on the Closing Date, or any
state counterpart thereof, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries, damages or penalties due to, or threatened as a
result of, the presence of, effects of or exposure to any Hazardous Substance.
For purposes of this Agreement, "Hazardous Substance" means any
substance presently listed, defined, designated or classified as hazardous,
toxic or radioactive, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde, foam insulation, lead or
polychlorinated biphenyls.
SECTION 4.16 TITLE TO ASSETS. SCHEDULE 4.16 contains a
description of all fixed assets of the Company having a book value in excess of
$25,000 per asset. The Company and each of its Subsidiaries has good and
marketable title in fee simple to all of its real property and good title to all
its leasehold interests and other properties, as reflected in the most recent
balance sheet included in the Company Financial Statements, except for
properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current Taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
material in character, amount or extent and do not materially and adversely
affect the value or interfere with the present use of the property subject
thereto or affected thereby, or otherwise materially impair the Company's
business operations (in the manner presently carried on by the Company), (iii)
as disclosed in the Company SEC Reports or (iv) mortgages incurred in the
ordinary course of business, and except for such matters which, singly or in the
aggregate, could not reasonably be expected to cause a Company Material Adverse
Effect. All leases under which the Company leases real or personal property and
which provide for an annual rental (on a per lease basis) in excess of $10,000
have been delivered to Parent, and all leases under which the Company leases
real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event which with notice or lapse of time or both
would become a default other than defaults under such leases which in the
aggregate will not have a Company Material Adverse Effect.
SECTION 4.17 COMPANY STOCKHOLDERS' APPROVAL. The affirmative vote
of stockholders of the Company required for approval and adoption of this
Agreement and the Merger is two-thirds of the outstanding shares of Company
Common Stock.
SECTION 4.18 NO EXCESS PARACHUTE PAYMENTS. Except as set forth on
SCHEDULE 4.18, the Company has no contracts, arrangements or understandings
pursuant to which any
14
<PAGE>
person may receive any amount or entitlement from the Company or any of its
Subsidiaries (including cash or property or the vesting of property) that may be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(B)(1) of the Code) (any such amount being an "Excess Parachute
Payment") as a result of any of the transactions contemplated by this Agreement.
Except as set forth on SCHEDULE 4.18, to the best knowledge of the Company, no
person is entitled to receive any additional payment from the Company, its
Subsidiaries or any other person (a "Parachute Gross-up Payment") in the event
that the 20 percent (20%) parachute excise tax of Section 4999(a) of the Code is
imposed on such person. Except as set forth on SCHEDULE 4.18, the Board of
Directors of the Company has not during the six months prior to the date of this
Agreement granted to any officer, director or employee of the Company any right
to receive any Parachute Gross-Up Payment.
SECTION 4.19 TRADEMARKS AND INTELLECTUAL PROPERTY COMPLIANCE. The
Company and its Subsidiaries own or have the right to use, without any material
payment to any other party, all of the rights set forth on SCHEDULE 4.19
("Intellectual Property Rights"), and the consummation of the transactions
contemplated hereby will not alter or impair such rights in any material
respect. To the knowledge of the Company, no claims are pending by any person
with respect to the ownership, validity, enforceability or use of any such
Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing which claims could reasonably be expected
to have a Company Material Adverse Effect. SCHEDULE 4.19 attached hereto lists
all of the Company's Intellectual Property Rights and all filing information
relating thereto.
SECTION 4.20 MATERIAL AGREEMENTS. Except as set forth on SCHEDULE
4.20, the Company has no material agreements other than those filed as exhibits
to the Company SEC Reports.
SECTION 4.21 TRANSACTIONS WITH RELATED PARTIES. Except as set
forth in the Company SEC Reports, (a) there have been no transactions by the
Company or its Subsidiaries with any officer or director of the Company or
beneficial owner of more than five percent (5%) of the Company Common Stock or
their affiliates ("Related Parties") since December 31, 1995, which are required
to be disclosed pursuant to the Exchange Act and (b) there are no material
agreements or understandings now in effect between the Company or its
Subsidiaries and any Related Party.
SECTION 4.22 INSURANCE. Except to the extent there would be no
Company Material Adverse Effect, all of the Company's and its Subsidiaries'
liability, theft, life, health, fire, title, worker's compensation and other
forms of insurance, surety bonds and umbrella policies, insuring the Company and
its Subsidiaries and their directors, officers, employees, independent
contractors, properties, assets and business, are valid and in full force and
effect and without any premium past due or pending notice of cancellation, are,
in the reasonable judgment of the Company, adequate for the business of the
Company and its Subsidiaries as now conducted, and there are no claims, singly
or in the aggregate, under such policies in excess of $50,000, which, in any
event, are not in excess of the limitations of coverage set forth in such
policies. The Company and its Subsidiaries have taken all actions reasonably
necessary to insure that their independent contractors obtain and maintain
15
<PAGE>
adequate insurance coverage. All of the insurance policies referred to in this
Section 4.22, other than the Directors and Officers Liability Insurance and the
Employee Benefit Liability Insurance, are "occurrence" policies and no such
policies, other than the Directors and Officers Liability Insurance and the
Employee Benefit Liability Insurance, are "claims made" policies. Neither the
Company nor any of its Subsidiaries has knowledge of any fact indicating that
such policies will not continue to be available to the Company and its
Subsidiaries upon substantially similar terms subsequent to the Effective Time.
Except as disclosed on Schedule 4.22 attached hereto, the provision and/or
reserves in the most recent Company Financial Statements are adequate for any
and all self insurance programs maintained by the Company or its Subsidiaries.
SCHEDULE 4.22 attached hereto lists all insurance policies of the Company.
SECTION 4.23 RECEIVABLES. Except as set forth in the Company SEC
Reports or as disclosed on SCHEDULE 4.23 attached hereto, the trade accounts and
other receivables of the Company set forth on the most recent Company Financial
Statements are bona fide receivables, arose in the ordinary course out of arms'
length transactions and are recorded correctly on the books and records of the
Company. The reserves for doubtful accounts set forth on the most recent Company
Financial Statements are adequate based on historical trends. Except as set
forth in SCHEDULE 4.23, such accounts and other receivables are not subject to
any counterclaim or set-off not reflected in the reserves set forth on the most
recent Company Financial Statements other than in the ordinary course of
business.
SECTION 4.24 CUSTOMERS AND SUPPLIERS. Except as set forth in the
Company SEC Reports or as disclosed on SCHEDULE 4.24 attached hereto, there has
not been any material adverse change in the business relationship of the Company
with any of its principal customers or suppliers, and there is no pending or, to
the knowledge of the Company, threatened loss of any such customer or supplier.
To the knowledge of the Company, the consummation of the transactions
contemplated by this Agreement will not result in any customer or supplier
reducing or terminating its business with the Company. The business relationship
of the Company with each such customer or supplier is an arms' length
relationship and no affiliation, relationship or transaction (financial or
otherwise) exists or has existed, directly or indirectly, between any such
parties (or officers, directors, employees or agents of such parties) except as
is expressly described in SCHEDULE 4.24.
SECTION 4.25 PRODUCT LIABILITY CLAIMS. SCHEDULE 4.25 lists all
product liability claims seeking damages in excess of $10,000 asserted against
the Company (or in respect of which the Company received notice) with respect to
the products of the Company between June 30, 1993 and the date of this
Agreement; and the product liability claims not listed on SCHEDULE 4.25 do not
aggregate more than $35,000.
SECTION 4.26 INVENTORIES. Except as set forth in the Company SEC
Reports or as disclosed on SCHEDULE 4.26 attached hereto, the inventories of the
Company set forth on the most recent Company Financial Statements have been
valued at the lower of cost (on FIFO) or market (in accordance with GAAP), and
the value of obsolete materials and materials of below standard quality has been
written down in accordance with GAAP. Except as set forth in the
16
<PAGE>
Company SEC Reports or as disclosed on SCHEDULE 4.26 attached hereto, as of the
date of this Agreement, the Company is not under any liability or obligation
with respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers other than for returns
in the ordinary course, consistent with the Company's prior practice.
SECTION 4.27 WARRANTIES AND RETURNS. SCHEDULE 4.27 sets forth a
summary of the present practices and policies followed by the Company with
respect to warranties and returns of any products manufactured or sold by it,
whether such practices are oral or in writing or are deemed to be legally
enforceable. Except as set forth in the Company SEC Reports or as disclosed in
SCHEDULE 4.27 attached hereto, there is not presently, nor has there been since
January l, 1993, any defect in any product sold by the Company that has
required, or that may require, a general recall or replacement campaign or
similar action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance by the Company of returns of any such
defective goods of the Company in excess of $100,000 in the aggregate for all
such defects with respect to products sold by them during the three-year
calendar period ended December 31, 1995.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND RAI
Parent and RAI each represent and warrant to the Company as of
the date hereof as follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION. Each of Parent and
RAI is a corporation duly organized, validly existing and in good standing under
the laws of its state of incorporation and has the requisite corporate power and
authority to carry on its business as it is now being conducted.
SECTION 5.2 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Parent and RAI each have full corporate power and authority
to enter into this Agreement and, subject to the Parent Required Statutory
Approvals (as defined in Section 5.2(c)), to consummate the transactions
contemplated hereby. This Agreement has been approved by the Boards of Directors
of Parent and RAI and the stockholders of RAI, and no other corporate
proceedings on the part of Parent or RAI are necessary to authorize the
execution and delivery of this Agreement or the consummation by Parent and RAI
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by each of Parent and RAI, and, assuming the due authorization,
execution and delivery hereof by the Company, constitutes a valid and legally
binding agreement of each of Parent and RAI enforceable against each of them in
accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
17
<PAGE>
(b) The execution and delivery of this Agreement by each of
Parent and RAI do not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective charters or By-laws of Parent or any of its
subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to Parent or any of its subsidiaries or any of their
respective properties or assets, or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or any of its
subsidiaries is now a party or by which Parent or any of its subsidiaries or any
of their respective properties or assets may be bound. The consummation by
Parent and RAI of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in clauses (i)
through (iii) of the preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to obtaining (prior to
the Effective Time) the Parent Required Statutory Approvals and (y) in the case
of the terms, conditions or provisions described in clause (iii) above, to
obtaining (prior to the Effective Time) consents required from lenders, lessors
or other third parties described on SCHEDULE 5.2 attached hereto. Excluded from
the foregoing sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and (iii) of the first
sentence of this paragraph (b), are such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not have a material adverse effect on Parent
(a "Parent Material Adverse Effect").
(c) Except for (i) the filings by Parent and the Company required
by the HSR, (ii) the making of the Merger Filings with the Secretary of State of
the State of New York in connection with the Merger, and (iii) the other
consents and filings described on SCHEDULE 5.2 attached hereto (the filings and
approvals referred to in clauses (i) through (iii) above are collectively
referred to as the "Parent Required Statutory Approvals"), no declaration,
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by Parent or RAI or the consummation by
Parent or RAI of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a Parent Material Adverse Effect or affect RAI's ability to
consummate the Merger.
SECTION 5.3 LITIGATION. Except as set forth in SCHEDULE 5.3
attached hereto, neither Parent nor or any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority or
18
<PAGE>
any arbitrator which prohibits or restricts the consummation of the transactions
contemplated hereby.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Effective Time or earlier termination of this Agreement,
unless Parent shall otherwise agree in writing, the Company shall, and shall
cause its Subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters
or By-laws, (ii) split, combine or reclassify their outstanding capital stock,
or (iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly-owned Subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of or otherwise cause to become outstanding, any
additional shares of, or any options, warrants or rights of any kind to acquire
any shares of their capital stock of any class or any debt or equity securities
convertible into or exchangeable for such capital stock, except that the Company
may issue shares upon conversion of convertible securities and exercise of
options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (x) borrowings in the ordinary
course of business under credit facilities in existence on the date hereof, (y)
borrowings in the ordinary course which permit prepayment without penalty or (z)
borrowings to refinance existing indebtedness, the terms of which shall be
reasonably satisfactory to Parent, (ii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible into or
exchangeable for its capital stock, (iii) make any acquisition of any assets or
businesses other than expenditures for fixed or capital assets in the ordinary
course of business which, in such cases of $25,000 or more, shall be on terms
reasonably acceptable to Parent, (iv) sell, pledge, dispose of or encumber any
assets or businesses other than sales in the ordinary course of business which,
in such cases involving $25,000 or more, shall be on terms reasonably acceptable
to Parent, or (v) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the services of
their respective present officers and key
19
<PAGE>
employees, and preserve the goodwill and business relationships with customers
and others having business relationships with them and not engage in any action,
directly or indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of materiality and the
general status of ongoing operations;
(g) not enter into or amend any employment, severance, stay
bonus, special pay arrangement with respect to termination of employment or
other similar arrangements or agreements with any directors, officers or key
employees;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law; and
(i) maintain with adequately capitalized insurance companies
insurance coverage for its assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
SECTION 6.2 ACQUISITION TRANSACTIONS.
(a) After the date hereof and prior to the Effective Time or
earlier termination of this Agreement, the Company shall not, and shall not
permit any of its Subsidiaries to, initiate or solicit, and the Company shall,
and shall use its best efforts to cause each of its Subsidiaries to, cause any
officer, director or employee of, or any attorney, accountant, investment
banker, financial advisor or other agent retained by it, not to initiate or
solicit, any proposal or offer to acquire all or any substantial part of the
business and properties of the Company and its Subsidiaries or any capital stock
of the Company and its Subsidiaries, whether by merger, purchase of assets,
tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as "Acquisition Transactions").
(b) Notwithstanding any other provision of this Agreement, in
response to an unsolicited proposal or inquiry with respect to an Acquisition
Transaction, (i) the Company may engage in discussions or negotiations regarding
such proposal or inquiry with a third party who (without any solicitation or
initiation, directly or indirectly, by or with the Company or any Company
representative after the date of this Agreement) seeks to initiate such
discussions or negotiations and may negotiate with and furnish to such third
party information concerning the Company and its business, properties and
assets, and (ii) if such Acquisition Transaction is a tender offer subject to
the provisions of Section 14(d) under the Exchange Act, the Company's Board of
Directors may take and disclose to the Company's stockholders a position
contemplated by Rule 14e-2(a) under the Exchange Act.
20
<PAGE>
(c) In the event the Company shall determine to provide any
information or negotiate as described in paragraph (b) above, or shall receive
any offer of the type referred to in paragraph (b) above, it shall (i)
immediately provide Parent a copy of all information provided to the third
party, (ii) inform Parent that information is to be provided, that negotiations
are to take place or that an offer has been received, as the case may be, and
(iii) furnish to Parent the identity of the person receiving such information or
the proponent of such offer, if applicable, and, if an offer has been received,
unless the Board of Directors of the Company concludes that such disclosure is
inconsistent with its fiduciary duties under applicable law, a description of
the material terms thereof.
(d) The Company may terminate this Agreement, withdraw, modify or
not make its recommendation referred to in Section 7.3, and enter into a
definitive agreement for an Acquisition Transaction if but only if (i) the
Company shall have determined in good faith after consultation with the
independent financial advisors of the Company that such Acquisition Transaction
would be more favorable to the Company's stockholders from a financial point of
view than the Merger, (ii) the Board of Directors of the Company shall conclude
in good faith after consultation with its legal counsel that such action is
necessary in order for the Board of Directors of the Company to act in a manner
that is consistent with its fiduciary obligations under applicable law and (iii)
the Company shall have furnished the Parent with a copy of the definitive
agreement at least five business days prior to its execution and Parent shall
have failed within such five business day period to offer to amend the terms of
this Agreement so that the Merger would be, in the good faith determination of
the Board of Directors of the Company, at least as favorable to the Company's
stockholders from a financial point of view as the Acquisition Transaction.
(e) The Company (i) acknowledges that a breach of any of its
covenants contained in this Section 6.2 will result in irreparable harm to the
Parent and RAI which will not be compensable in money damages, and (ii) agrees
that such covenant shall be specifically enforceable and that specific
performance and injunctive relief shall be a remedy properly available to the
other party for a breach of such covenant. In any event, if Company enters into
an Acquisition Transaction with a party other than Parent, it will immediately
pay to Parent the sums described in Section 7.4(b) below.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS TO INFORMATION.
(a) The Company and its Subsidiaries shall afford to Parent and
RAI and their respective accountants, counsel, financial advisors and other
representatives (the "Parent Representatives") full access during normal
business hours throughout the period after the date hereof and prior to the
Effective Time to all Company properties, books, contracts, commitments and
records (including, but not limited to, Tax Returns) and, during such period,
shall furnish promptly to Parent (i) a copy of each report, schedule and other
document filed or received by any of them pursuant to the requirements of
federal or state securities laws or filed with the SEC or which may
21
<PAGE>
have a material effect on its businesses, properties or personnel, and (ii) such
other information concerning its businesses, operations, properties, assets,
condition (financial or other) results of operations and personnel as the
Company shall reasonably request; provided, however, that any inspection of the
properties relating to environmental matters or compliance with Environmental
Laws shall be undertaken by a nationally recognized environmental consultant
acceptable to the Company and, unless recommended by said environmental
consultant in a Phase I report, shall be non-intrusive in that it shall not
include sampling or testing of the environmental media. Parent and its
subsidiaries shall hold and shall use their reasonable best efforts to cause the
Parent Representatives to hold in strict confidence all non-public documents and
information furnished to Parent and RAI in connection with the transactions
contemplated by this Agreement, except that (i) each of Parent and RAI may
disclose such information as may be necessary in connection with seeking the
Parent Required Statutory Approvals and (ii) each of Parent and RAI may disclose
any information that it is required by law or judicial or administrative order
to disclose.
(b) In the event that this Agreement is terminated in accordance
with its terms, each of Parent and its subsidiaries shall, and Parent and its
subsidiaries shall cause each Parent Representative to, promptly redeliver to
the Company all non-public material in written or machine readable form provided
pursuant to this Section 7.1 and shall not retain any copies, extracts or other
reproductions in whole or in part of such material. In such event, all
documents, memoranda, notes and other writings in written or machine readable
form prepared by Parent based on the information in such material shall be
destroyed (and Parent shall use its reasonable best efforts to cause their
advisors and representatives to similarly destroy their documents, memoranda and
notes), and such destruction (and reasonable best efforts) shall be certified in
writing by an authorized officer supervising such destruction.
(c) The Company shall promptly advise Parent in writing of any
change or the occurrence of any event after the date of this Agreement having,
or which, insofar as can reasonably be foreseen, in the future may have, any
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the Company and its
Subsidiaries.
SECTION 7.2 PROXY STATEMENT. The Company shall file with the SEC
as soon as is reasonably practicable after the date hereof (but in no event
later than twenty (20) days following the date hereof) the Proxy Statement. The
information provided and to be provided by the Company for use in the Proxy
Statement shall be true and correct in all material respects without omission of
any material fact which is required to make such information not misleading as
of the date thereof and in light of the circumstances under which given or made.
SECTION 7.3 STOCKHOLDER APPROVAL. The Company shall, as promptly
as practicable, submit this Agreement and the transactions contemplated hereby
for the approval of its stockholders at a meeting of stockholders and, subject
to the fiduciary duties of the Board of Directors of the Company under
applicable law, shall use its reasonable best efforts to obtain stockholder
approval and adoption (the "Company Stockholders' Approval") of this Agreement
and
22
<PAGE>
the transactions contemplated hereby. The Company shall, through its Board of
Directors, but subject to the fiduciary duties of the members thereof, recommend
to its stockholders approval of the transactions contemplated by this Agreement.
The Company (i) acknowledges that a breach of its covenant contained in this
Section 7.3 to convene a meeting of its stockholders and call for a vote thereat
with respect to the approval of this Agreement and the Merger will result in
irreparable harm to Parent which will not be compensable in money damages and
(ii) agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly available
to Parent for a breach of such covenant.
SECTION 7.4 EXPENSES AND FEES. Each party hereto agrees to bear
its own expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement, except:
(a) Parent shall pay the fees and expenses incurred in connection
with the HSR Act filing; PROVIDED, HOWEVER, that all of the fees and expenses
referred to in this Section 7.4(a) shall be shared equally by Parent and the
Company if this Agreement is terminated pursuant to Section 9 hereof.
(b) If the Merger is not consummated because the Company
terminates the Agreement pursuant to Section 6.2 at a time when Parent and RAI
are in compliance with all of their representations, warranties, covenants and
agreements contained herein and within twelve (12) months from the date of this
Agreement consummates or enters into an agreement or other arrangement to
consummate an Acquisition Transaction with any party other than Parent, the
Company shall pay to Parent the sum of $1,000,000.
(c) If the Merger is not consummated because the Parent or RAI
terminates this Agreement as a result of the failure to satisfy the condition
set forth in Section 8.3(g) at a time when the Company is in compliance with all
of its representations, warranties, covenants and agreements contained herein,
the Parent shall pay to the Company the sum of $1,000,000.
SECTION 7.5 AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided, each of
the parties hereto shall use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable pursuant to all agreements, contracts, indentures or other
instruments to which the parties hereto are a party, or under any applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable efforts to (i)
obtain all necessary or appropriate waivers, consents and approvals from
lenders, landlords, security holders or other parties whose waiver, consent or
approval is required to consummate the Merger, (ii) effect all necessary
registrations, filings and submissions and (iii) lift any injunction or other
legal bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible) and (iv) in the case of the Parent and RAI to use
their reasonable best
23
<PAGE>
efforts to obtain the financing required to consummate the transactions
contemplated herein, subject, however, to the requisite votes of the
stockholders of the Company.
(b) Without limitation of the foregoing, each of Parent and the
Company undertakes and agrees to file as soon as practicable after the date
hereof a Notification and Report Form under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division"). Each of Parent and the Company shall (i) use its
reasonable efforts to comply as expeditiously as possible with all lawful
requests of the FTC or the Antitrust Division for additional information and
documents, and (ii) not extend any waiting period under the HSR Act or enter
into any agreement with the FTC or the Antitrust Division not to consummate the
transactions contemplated by this Agreement, except with the prior written
consent of the other parties hereto.
(c) In the event any litigation is commenced by any person or
entity relating to the transactions contemplated by this Agreement, including
any Acquisition Transaction, Parent shall have the right, at its own expense, to
participate therein, and the Company will not settle any such litigation without
the consent of Parent, which consent will not be unreasonably withheld.
SECTION 7.6 PUBLIC STATEMENTS. Unless required by law, the
parties (i) shall consult with each other prior to issuing any press release or
any written public statement with respect to this Agreement or the transactions
contemplated hereby, and (ii) shall not issue any such press release or written
public statement prior to such consultation. Notwithstanding anything herein to
the contrary, the parties agree to jointly issue a press release, in form and
substance satisfactory to both parties, concerning the execution and delivery of
this Agreement before the close of business on the date hereof.
SECTION 7.7 STOCK OPTION PLANS AND STOCK OPTIONS. Prior to the
Effective Time, with respect to all stock options (whether or not then vested)
that would otherwise, by their terms, survive the Merger, the Company shall
either (a) cause outstanding stock options of the Company to be exercised or (b)
terminate and cancel such outstanding stock options or (c) cause holders of such
outstanding options to enter into agreements with the Company and the Parent
providing that such outstanding options, at the Effective Time and without
further action on the part of the option holder, shall be converted into the
right to receive, for each share of Company Common Stock underlying such
options, cash in an amount equal to the Merger Consideration less the exercise
price per share for such underlying shares, such that, on and as of the
Effective Time, there shall be no outstanding stock options of the Company.
SECTION 7.8 NOTIFICATION OF CERTAIN MATTERS. Each of the Company,
Parent and RAI agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material
24
<PAGE>
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER,
that the delivery of any notice pursuant to this Section 7.8 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 7.9 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) At all times after the Effective Time, Parent shall (i) cause
the Surviving Corporation to indemnify the Company's officers and directors (in
their capacity as such) to the fullest extent permitted by law from and against
any losses, claims, damages, liabilities, costs, expenses, judgments and amounts
paid by them in settlement (with the Parent's consent, which consent shall not
be unreasonably withheld) in connection with any threatened, pending or
contemplated action, suit or proceeding or investigation arising out of or
pertaining to any of the transactions contemplated by this Agreement or any
other matter arising out of any action or omission occurring prior to the
Effective Time, and to cause the Surviving Corporation to advance, on a periodic
basis, the expenses of such officers and directors (including reasonable
attorney fees incurred by them to counsel selected by such officers and
directors) to the extent permitted by applicable law and (ii) not amend the
provisions of the Certificate of Incorporation and/or Bylaws of the Surviving
Corporation for a period of six years from the Effective Time dealing with the
indemnification, and limitation of liability, of directors and officers of the
Surviving Corporation. Prior to the Effective Time, RAI shall, and Parent shall
cause RAI to, amend its Certificate of Incorporation and Bylaws to adopt
substantially the provisions set forth in Article SEVENTH of the Certificate of
Incorporation, as amended, of the Company and Article XI of the Bylaws, as
amended, of the Company dealing with the indemnification, and limitation of
liability, of directors and officers.
(b) The Parent shall cause the Surviving Corporation to use its
best efforts to cause to be maintained in effect for a period of six years from
the Effective Time the current policies of directors and officers' liability
insurance maintained by the Company and its Subsidiaries (provided that the
Surviving Corporation may substitute therefor policies providing for continuing
coverage on terms and conditions which are no less advantageous so long as no
lapse in coverage occurs as a result of such substitution) with respect to all
matters, including the transactions contemplated hereby, occurring prior to and
including the Effective Time; PROVIDED THAT, in the event that any claim or
claims are asserted or made within such six-year period, such insurance shall be
continued in respect of any such claim or claims until final disposition of any
and all such claims; PROVIDED FURTHER that if the Surviving Corporation is
unable to obtain the insurance required by this Section 7.9(b) it shall obtain
as much comparable insurance as can be obtained for an annual premium not in
excess of 200% of the last annual premium paid by the Company for such insurance
coverage.
SECTION 7.10 CORRECTIONS TO THE PROXY STATEMENT. Prior to the
date of approval of the Merger by the Company stockholders, the Company shall
correct promptly any information provided by it to be used specifically in the
Proxy Statement that shall have become false or misleading in any material
respect and shall take all steps necessary to file with the SEC and have
declared effective or cleared by the SEC any amendment or supplement to the
Proxy Statement so
25
<PAGE>
as to correct the same and to cause the Proxy Statement as so corrected to be
disseminated to the stockholders of the Company to the extent required by
applicable law.
SECTION 7.11 EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS, STAY
BONUSES AND RELATED EMPLOYMENT MATTERS.
(a) Prior to Closing, except as set forth on SCHEDULE 7.11(A),
any and all employees of the Company who are parties to agreements that would
provide to them cash compensation upon a change of control (as defined therein)
of the Company (the "Change of Control Agreements") shall execute waivers (in a
form reasonably acceptable to Parent) of the cash compensation provisions
applicable upon such a change of control (as defined therein).
(b) Prior to Closing, except as set forth on SCHEDULE 7.11(B),
any and all employees of the Company who are parties to employment agreements
with the Company (the "Employment Agreements") shall execute termination
agreements with respect to such employment agreements (in a form reasonably
acceptable to Parent) or the Company shall take such other action as is
necessary to terminate such Employment Agreements.
(c) Prior to Closing, except as set forth on SCHEDULE 7.11(C),
any and all employees of the Company who are parties to severance agreements
with the Company (the "Severance Agreements") shall execute termination
agreements with respect to such severance agreements (in a form reasonably
acceptable to Parent) or the Company shall take such other action as is
necessary to terminate such Severance Agreements.
(d) Prior to Closing, except as set forth on SCHEDULE 7.11(D),
any and all employees of the Company who are parties to stay bonus agreements
with the Company (the "Stay Bonus Agreements") shall execute termination
agreements with respect to such stay bonus agreements or the Company shall take
such other action as is necessary to terminate such Stay Bonus Agreements.
(e) The Company's current policy with respect to severance
benefits is set forth in SCHEDULE 7.11(E) hereto. Prior to Closing, the Company
agrees that it will not amend, modify or change such policy so as to increase
the severance benefits under such policy. The Parent agrees to cause the
Surviving Corporation to comply with such policy with respect to employees of
the Company whose employment with the Surviving Corporation is terminated after
the Closing.
SECTION 7.12 STOCKHOLDER AGREEMENT. Upon the execution hereof,
the Company will cause the parties, signatory thereto, to execute and deliver to
Parent the Stockholder Agreement in the form attached as Exhibit 7.12-1 hereto.
SECTION 7.13 PARENT STAY BONUS PROGRAM. At or prior to Closing,
the Parent shall (a) establish a stay bonus program for selected employees of
the Company (the "Parent Stay Bonus Program"), the terms of which will be
determined by the Parent in its sole and absolute
26
<PAGE>
discretion, (b) enter into stay bonus agreements with such selected employees
pursuant to the terms of the Parent Stay Bonus Program and (c) fully fund an
escrow (the "Escrow") with an independent third party unrelated to Parent and
RAI (the "Escrow Agent") (such Escrow Agent to be appointed by Parent at or
prior to Closing) established pursuant to the escrow agreement relating to the
Parent Stay Bonus Program (the "Escrow Agreement"), the terms of which will be
determined by the Parent in its sole and absolute discretion.
SECTION 7.14 COMPANY STAY BONUS PROGRAM. Parent agrees that the
Company may adopt its own stay bonus program that will provide for the payment
of stay bonuses to Company employees if and only if the Merger is not
consummated (the "Company Stay Bonus Program"). If, prior to the Closing of the
Merger, the Company adopts a Company Stay Bonus Program and the Merger is not
consummated because (i) the Company terminates the Agreement as permitted under
Section 9.1(a)(iv) below at a time when the Company is in compliance, in all
material respects, with all of its representations, warranties, covenants and
agreements contained herein, (ii) the Company elects not to close because the
conditions set forth in Sections 8.2(a) or 8.2(d) have not been satisfied, or
(iii) the Parent and RAI shall not have closed the financing of the transactions
herein contemplated on or before November 30, 1996, the Parent shall, after
receiving written demand therefore from the Company (which demand shall specify,
in reasonable detail, the amount due from the Company), pay to the Company an
amount up to (but not in excess of) the first $500,000 legally owed by the
Company to the participants under the Company Stay Bonus Program.
ARTICLE VIII
CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. Unless waived by the Parties, the respective obligations of each party
to effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) this Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the stockholders of the
Company and RAI (if required) under applicable law and applicable listing
requirements;
(b) the waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(c) no preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
Merger shall have been issued and remain in effect (each party agreeing to use
its reasonable efforts to have any such injunction, order or decree lifted);
27
<PAGE>
(d) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal;
(e) all governmental waivers, consents, orders and approvals
legally required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the Effective
Time;
(f) all required consents and approvals of lenders who have
advanced $10,000,000 or more to Parent or the Company (other than Fremont
Financial Corporation) and lessors of material leases shall have been obtained
and be in effect at the Effective Time; PROVIDED, HOWEVER, that the failure to
obtain such consents or approvals shall not be due to the default or delay of
the party responsible for obtaining such consents and approvals; and
(g) the Company shall have received from Peter J. Solomon Company
Limited (or another nationally recognized investment banking firm reasonably
acceptable to the Company) an opinion reasonably acceptable to the Company,
dated as of the date on which the Proxy Statement is first distributed to the
stockholders of the Company, to the effect that the consideration to be received
by the stockholders of the Company in the Merger is fair, from a financial point
of view, to the holders of Company Common Stock, and such opinion shall not have
been withdrawn.
SECTION 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and RAI shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of Parent and
RAI contained in this Agreement shall be true and correct in all respects on and
as of the date made and on and as of the Closing Date as if made at and as of
such date, and the Company shall have received a certificate of the Chief
Executive Officer, the President or a Vice President of Parent and of the Chief
Executive Officer, President or a Vice President of RAI, in form and substance
reasonably satisfactory to the Company, to that effect;
(b) the Company shall have received an opinion from Brownstein
Hyatt Farber & Strickland, P.C., special counsel to Parent and RAI, dated the
Closing Date, in form and substance reasonably satisfactory to the Company;
(c) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations, would
materially impair the value to the Company of the Merger; and
(d) the Parent Stay Bonus Program shall have been adopted by the
Parent, the stay bonus agreements thereunder shall have been executed and
delivered by the Parent, the Escrow
28
<PAGE>
Agreement shall have been executed and delivered by the Parent and the Escrow
shall have been fully funded by the Parent.
SECTION 8.3 CONDITIONS TO OBLIGATIONS OF PARENT AND RAI TO EFFECT
THE MERGER. Unless waived by Parent and RAI, the obligations of Parent and RAI
to effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the additional following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company contained
in this Agreement shall be true and correct in all respects on and as of the
date made and on and as of the Closing Date as if made at and as of such date
(except with respect to the exercise, termination, cancellation or conversion of
the Company's stock options in accordance with the requirements of Section 7.7
above and except that none of the Company representations and warranties shall
be deemed untrue or incorrect in any respect based upon changes (including but
not limited to a reduction in sales or production) occurring as a result of the
termination of the employment of one or more employees of the Company), and
Parent shall have received a Certificate of the Chief Executive Officer,
President or a Vice President of the Company, in form and substance reasonably
satisfactory to Parent to that effect;
(b) Parent shall have received an opinion from Proskauer Rose
Goetz & Mendelsohn LLP, special counsel to the Company, effective as of the
Closing Date, in form and substance reasonably satisfactory to Parent;
(c) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, a material adverse change in the business, operations, properties,
assets, condition (financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole; provided, however, that no such material
adverse change which may occur (including but not limited to a reduction in
sales or production) as a result of the termination of the employment of one or
more employees of the Company shall permit Parent or RAI to decline to effect
the Merger;
(d) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations, would
materially impair the value to Parent of the Merger;
(e) the waivers or terminations referred to in Section 7.11 shall
have been executed and delivered to Parent;
(f) the requirements regarding the exercise, cancellation,
termination or conversion of all outstanding stock options of the Company
described in 7.7 shall have been satisfied; and
29
<PAGE>
(g) the Parent and RAI shall have closed the financing of the
transactions herein contemplated on terms and conditions and in such amounts as
shall be acceptable to Parent and RAI in their sole and absolute discretion.
(h) RAI shall have adopted the amendments to its Certificate of
Incorporation and Bylaws as provided in the last sentence of Section 7.9(a), and
those amendments shall remain in full force and effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION. This Agreement may be terminated by the
mutual consent of the parties or at any time prior to the Closing Date, whether
before or after approval by the stockholders of the Company, as follows:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by November 30,
1996, other than on account of delay or default on the part of
the Company;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with the
support of the Company or any of its 5% stockholders or any of
their affiliates or associates;
(iii) if the terms and conditions of Section
6.2(d) are satisfied; or
(iv) if Parent (A) fails to perform in any
material respect any of its covenants in this Agreement and (B)
does not cure such default in all material respects within 30
days after written notice of such default is given to Parent by
the Company.
(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by November 30,
1996, other than on account of delay or default on the part of
Parent or RAI;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with the
support of Parent or any of its 5% stockholders or any of their
affiliates or associates or RAI;
(iii) if the Company (A) fails to perform in any
material respect any of its covenants in this Agreement and (B)
does not cure such default in all material respects within 30
days after written notice of such default is given to the Company
by Parent;
30
<PAGE>
(iv) the Parent and RAI shall be unable for any
reason to close the financing of the transactions herein
contemplated on terms and conditions and in such amounts as shall
be acceptable to Parent and RAI in their sole and absolute
discretion; or
(v) holders of more than five percent (5%) of the
total outstanding shares of Company Common Stock exercise their
rights of appraisal in accordance with Section 910 of the BCL.
SECTION 9.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either Parent or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Parent, RAI or their respective officers or
directors (except as set forth in this Section 9.2 and in Sections 7.1, 7.4, 7.6
and 7.14, all of which shall survive the termination). Nothing in this Section
9.2 shall relieve any party from liability for any breach of this Agreement.
SECTION 9.3 AMENDMENT. This Agreement may not be amended except
by action taken by the parties' respective Boards of Directors or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
SECTION 9.4 WAIVER. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto, and (c) waive compliance with any of the
agreements or conditions contained herein. Any such waiver shall not be deemed
to be continuing or to apply to any future obligation or requirement of any
party hereto provided herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
TERMINATION OF REPRESENTATIONS AND WARRANTIES
SECTION 10.1 TERMINATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement shall not survive the
Merger and, after the effectiveness of the Merger, the Company, Parent, RAI and
their respective officers, directors and shareholders shall have no further
obligations with respect thereto.
31
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 BROKERS. The Company represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission (except for the fees payable to Peter J. Solomon Company
Limited and Horvitz & Associates described in SCHEDULE 11.1(A)) in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Parent and RAI represent and
warrant that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission (except for the fee payable to
McCabe & Co. described in SCHEDULE 11.1(B)) in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or RAI.
SECTION 11.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
mailed by registered or certified mail (return receipt requested) or sent via
facsimile 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 Parent or RAI to:
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: Thomas V. Bonoma, Chairman, Chief Executive Officer
and President
Telephone No. 212-751-3700
Telecopy No. 212-371-7868
Renaissance Acquisition, Inc.
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: Thomas V. Bonoma, Chairman, Chief Executive Officer
and President
Telephone No. 212-751-3700
Telecopy No. 212-371-7868
32
<PAGE>
and to the Company, after the Effective Time:
MEM Company, Inc.
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: Thomas V. Bonoma, Chairman, Chief Executive Officer
and President
Telephone No. 212-751-3700
Telecopy No. 212-371-7868
with a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street, Suite 2200
Denver, Colorado 80202
Attention: John L. Ruppert, Esq.
Telephone No. 303-534-6335
Telecopy No. 303-623-1956
(b) If to the Company, to:
MEM Company, Inc.
Union Street Extension
Northvale, New Jersey 07647
Attention: Gay A. Mayer, Chairman, Chief Executive Officer and
President
Telephone No.: 210-767-0100
Telecopy No. 210-767-0698
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Allan R. Williams, Esq.
Telephone No. 212-969-3000
Telecopy No. 212-969-2900
SECTION 11.3 INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) 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, and (ii) reference to any
Article or Section means such
33
<PAGE>
Article or Section hereof. No provision of this Agreement shall be interpreted
or construed against any party hereto solely because such party or its legal
representative drafted such provision.
SECTION 11.4 MISCELLANEOUS. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof (other than that certain Confidentiality Agreement, dated November
9, 1995, between Parent and the Company which shall continue in full force and
effect through the Effective Time if the Merger is consummated or through the
term of the Confidentiality Agreement if this Agreement is terminated for any
reason), (b) is not intended to confer upon any other person any rights or
remedies hereunder, except for rights of indemnified Parties under Section 7.9,
and (c) shall not be assigned by operation of law or otherwise, except that RAI
may assign this Agreement to any other wholly-owned subsidiary of Parent. THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION
AND EFFECT, BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 11.5 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement. Each of the parties agrees
to accept and be bound by facsimile signatures hereto.
SECTION 11.6 PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and except as set
forth in the exception to Section 11.4(b), nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 11.7 EXHIBITS AND SCHEDULES. All Exhibits and Schedules
referred to in this Agreement shall be attached hereto and are incorporated
herein by reference.
* * * * * *
34
<PAGE>
IN WITNESS WHEREOF, Parent, RAI and the Company have caused this
Agreement to be signed by their respective officers as of the date first written
above.
RENAISSANCE COSMETICS, INC.
By: /s/ John R. Jackson
-------------------------
Name: John R. Jackson
Title: Vice President
RENAISSANCE ACQUISITION, INC.
By: /s/ John R. Jackson
-------------------------
Name: John R. Jackson
Title: Vice President
MEM COMPANY, INC.
By: /s/ Gay A. Mayer
-------------------------
Name: Gay A. Mayer
Title: Chairman, Chief Executive
Officer and President
35
STOCKHOLDER AGREEMENT
AGREEMENT dated August 7, 1996, by and among Renaissance Cosmetics,
Inc., a Delaware corporation ("RCI"), Renaissance Acquisition, Inc., a New York
corporation and wholly-owned subsidiary of RCI ("RAI"), and the other parties
signatory hereto (individually and collectively referred to herein as the
"Stockholder").
Capitalized terms used and not defined herein have the respective
meanings assigned to them in the Merger Agreement, as defined below.
W I T N E S S E T H:
WHEREAS, concurrently herewith, RCI, RAI and MEM Company, Inc., a New
York corporation ("MEM"), are entering into an Agreement and Plan of Merger (as
such agreement may hereafter be amended from time to time, the "Merger
Agreement"), pursuant to which RAI will be merged with and into MEM (the
"Merger"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, RCI has required that Stockholder agree, and Stockholder has agreed,
to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS. For purposes of this Agreement:
a. "Effective Time" shall mean the effective time of the Merger.
b. "MEM" shall have the meaning set forth in the Preamble.
c. "MEM Stock" shall mean at any time the common stock, $.05 par
value, of MEM.
d. "Merger" shall have the meaning set forth in the Preamble.
e. "Merger Agreement" shall have the meaning set forth in the
Preamble.
f. "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization, or other entity.
<PAGE>
g. "RAI" shall have the meaning set forth in the Preamble.
h. "RCI" shall have the meaning set forth in the Preamble.
i. "Share" or "Shares" shall mean a share or shares of MEM
Stock.
j. "Stockholder" shall have the meaning set forth in the
Preamble.
k. "Subsidiaries" shall mean any corporation in which MEM owns,
directly or indirectly, fifty percent (50%) or more of the securities of such
corporation that are entitled to vote at a meeting of the stockholders thereof.
2. PROVISIONS CONCERNING MEM STOCK.
a. Stockholder hereby agrees that during the period commencing
on the date hereof and continuing until the first to occur of the Effective Time
or termination of the Merger Agreement in accordance with its terms, at any
meeting of the holders of MEM Stock, however called, or in connection with any
written consent of the holders of MEM Stock, Stockholder shall vote (or cause to
be voted) the Shares held by Stockholder solely in his capacity as a
stockholder, (i) in favor of the Merger, the execution and delivery by MEM of
the Merger Agreement and the approval of the terms thereof and each of the other
actions contemplated by the Merger Agreement and this Agreement and any actions
required in furtherance thereof and hereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of MEM under the Merger Agreement
or this Agreement; and (iii) except as otherwise agreed to in writing in advance
by RCI, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving MEM or its Subsidiaries; (B) a sale, lease or transfer of
assets of MEM or its Subsidiaries other than in the ordinary course, or a
reorganization, recapitalization, dissolution or liquidation of MEM or its
Subsidiaries; and/or (C) (1) any change in a majority of the persons who
constitute the board of directors of MEM; (2) any change in the present
capitalization of MEM or any amendment of MEM's Certificate of Incorporation or
Bylaws; (3) any other material change in MEM's corporate structure or business;
or (4) any other action involving MEM or its Subsidiaries which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. Stockholder shall not enter into any
agreement or understanding with any person or entity the effect of which would
be to violate the provisions and agreements contained in this Section 2.
b. In furtherance of the foregoing, Stockholder hereby appoints
RCI and the proper officers of RCI, and each of them, with full power of
substitution in the premises, his proxies to vote all such Stockholder's Shares
at any meeting of the holders of MEM Stock, however called, or in connection
with any written consent of the holders of MEM Stock, and hereby appoints RCI
and the proper officers of RCI, and each of them, with full power of
2
<PAGE>
substitution in the premises, his true and lawful attorneys-in-fact to execute
one or more consents or other instruments from time to time in order to take
such actions informally without the necessity of a meeting of the holders of MEM
Stock; provided, however, that the foregoing shall terminate upon the first to
occur of the Effective Time or termination of the Merger Agreement in accordance
with its terms.
THE PROXIES AND POWERS OF ATTORNEY GRANTED HEREIN SHALL BE IRREVOCABLE
DURING THE TERM OF THIS AGREEMENT, SHALL BE DEEMED COUPLED WITH AN INTEREST AND
SHALL REVOKE ALL PRIOR PROXIES GRANTED BY THE STOCKHOLDER. THE STOCKHOLDER SHALL
NOT GRANT ANY PROXY TO ANY PERSON WHICH CONFLICTS WITH THE PROXIES GRANTED
HEREIN, AND ANY ATTEMPT TO DO SO SHALL BE VOID. THE POWERS OF ATTORNEY GRANTED
HEREIN IS A DURABLE POWER OF ATTORNEY AND SHALL SURVIVE THE DISABILITY OR
INCOMPETENCY OF THE STOCKHOLDER.
3. OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES. Stockholder hereby
represents and warrants to RCI and RAI as follows:
a. OWNERSHIP OF SHARES. Stockholder is the record owner of the
number of Shares set forth opposite such Stockholder's name on Schedule I
hereto. On the date hereof, the Shares set forth opposite such Stockholder's
name on Schedule I hereto constitute all of the Shares owned of record by such
Stockholder. Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Section 2. hereof, sole
power of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Shares set forth opposite
Stockholder's name on Schedule I hereto, with no limitations, qualifications or
restrictions on such rights, subject to applicable securities laws and the terms
of this Agreement.
b. POWER; BINDING AGREEMENT. Stockholder has the legal capacity,
power and authority to enter into and perform all of Stockholder's obligations
under this Agreement. The execution, delivery and performance of this Agreement
by such Stockholder will not violate any other agreement to which Stockholder is
a party, including, without limitation, any voting agreement, stockholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by Stockholder and constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its terms.
There is no beneficiary or holder of a voting trust certificate or other
interest of any trust of which Stockholder is trustee whose consent is required
for the execution and delivery of this Agreement or the consummation by
Stockholder of the transactions contemplated hereby.
c. NO ENCUMBRANCES. Except as otherwise set forth herein,
Stockholder's Shares and the certificates representing such Shares are now, and
at all times during the term hereof will be, held by such Stockholder, or by a
nominee or custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or
3
<PAGE>
agreements, understandings or arrangements or any other encumbrances whatsoever,
except for any such encumbrances or proxies arising hereunder.
d. NO SOLICITATION. Until the earlier of the Effective Time or
termination of the Merger Agreement in accordance with its terms, Stockholder
shall not, in his capacity as such, directly or indirectly, solicit (including
by way of furnishing information) or respond to any inquiries or the making of
any proposal by any person or entity (other than RCI or any affiliate of RCI)
with respect to MEM that constitutes an Acquisition Transaction; provided,
however, that the foregoing shall not restrict Stockholder when acting as a
director or officer of MEM.
e. RESTRICTION ON TRANSFER, PROXIES, AND NON-INTERFERENCE. Until
the earlier of the Effective Time or termination of the Merger Agreement in
accordance with its terms, Stockholder shall not (i) directly or indirectly,
offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
such Stockholder's Shares or any interest therein; (ii) except as contemplated
by this Agreement or the Merger Agreement, grant any proxies or powers of
attorney, deposit any Shares into a voting trust or enter into a voting
agreement with respect to any Shares; or (iii) take any action that would make
any representation or warranty of such Stockholder contained herein untrue or
incorrect or have the effect of preventing or disabling Stockholder from
performing Stockholder's obligations under this Agreement.
f. WAIVER OF APPRAISAL RIGHTS. Stockholder hereby waives any
rights of appraisal or rights to dissent from the Merger that Stockholder may
have.
g. RELIANCE BY RCI AND RAI. Stockholder understands and
acknowledges that RCI is entering into, and causing RAI to enter into, the
Merger Agreement in reliance upon Stockholder's execution and delivery of this
Agreement.
h. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
4. STOP TRANSFER; CHANGES IN SHARES. Until the earlier of the Effective
Time or termination of the Merger Agreement in accordance with its terms,
Stockholder agrees with, and covenants to, RCI and RAI that Stockholder shall
not request that MEM register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of Stockholder's Shares,
unless such transfer is made in compliance with this Agreement (including the
provisions of Section 2. hereof). In the event of a stock dividend or
distribution, or any
4
<PAGE>
change in the MEM Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term "Shares"
shall be deemed to refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or all of
the Shares may be changed or exchanged.
5. FIDUCIARY DUTIES. Notwithstanding anything in this Agreement to the
contrary, the covenants and agreements set forth herein shall not prevent
Stockholder from taking any action, subject to the applicable provisions of the
Merger Agreement, while acting in the capacity as a director of MEM.
6. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and together supersede all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
b. CERTAIN EVENTS. Stockholder agrees that this Agreement and
the obligations hereunder shall attach to Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, such Stockholder's heirs, guardians, administrators or successors.
Notwithstanding any transfer of Shares, the transferor shall remain liable for
the performance of all obligations under this Agreement of the Stockholder.
c. ASSIGNMENT. This Agreement shall not be assigned by
Stockholder by operation of law or otherwise without the prior written consent
of RCI. No rights, or any direct or indirect interest herein, of Stockholder
shall be transferable hereunder without the prior written consent of RCI. For
purposes of this Section 6.c., RCI and RAI shall be treated as a single party
and consent by RCI shall be deemed to be consent by RAI.
d. AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the parties
hereto. For purposes of this Section 6.d., RCI and RAI shall be treated as a
single party and RCI shall have the authority to execute any such written
agreement for and on behalf of RAI.
e. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
5
<PAGE>
If to Stockholder: At the address set forth on Schedule I
hereto.
copy to: Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Allan R. Williams
Telephone No. (212) 969-3000
Telecopy No. (212) 969-2900
If to RCI or RAI:
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: Thomas V. Bonoma, Chairman,
Chief Executive Officer and President
Telephone No. (212) 751-3700
Telecopy No. (212) 371-7868
copy to: Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street, Suite 2200
Denver, Colorado 80202
Attention: John L. Ruppert, Esq.
Telephone No. (303) 534-6335
Telecopy No. (303) 623-1956
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Notice properly given to RCI as provided in this Section 6.e. shall be deemed to
be notice given to RAI for all purposes under this Section 6.e.
f. SEVERABILITY. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
g. SPECIFIC PERFORMANCE. Each of the parties hereto recognizes
and acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach, the aggrieved party
shall be entitled to the remedy of specific performance of such
6
<PAGE>
covenants and agreements and injunctive and other equitable relief in addition
to any other remedy to which it may be entitled, at law or in equity.
h. REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
i. NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
j. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended
to be for the benefit of, and shall not be enforceable by, any person or entity
who or which is not a party hereto.
k. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
l. JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York or any court of the State of New York located in the County
of New York in any action, suit or proceeding arising in connection with this
Agreement, and agrees that any such action, suit or proceeding shall be brought
only in such court (and waives any objection based on forum non conveniens or
any other objection to venue therein); provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this Section 6.l. and
shall not be deemed to be a general submission to the jurisdiction of said
courts or in the State of New York other than for such purposes. Each party
hereto hereby waives any right to a trial by jury in connection with any such
action, suit or proceeding.
m. DESCRIPTIVE HEADINGS. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
n. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, any one of which need not contain the signature of more than one
party, but all of which counterparts, taken together, shall constitute one and
the same agreement. Signatures may be exchanged by telecopy, with original
signatures to follow. Each party hereto agrees that he or
7
<PAGE>
it will be bound by his or its own telecopied signature and that he or it
accepts the telecopied signatures of the other parties hereto.
o. NO STRICT CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction shall be applied against any person.
p. ATTORNEYS' FEES. If any dispute arises with respect to the
terms and conditions of this Agreement, the prevailing (or substantially
prevailing) party shall have the right to recover all expenses (including
reasonable attorneys' fees) from the other party hereto.
IN WITNESS WHEREOF, RCI, RAI and Stockholder have caused this Agreement
to be duly executed as of the day and year first above written.
RENAISSANCE COSMETICS, INC.
By: /s/ John R. Jackson
-----------------------
Name: John R. Jackson
Title: Vice President
RENAISSANCE ACQUISITION, INC.
By: /s/ John R. Jackson
-----------------------
Name: John R. Jackson
Title: Vice President
SIGNATURES CONTINUED ON NEXT PAGE
8
<PAGE>
STOCKHOLDER
By: /s/ Gay A. Mayer
-------------------------------
Name: Gay A. Mayer
By:
-------------------------------
Name:
By:
-------------------------------
Name:
By:
-------------------------------
Name:
By:
-------------------------------
Name:
By:
-------------------------------
Name:
By:
-------------------------------
Name:
By:
-------------------------------
Name:
By:
-------------------------------
Name:
9
<PAGE>
SCHEDULE I
STOCKHOLDER
NAME AND ADDRESS NUMBER OF SHARES OWNED
Gay A. Mayer 353,565
c/o MEM Company, Inc.
Union Street Extension
Northvale, New Jersey 07647
Laurette M. Beach 283,544
c/o Gay A. Mayer
MEM Company, Inc.
Union Street Extension
Northvale, New Jersey 07647
Elizabeth C. Mayer 520,190
Grantor Trust
c/o Gay A. Mayer
MEM Company, Inc.
Union Street Extension
Northvale, New Jersey 07647
Family Mayer Foundation, Inc. 59,875
c/o Gay A. Mayer
MEM Company, Inc.
Union Street Extension
Northvale, New Jersey 07647
Stephen H. Mayer, 51,500
Life Insurance Trust
c/o Gay A. Mayer
MEM Company, Inc.
Union Street Extension
Northvale, New Jersey 07647
1
<PAGE>
NAME AND ADDRESS NUMBER OF SHARES OWNED
United States Trust Company of New York as
trustee under Agreement dated October 12, 1971
for the benefit of Gay A. Mayer and his issue
14 West 47th Street
New York, New York 10036
United States Trust Company of New York as 151,550
trustee under Agreement dated December 29, 1976
for the benefit of Gay A. Mayer and his issue
14 West 47th Street
New York, New York 10036
United States Trust Company of New York as
trustee under Agreement dated October 12, 1971
for the benefit of Laurette M. Beach and her
issue
14 West 47th Street
New York, New York 10036
United States Trust Company of New York as 158,450
trustee under Agreement dated December 29, 1976
for the benefit of Laurette M. Beach and her
issue
14 West 47th Street
New York, New York 10036
2
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made this 6th day of August,
1996, by and between GAY A. MAYER ("Executive") and RENAISSANCE COSMETICS, INC.,
a Delaware corporation ("RCI").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of this
Agreement, RCI and Renaissance Acquisition, Inc., a New York corporation and
wholly-owned subsidiary of RCI ("RAI"), are entering into an Agreement and Plan
of Merger of even date (the "Merger Agreement") with MEM Company, Inc. ("MEM")
pursuant to which RAI will be merged (the "Merger") with and into MEM; and
WHEREAS, MEM shall be the surviving corporation in the Merger and,
pursuant to the terms and conditions of the Merger Agreement, effective upon the
consummation of the Merger, the separate existence of RAI shall cease; and
WHEREAS, MEM is engaged in the business of manufacturing, producing,
outsourcing, packaging, marketing, distributing, advertising, promoting,
merchandising and selling men's and women's fragrances and cosmetic products and
related accessories (collectively referred to herein as the "Business"); and
WHEREAS, Executive is a principal shareholder of MEM and is actively
involved in the Business of MEM in his capacity as Chairman of the Board,
President and Chief Executive Officer of MEM; and
WHEREAS, Executive has access to trade secrets, other proprietary
information, confidential business relationships and other confidential and
proprietary property and information in connection with the Business and MEM's
operations which are essential and integral components of MEM's success,
profitability and competitive advantage; and
WHEREAS, simultaneously with the consummation of the Merger, Executive
will cease to be a member of the Board of Directors, and will cease to be an
employee, of MEM; and
WHEREAS, simultaneously with the consummation of the Merger, RCI desires
to employ Executive in an executive capacity, and Executive desires to accept
that employment, on the terms set forth below; and
WHEREAS, simultaneously with the consummation of the Merger, RCI and
Executive will enter into an Option Agreement (the "Option Agreement") pursuant
to which RCI will grant Executive an option to purchase 5,000 shares of Common
Stock (as defined below) at $104.00 per share (for an aggregate exercise price
of $520,000) subject to the terms and conditions set forth therein.
<PAGE>
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. EMPLOYMENT AND TERM. RCI hereby employs Executive, and Executive
hereby accepts and agrees to his employment, by RCI as Group Vice President of
Market Development of RCI for the period commencing on the date of the Merger
and ending on the last day of the thirtieth (30th) month immediately following
the month in which the Merger is consummated, unless extended or sooner
terminated as provided herein (the "Term"). In the event (i) the Merger does not
occur for any reason on or prior to November 30, 1996 or such later date as the
parties to the Merger Agreement shall agree upon, or (ii) on or prior to the
date of the Merger the Executive dies or becomes physically or mentally
incapacitated or disabled or otherwise unable to fully discharge his duties as
contemplated by this Agreement, then this Agreement shall automatically
terminate AB INITIO and be of no further force and effect.
2. EMPLOYMENT DUTIES; ACKNOWLEDGMENT.
(a) During the Term, Executive shall perform all duties that are
customary for an executive officer of a corporation and shall have such other
authority and perform such other duties consistent with his position as may be
assigned to him by the Board of Directors of RCI (the "Board") and/or the Chief
Executive Officer of RCI (the "CEO"). Executive shall report to, and shall
perform his duties consistent with directives of, the CEO and consistent with
the best interests of the Company (as defined below) and the Business and to the
best of his ability and in a diligent manner and shall devote his full time,
skills and efforts to the performance of his duties and to the furtherance of
the exclusive interests of the Company (as defined below) and the Business. It
is understood and agreed by the parties hereto that Executive's duties hereunder
shall include, but not be limited to, (a) the development of new products, (b)
the support of existing and new products, (c) development and management of
international markets (including, but not limited to, Europe, South America and
South Africa), (d) assisting in a smooth and orderly transition of the Business
following the Merger and (e) carrying out other related assignments as
designated by the Board and/or the CEO at any time and from time to time.
Executive shall give the Company (as defined below) the benefit of his expertise
in related businesses and his familiarity with the marketing of such products as
well as his good relationships with potential and existing customers. All of the
foregoing duties and responsibilities will be subject to supervision of the
Board and/or the CEO and to the policies, guidelines and procedures as may be
specified by the Board and/or the CEO at any time and from time to time. The
term "Company" as used in this Agreement means collectively, RCI and its
subsidiaries and affiliates, including MEM and its subsidiaries and affiliates.
(b) When Executive is working at any of the Company's
facilities, a suitable office at such facility shall be made available to
Executive for his use; provided, however, that it is understood and agreed by
the parties that (a) Executive shall be permitted to provide a portion of the
services required hereunder from his residence and (b) Executive shall be
required to travel both domestically and internationally for business purposes
when and as necessary or desirable for the business of the Company, as may be
reasonably requested of him at any time and from time to time. Executive shall
be permitted to fly "business class" on flights of five (5) or more inflight
hours. RCI will not require Executive to move his residence during the Term.
2
<PAGE>
3. SALARY; BONUSES; OTHER BENEFITS. During the Term:
(a) RCI agrees to pay (or cause to be paid) to Executive an
annual gross salary of $250,000 ("Salary"), payable in equal installments every
two weeks and in accordance with normal RCI salary policies;
(b) Executive shall be entitled to participate in all bonus
programs for executives of RCI on terms and conditions equivalent to other
executives of RCI with comparable experience, responsibilities and duties, in an
amount to be determined, and based upon the attainment of such goals and targets
as determined, by the CEO in his sole and absolute discretion; provided,
however, that in the case of any bonus earned by Executive for RCI's fiscal year
1996 (which amount, if any, shall be pro rated to reflect the period actually
worked by Executive as an employee of RCI during RCI's fiscal year 1996) such
prorated bonus, if any, shall be payable to Executive, regardless of Executive's
status on the payment date, so long as Executive is employed by RCI on the last
business day of RCI's fiscal year 1996;
(c) Executive shall be entitled to such health, medical, life
and disability insurance and other benefits (other than severance, termination
or other similar arrangements/benefits) as are generally available to all
executives of RCI;
(d) Executive shall be entitled to participate in RCI's 401k
plan on terms and conditions equivalent to other executives of RCI, subject to
the terms of such 401k plan;
(e) Executive shall be reimbursed for all reasonable business
expenses incurred by Executive in performing his duties hereunder upon the
submission of appropriate and properly completed documentation with respect
thereto, consistent with RCI's policies; notwithstanding the foregoing, RCI
shall reimburse Executive for his expenses of commuting from his home to his New
York City office not in excess of $100 per week;
(f) Executive shall be entitled to vacations from time to time
as reasonably determined by Executive, subject to the requirements of the
business of RCI and the oversight of the CEO;
(g) Executive shall be entitled to the use of a vehicle to be
owned or leased by RCI for Executive's use, which shall be the 1995 Ford Contour
currently used by Executive or a comparable new vehicle, and RCI shall maintain
at its expense automobile insurance on such vehicle and shall pay or reimburse
Executive for all maintenance costs and all other business related operating
costs. In the event RCI or one of its subsidiaries owns such vehicle at the end
of the Term, Executive shall have the right to purchase such vehicle for its
depreciated book value;
(h) RCI shall provide Executive with a lap-top computer for his
business use; and
(i) RCI shall pay or reimburse Executive for the cost of
maintaining a membership in CEO or WPO, at his election.
3
<PAGE>
4. STOCK OPTIONS. On the date of the Merger, RCI shall grant Executive a
non-transferable option (the "Option") to purchase 5,000 shares (the "Option
Shares") of RCI common stock, par value $.01 per share (the "Common Stock"), at
an exercise price of $104.00 per share. The Option shall be granted under RCI's
Stock Option Plan (the "Option Plan") and, notwithstanding anything herein to
the contrary, the Option shall be subject to all of the terms, conditions,
limitations and restrictions contained therein. The Option shall be evidenced by
a written stock option agreement in the standard form used by RCI (the "Option
Agreement"); provided, however, that the non-compete period set forth in Section
3. of the Confidentiality and Non-Competition Agreement attached as Exhibit C to
such standard stock option agreement shall be reduced from three (3) years to
eighteen (18) months; and provided further that the Option shall vest in four
(4) equal tranches on the first, second, third and fourth anniversaries,
respectively of the grant date; and provided further that the term of the Option
shall be ten (10) years subject to earlier termination as set forth in the
Option Agreement. In the event of a conflict between the terms of this Section
4. and the terms of the Option Plan and/or the Option Agreement, the terms of
the Option Plan and/or the Option Agreement, as the case may be, shall govern.
No Option Shares shall be issued to Executive upon exercise of all or any
portion of the Option unless prior to the issuance of such shares Executive
executes and delivers to RCI counterparts to each of the exhibits attached and
made a part thereto of RCI's standard stock option agreement. Executive
represents that he will acquire the Option, and that he will be acquiring the
Option Shares upon exercise of the Option, for investment purposes only and not
with a view to the resale, transfer or other distribution thereof.
5. TERMINATION; DEATH; DISABILITY.
(a) In the event of the death of Executive during the Term,
Executive's estate shall be entitled to receive all monies to which Executive
otherwise would have been entitled under Section 3(a) hereof through the end of
the calendar month in which Executive's death occurs, and Executive (and his
estate, personal representative, heirs and beneficiaries) shall be entitled to
no other monies or benefits hereunder.
(b) In the event of the "permanent disability" of Executive
during the Term, the CEO shall have the right, in his sole and absolute
discretion, to terminate this Agreement and Executive's employment hereunder
upon written notice to Executive. The term "permanent disability" shall mean the
inability, by reason of physical or mental disability or incapacity, of
Executive to timely and effectively perform all of his duties hereunder for a
period of 120 consecutive days or an aggregate of 180 days in any 12-month
period, in all cases as determined by the CEO, acting in good faith. If so
terminated, Executive shall be entitled to receive all monies to which Executive
otherwise would have been entitled under Section 3(a) hereof through the end of
the calendar month immediately following the month in which such termination
occurs, and Executive (and his estate, personal representative, heirs and
beneficiaries) shall be entitled to no other monies or benefits hereunder.
(c) Upon the occurrence of one or more of the events described
in the immediately following sentence of this clause (c), the CEO shall have the
right, in his sole and absolute discretion, to immediately terminate this
Agreement and Executive's employment hereunder "for cause" and to remove
Executive from office, effective on a date specified by the CEO (the "Removal
Date") , and, in such case, Executive shall receive no further monies under
Section 3
4
<PAGE>
hereof or otherwise with respect to periods from and after the Removal Date. For
purposes of this Agreement, termination of Executive's employment shall not be
deemed "for cause" unless:
(i) such removal shall have been the result of fraud or
embezzlement on the part of Executive as determined by a court of competent
jurisdiction; or
(ii) there has occurred a material breach of Sections
6., 7. or 8. hereof; or
(iii) Executive has been convicted of any felony
involving moral turpitude on his part which materially adversely reflects on the
Company; or
(iv) Executive has failed to discharge his duties,
responsibilities or obligations under this Agreement or otherwise acted in a
manner that, in the view of the CEO, acting in good faith, has been materially
injurious to the Company, its business(es) or its business reputation, which
failure or other action shall have continued for 15 days after Executive
receives written notice thereof.
(d) If Executive voluntarily leaves the employ of RCI other than
for "Good Cause" (as hereinafter defined) before the expiration of the Term
without the written consent of RCI, or as otherwise permitted under this
Agreement, the CEO shall have the right, in his sole and absolute discretion, to
terminate this Agreement and Executive's employment hereunder upon written
notice to Executive. If so terminated, Executive shall be entitled to receive
all monies to which Executive otherwise would have been entitled under Section
3(a) hereof through the date of termination and Executive shall be entitled to
no other monies or benefits hereunder thereafter.
(e) If RCI terminates this Agreement and Executive's employment
hereunder other than "for cause," or Executive resigns for "Good Cause,"
Executive shall be entitled to be paid, and RCI shall be obligated to pay to
Executive, the Salary specified in Section 3(a) hereof through the end of the
Term at the same times, in the same amounts and subject to the same terms,
conditions and other applicable limitations hereunder as if this Agreement had
not been terminated, and Executive shall be entitled to no other monies or
benefits hereunder thereafter.
(f) For purposes of this Agreement, "Good Cause" shall mean
termination at the election of Executive based on any of the following:
(i) Without Executive's express written consent, any
material reduction in Executive's duties and responsibilities except in
connection with the termination of his employment "for cause," or normal
retirement, death, or by the Executive other than for Good Cause;
(ii) A reduction in Executive's fringe or retirement
benefits that is not applied by RCI to executives generally or a reduction by
RCI in Executive's Salary;
(iii) The merger or consolidation of RCI into or with
any other entity, unless the entity which survives such merger shall assume and
agree to perform the obligation of RCI hereunder pursuant to an instrument
reasonably acceptable to Executive; or
5
<PAGE>
(iv) A change in control of RCI (it being understood
that for purposes of this Agreement a change in control shall mean Kidd Kamm &
Co. no longer controlling the Board of Directors of RCI) or the sale, transfer
or other disposition of more than 50% of the assets of RCI to an entity
unrelated to RCI unless Executive shall have given his express written consent
thereto.
6. NON-COMPETITION AGREEMENT. Executive hereby agrees that, during the
Term of this Agreement and for a period of eighteen (18) months after the
expiration, termination or cessation of this Agreement for whatever reason, he
will not engage or participate, directly or indirectly, either as a principal,
agent, employee, employer, consultant, advisor, director, partner, shareholder,
officer, equity owner, lender with an equity "kicker" interest or in any other
individual or representative capacity whatsoever, in the conduct or management
of any business engaged in the distribution or sale of fragrances and/or
cosmetics products in North America, South America or Europe (a "Competing
Business"), nor own, legally or beneficially, directly or indirectly, or have
the right or option, legally or beneficially, directly or indirectly, to acquire
or own any stock or other proprietary or equity interest in any Competing
Business; provided, however, that nothing contained in this Agreement shall
prohibit Executive from acquiring not more than five percent (5%) of the
outstanding shares of any equity security of an issuer, the ownership of whose
shares would otherwise be prohibited by this Agreement, of a Competing Business
listed for trading on the New York Stock Exchange, the American Stock Exchange,
or quoted on the National Association of Securities Dealers Automated Quotation
System.
7. CONFIDENTIALITY AGREEMENT. Executive acknowledges that Confidential
Information (as defined below) is a valuable, special and unique asset of the
Company. Executive agrees that he shall not disclose, during the Term of this
Agreement or at any time thereafter, any Confidential Information to which he
becomes privy to any person, firm, corporation, association, partnership or
other entity for any reason or purpose whatsoever, other than employees of the
Company who have a need to know such information in connection with the
performance of their duties on behalf of the Company, or use any Confidential
Information for any purpose not expressly authorized in writing by RCI. For
purposes of this Agreement, "Confidential Information" means any information,
whether disclosed electronically, in writing or orally, heretofore or hereafter
designated or otherwise treated as "confidential" by the Company, including, but
not limited to, all financial statements, corporate records and other
information and data relating to the operations, assets, liabilities, financial
condition, future prospects, employees, vendors, financing and litigation, all
technical and business information, know-how or trade secrets, or any other
information relating to the Company, any business unit(s) of the Company, the
Company's customers or the Company's vendors and suppliers, which is of a
confidential, proprietary or privileged nature. The term "Confidential
Information" does not include any information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of a disclosure directly or indirectly by Executive),
(ii) was available to Executive on a nonconfidential basis from a source other
than the Company, provided that such source to Executive's knowledge is not and
was not bound by a confidentiality agreement with the Company, or (iii) has been
independently developed by Executive after the expiration, termination or
cessation of this Agreement for whatever reason, without violation of any
obligation under this Agreement. Upon request in writing by RCI, Executive shall
promptly return all records, notes, data, memoranda and other information and
documents and
6
<PAGE>
copies in whatever form thereof which contain or may contain any Confidential
Information and shall confirm in writing to RCI that all such materials have
been returned.
8. NONSOLICITATION OF EMPLOYEES, AGENTS, CONSULTANTS, CUSTOMERS AND
SUPPLIERS. Executive hereby agrees that he will not, directly or indirectly, at
any time during the term of this Agreement and for a period of eighteen (18)
months after the expiration, termination or cessation of this Agreement for
whatever reason, solicit, interfere with, employ or retain in any other capacity
any employee, agent or consultant of the Company, nor permit, encourage or allow
any entity in which Executive owns, directly or indirectly, more than a five
percent (5%) equity or proprietary interest, or the right or option, legally or
beneficially, directly or indirectly, to acquire or own more than a five percent
(5%) equity or proprietary interest, to solicit, interfere with, employ or
retain in any other capacity any employee, agent or consultant of the Company.
9. REMEDIES. Executive specifically acknowledges and agrees that (a) the
covenants contained in Sections 6., 7. and 8. above are reasonable in time,
content and scope, are entered into by Executive in partial consideration for
the compensation to be paid to him hereunder and are necessary, material and
essential inducements to RCI to go forward with the engagement contemplated by
this Agreement and the consummation of the Merger, on the terms and conditions
set forth in the Merger Agreement, and (b) the services and agreements to be
performed hereunder by Executive are of a unique, special and extraordinary
character, and that a breach by Executive of any of the covenants contained in
Sections 6., 7. and 8. above would result in irreparable damage to the Company
which may be unascertainable, and, with respect to such covenants may involve
the wrongful use or disclosure of Confidential Information. Accordingly,
Executive agrees that, in the event of any breach or threatened breach of any of
the agreements contained in Sections 6., 7. and 8. above, the Company shall be
entitled, in addition to money damages and reasonable attorneys' fees and the
right, on the part of RCI, in its sole and absolute discretion, to terminate
this Agreement, to seek an injunction, specific performance or other appropriate
equitable relief (in all cases without the necessity of posting a bond) to
prevent such breach or any continuation thereof in any court of competent
jurisdiction. If any court shall determine that the time, content or scope of
any covenant contained in Section 6., 7. and 8. hereof is unenforceable, it is
the intention of the parties hereto that the provisions set forth in such
Sections shall not be terminated but shall be deemed restricted, amended and/or
reformed to the extent necessary to render such covenant valid and enforceable,
provided that such restriction, amendment and/or reformation shall only be
applicable to the enforcement of the provisions hereof within the jurisdiction
of the court which made such determination.
10. INVENTIONS, PATENTS AND OTHER INTELLECTUAL PROPERTY. Executive
agrees that all reasonably patentable inventions, innovations or improvements in
the Company's intellectual property, products or methods of conducting business
(including catalogues, packaging, new contributions, improvements, ideas and
discoveries, whether patentable or not) conceived or made by him while he is
employed by RCI, and all trade names and trademarks developed or created by him
while employed by RCI, shall belong to RCI.
11. ARBITRATION. Subject to Section 9 hereof, the parties agree to
submit any dispute hereunder to binding arbitration. Arbitration shall be
conducted in Wilmington, Delaware under the commercial rules of the American
Arbitration Association by a panel of three arbitrators.
7
<PAGE>
The aforementioned arbitrators shall be chosen as follows: RCI and Executive
shall each designate one arbitrator from a list of acceptable and qualified
arbitrators which has been provided by the American Arbitration Association. The
two arbitrators so designated shall then choose the panel's third arbitrator who
shall be an attorney-at-law and who shall serve as the Chairman of the panel;
provided that if either party fails to designate an arbitrator within 10 days of
receipt of the Association's list or if the two arbitrators are unable to agree
on the appointment of the third arbitrator within 10 days of the later of the
dates of their respective appointments, such arbitrator shall be designated by
the American Arbitration Association. If any arbitrator resigns or is unable to
continue serving as such, the successor to such arbitrator shall be appointed by
the party who appointed such arbitrator or by the remaining arbitrators if they
appointed such arbitrator, or by the American Arbitration Association, as the
case may be. A stenographic record of the arbitration proceedings shall be made
and in the event a successor arbitrator must be appointed, he may rely on such
record and no rehearing shall be required. Subject to Section 12 hereof, each of
the parties shall pay the fees and expenses of the arbitrator appointed by it
and each shall pay one-half the fees and expenses of the third arbitrator and
any other expenses of the arbitration. The decision of the arbitrators with
respect to any issues subject to arbitration shall be final and binding on the
parties and judgment on the arbitrators' decision may be entered in any court of
competent jurisdiction by either party, or application may be made to such court
for judicial confirmation of the award and order of enforcement, as the case may
be. The demand for arbitration shall be made within a reasonable time after the
claim, dispute or other matter in question has arisen. Notwithstanding the
foregoing, it is hereby agreed that no arbitration panel shall have any power to
(i) add to, alter or modify the terms and conditions of this Agreement, (ii) to
decide any issue which does not arise from the interpretation or application of
the provisions of this Agreement or (iii) award any punitive damages under this
Agreement.
12. GENERAL PROVISIONS. Except to the extent inconsistent with the
express language of the foregoing provisions of this Agreement, the following
provisions shall govern the interpretation, application, construction and
enforcement of this Agreement:
(a) NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified United States mail (return receipt requested), postage
prepaid, or sent via telecopy (receipt confirmed in writing) or by a nationally
recognized 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,
provided that notices of change of address shall be effective only upon actual
receipt thereof by the recipient):
If to RCI, to:
Renaissance Cosmetics, Inc.
955 Massachusetts Avenue
Cambridge, Massachusetts 02139
Attention: Thomas V. Bonoma, Chairman, Chief Executive Officer
and President
Telephone Number: 617-497-5584
Telecopy Number: 617-497-5368
8
<PAGE>
with a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street, Suite 2200
Denver, Colorado 80202
Attention: John L. Ruppert, Esq.
Telephone Number: 303-534-6335
Telecopy Number: 303 623-1956
If to Executive, to:
Gay A. Mayer
12 McCain Court
Closter, New Jersey 07624
Telephone Number: 201-768-6854
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Allan R. Williams, Esq.
Telephone Number: 212-969-3000
Telecopy Number: 212-969-2900
All such notices or other communications shall be deemed given or
delivered when received or (a) five business days after the date of postmark in
the case of a notice or other communication given by registered or certified
mail, if sooner, (b) one business day after the date of delivery as shown on the
written telecopy receipt confirmation in the case of a notice or other
communication given by telecopy, if sooner, or (c) one business day after the
date of delivery to the overnight courier service as shown on the written
delivery confirmation receipt in the case of a notice or other communication
given by overnight courier service.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective heirs,
successors in interest, personal representatives and assigns, but in no event
shall any party be relieved of its obligations hereunder without the express
written consent of the other party.
(c) ENTIRE AGREEMENT. This Agreement, together with the
instruments and agreements contemplated hereby, represents the entire agreement
of the parties with respect to the subject brought hereof, and all agreements
entered into prior hereto with respect to the subject matter hereof are revoked
and superseded by this Agreement, and no representations, warranties,
inducements or oral agreements have been made by any of the parties except as
expressly set forth herein, or in other contemporaneous written agreements. This
Agreement may not be changed,
9
<PAGE>
modified or rescinded except in writing, signed by all parties hereto, and any
attempt at oral modification of this Agreement shall be void and of no effect.
(d) CAPTIONS. Captions and paragraph headings used herein are
for convenience only, are not a part of this Agreement and shall not be deemed
to limit or alter any provisions hereof or to be relevant in construing this
Agreement.
(e) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, excluding its
laws regarding choice of law.
(f) ATTORNEYS' FEES. In the event of any litigation or other
dispute resolution proceeding arising out of this Agreement, the cost of such
litigation or proceeding, including reasonable attorneys' fees and expenses
(whether incurred at or before trial or on appeal), of the prevailing party
shall be paid by the non-prevailing party. In the event both parties prevail in
part in such litigation or proceeding, the court or arbitrator(s) shall, in
its/their sole and absolute discretion, permit a partial recovery of litigation
or proceeding costs to each of the parties, based on the extent to which each
party prevails on its claims, as determined by the court or arbitrator(s) in
its/their sole and absolute discretion.
(g) COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. Each party hereto agrees to be bound by its own facsimile signature
and to accept the facsimile signature of the parties to this Agreement.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement shall not
confer any rights, benefits or remedies upon any person other than the parties
hereto and their respective heirs, personal representatives, successors in
interest and assigns.
(i) SEVERABILITY. If any provisions of this Agreement shall be
held to be excessively broad as to duration, geographical scope, activity or
subject, such provisions shall be construed by limiting or reducing the same so
as to render such provision enforceable to the extent compatible with applicable
law. The invalidity or unenforceability of any provision of this Agreement shall
not affect the other provisions hereof, and this Agreement shall be constituted
as if such invalid or unenforceable provision were omitted.
(j) WAIVER. Failure on the part of a party hereto to exercise
any right or option arising out of a breach of this Agreement shall not be
deemed a waiver of any right or option with respect to any subsequent or
different breach, or the continuance of any existing breach.
(k) NO PRE-EXISTING OBLIGATIONS OWED TO EXECUTIVE. Executive
hereby acknowledges that RCI owes no current (immediately prior to the execution
of this Agreement by Executive and RCI), accrued or deferred compensation or
other benefits to Executive.
10
<PAGE>
(l) SURVIVAL OF COVENANTS. Notwithstanding anything herein to
the contrary, Executive's covenants in Sections 6., 7. and 8. hereof and RCI's
remedies set forth in Section 9. hereof shall survive (and shall remain
enforceable to the extent permitted herein following) the expiration,
termination or cessation of this Agreement, for whatever reason, for the periods
set forth in Sections 6., 7., 8. and 9., respectively.
* * * * * *
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
EXECUTIVE:
/s/ Gay A. Mayer
------------------------------
Name: Gay A. Mayer
RCI:
RENAISSANCE COSMETICS, INC.
By: /s/ John R. Jackson
------------------------------
Name: John R. Jackson
Title: Vice President
12
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 6th day of August, 1996 between
Renaissance Cosmetics, Inc. ("Company"), 635 Madison Avenue, New York, New York
10022 and Dr. Thomas V. Bonoma, 950 Massachusetts Avenue, Penthouse Number 2,
Cambridge, Massachusetts 02139 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive has been the Chief Executive Officer of the Company
and its subsidiaries since the formation of the Company under an Employment
Agreement dated as of August 18, 1994 ("Initial Employment Agreement");
WHEREAS, the parties now desire to execute this Employment Agreement to
take effect as of the date hereof and which Employment Agreement shall upon
execution hereof supersede and replace entirely the Initial Employment
Agreement.
NOW, THEREFORE, the parties agree that effective on the date hereof:
1. TITLE AND RESPONSIBILITIES. During the Term (as defined below) of
this Agreement, Executive will be employed as the Chief Executive Officer of the
Company and each of its current and future subsidiaries (the "Subsidiaries" and,
together with the Company, the "Companies"). Executive will have responsibility
for managing the day to day affairs of the Companies subject to policies and
procedures established by and the ultimate authority of the boards of directors
of the Companies. Included in Executive's responsibilities will be operating
decisions, capital expenditures of less than $100,000, product development and
marketing decisions, personnel decisions and options grants for all personnel
except the Executive himself. Strategic decisions affecting the future direction
of the Companies, capital expenditures in excess of $100,000, final approval of
bonus and option packages for officers of the Companies, financing transactions
and acquisitions or dispositions of assets are examples of matters that would
routinely be brought before the applicable board of directors.
2. SALARY AND BONUS. During the Term of this Agreement, Executive's
salary will be $500,000 per year ("Base Salary"). During the Term of this
Agreement, Executive will be eligible for an annual bonus of 100% of Base Salary
("Eligible Bonus"), based on certain objectives to be established by the Board
of Directors, and to include all relevant factors including annual EBITDA
targets and targets related to return on assets and return on capital. In this
connection the parties agree that such objectives will be the same objectives
which are provided by the Company to senior executives of the Company. Any
Eligible Bonus, if earned, will be paid in cash no later than 30 days after the
audited financials are available following the end of the
<PAGE>
applicable annual period but will be deemed due and payable, regardless of
Executive's status on the payment date, so long as Executive is employed by the
Company on the last business day of the applicable annual period.
3. TERM. (a) The term ("Term") of this Agreement will commence on August
6, 1996 and will expire on August 18, 2000. The Term shall automatically renew
for successive one year periods from the then scheduled expiration date unless,
not less than 90 days prior thereto, either the Company or the Executive
notifies the other of its or his intention not to renew, in which case this
Agreement shall expire at the end of the then current Term. Notwithstanding the
foregoing, this Agreement shall automatically earlier in the event of a "change
of control" as defined below.
(b) For purposes hereof a "change of control" shall mean the sale of all
or substantially all of the stock or assets of the Company whereby the
shareholders of the Company liquidate their equity interest in the Company
whether by way of merger, reorganization, consolidation, liquidation or other
transaction but shall not include an acquisition by the Company whether effected
as a merger or otherwise.
4. ELECTION TO BOARD OF DIRECTORS. The Board of Directors of the Company
will include the Executive and a director nominated by the Executive. The
Company agrees to indemnify Executive and his nominated director (and all other
directors of the Company) to the fullest extent permitted by law.
5. BENEFITS AND OTHER MATTERS. The Company will provide retirement,
employee welfare and benefit (pre-and post-retirement) and fringe benefit plans
to Executive no less favorable than that made available to the Company's
executive employees generally. Executive will be entitled to such vacation as
that provided to the Company's executive employees generally. Executive will be
fully vested for all purposes under all such plans. In addition, the Company
will purchase for Executive a life insurance policy and a disability policy on
terms mutually satisfactory to both the Company and Executive. Executive will
also be entitled to the use of an executive class company car at Employer's
expense on terms no less favorable than those provided to the Company's
executives generally. The Company will not require Executive to move his
residence during the Term. If, however, Executive moves his residence from that
set forth above, the Company will pay the costs of relocation. Executive may
incur reasonable expenditures to outfit himself and other executive officers
with portable and home-office computer and networking equipment and software.
Executive may open an office of the Company for himself in the location of his
choice and hire a secretary at such office.
6. NON-COMPETE. Executive agrees that he will not compete with the
Companies in the mass-market fragrance or color cosmetics business during the
period of his employment hereunder and a period of two years from the end of the
Term (the "non-compete provision"). Notwithstanding the preceding sentence, in
the event Executive's employment is terminated by the Company without Cause (as
defined below) or by Executive for Good Reason
-2-
<PAGE>
(as defined below) and the Company enforces clause (b) of the non-compete
provision, Executive shall be entitled to receive from the Company during the
time, if any, the non-compete provision is being enforced by the Company the
Base Salary that Executive was receiving at the time of such termination.
7. TERMINATION. (a) In the event that the Company terminates the
employment of Executive for reasons other than for Cause (as defined below) or
Executive resigns for Good Reason (as defined below) Executive shall be entitled
to (i) the greater of (x) his Base Salary for each year (or pro rated for any
part thereof) through the end of the Term or (y) one year's Base Salary (in each
case, net of any severance benefits payable to Executive under the Company's
severance policy as may then be in effect) and (ii) a bonus equal to the greater
of (x) 75% of Base Salary for each year or (y) 75% of Base Salary for one full
year. In addition, the Option shall become fully exercisable as provided in the
Option Agreement.
(b) For purposes of this Agreement: (i) "Cause") shall be limited to the
following:
(A) Deliberate dishonesty or willful misconduct in the
performance of Executive's responsibilities resulting in an effect
materially adverse to the Company's business, financial condition or
results of operation;
(B) Executive shall be convicted of a felony involving moral
turpitude which materially adversely reflects on the Company; or
(C) Breach by Executive of the provisions of Section 6 hereof.
(ii) "Good Reason" shall mean termination at the election of Executive
based on any of the following:
(A) Without Executive's express written consent, the assignment
of Executive to a position other than Chief Executive Officer of all
Companies with day to day responsibility and authority for the operation
of all of the business of the Companies except in connection with the
termination of his employment for Cause, or normal retirement, death, or
by the Executive other than for Good Reason;
(B) A reduction in Executive's fringe or retirement benefits
that is not applied by the Company to executives generally or a
reduction by the Company in Executive's Base Salary or Eligible Bonus;
-3-
<PAGE>
(C) If Executive dies or becomes mentally or physically disabled
for such period of time and under circumstances which entitle Executive
to receive disability benefits under the terms of the Company's
long-term disability insurance policy then maintained by the Company or,
if no such policy is then in effect, for a period of 60 consecutive days
or 90 days in any 12 month period (the date on which Executive becomes
so entitled or the last day of any such period being hereinafter
referred to as the "Disability Date"), then in addition to any benefits
to which Executive shall become entitled under the Company's benefit
plans the Company shall pay to Executive (or, in the case of death, his
estate): (i) Executive's unpaid Base Salary to the date of death or the
Disability Date and (ii) a bonus of 75% of Base Salary pro rated for any
part of a year to the date of death or the Disability Date. In addition,
if otherwise exercisable, the Option shall remain exercisable as
provided in the Option Agreement or, if not then exercisable, the Option
may become exercisable as provided in the Option Agreement.
8. ARBITRATION. Subject to Section 13(b) hereof, the parties hereto
agree to submit any dispute hereunder to binding arbitration. Arbitration shall
be conducted in New York, New York under the commercial rules of the American
Arbitration Association by a [panel of three arbitrators. The aforementioned
arbitrators shall be chosen as follows: the Company and Executive shall each
designate one arbitrator from a list of acceptable and qualified arbitrators
which have been provided by the American Arbitration Association. The two
arbitrators so designated shall then choose the panel's third arbitrator who
shall be an attorney-at-law and who shall serve as the Chairman of the panel;
provided that if either party fails to designate an arbitrator within 10 days of
receipt of the Association's list or if the two arbitrators are unable to agree
on the appointment of the third arbitrator within 10 days of the later of the
dates of their respective appointments, such arbitrator shall be designated by
the American Arbitration Association. If any arbitrator resigns or is unable to
continue serving as such, the successor to such arbitrator shall be appointed by
the party who appointed such arbitrator or by the remaining arbitrators if they
appointed such arbitrator, or by the American Arbitration Association, as the
case maybe. A stenographic record of the arbitration must be appointed, he may
rely on such record and no rehearing shall be required. Subject to Section 10
hereof, each of the parties shall pay the fees and expenses of the arbitrator
appointed by it and each shall pay one-half the fees and expenses of the third
arbitrator and any other expenses of the arbitration, except if the arbitrators
determine that the losing party shall bear the cost of the arbitration. The
decision of the arbitrators with respect to any issues subject to arbitration
shall be final and binding on the parties and may be entitled into in any court
of competent jurisdiction by either party, or application may be made to such
court for judicial confirmation of the award and order of enforcement, as the
case may be. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen. Notwithstanding
the foregoing, it is hereby agreed that no arbitration panel shall have any
power to (i) add to, alter or modify the terms and conditions of this Agreement,
(ii) to decide any issue which does not arise from the interpretation or
application of the provisions of this Agreement or (iii) award any punitive
damages under this Agreement.
-4-
<PAGE>
9. COMPANY TERMINATION. The Company shall have the right to terminate
the Agreement immediately with no further liability under the terms of this
Agreement (except pursuant to Section 6), should Executive terminate his
employment without Good Reason, or if Executive is discharged by Employer for
Cause.
10. ENFORCEMENT. If either party is required to arbitrate or seek
judicial enforcement of his or its rights under this Agreement, the party
prevailing in such proceeding shall be entitled to be reimbursed by the other
for all reasonable attorney fees and expenses.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
12. ENTIRE AGREEMENT. This Agreement supersedes all prior negotiations
and understandings of any kind with respect to the subject matter hereof
(including the Initial Employment Agreement) and, except for the Option
Agreement entered into by the Company and Executive dated August 18, 1994 which
shall remain in full force and effect in accordance with its terms, contains all
of the terms and provisions of agreement between the parties hereto with respect
to the subject matter hereof. Any representation, promise or condition, whether
written or oral, not specifically incorporated herein, shall be of no binding
effect upon the parties.
13. SEVERABILITY; SPECIFIC PERFORMANCE; ASSIGNMENT. (a) If any portion
of this Agreement is held invalid or unenforceable by a court of competent
jurisdiction, that portion only shall be deemed deleted as though it had been
included herein but the remainder of this Agreement shall remain in full force
and effect.
(b) Executive acknowledges and agrees that the Company's remedies at law
for a breach or threatened breach of Section 6 hereof would be inadequate and,
in recognition of this fact, Executive agrees that, in the event of such a
breach or threatened breach, the Company, without posting any bond, shall be
entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
(c) This Agreement shall not be assignable by Executive except pursuant
to the laws of descent and distribution and then only for purposes of enforcing
Executive's rights under Section 7.
14. TAXES. In the event that any payment or benefit (within the meaning
of Section 280G(b)(2) of the Internal Revenue code of 1986, as amended (the
"CODE")) to the Executive or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the Option Agreement or
otherwise in connection with, or arising out of, his employment with the Company
or a change in control (within the meaning of Section 280G of the Code) (a
"Payment" or "Payments"), would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), the Executive shall be entitled to receive
an additional payment (a
-5-
<PAGE>
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes, including Excise Tax, imposed on the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Payments.
16. VALID AND BINDING. The Company represents that it has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement, and that his Agreement is valid, binding and
enforceable against the Company in accordance with its terms.
IN WITNESS WHEREOF, the undersigned has caused its duly authorized
officer to execute this Agreement as of the date first above written.
RENAISSANCE COSMETICS, INC.
By /s/ John R. Jackson
-----------------------------
Name: John R. Jackson
Title: Vice President, General Counsel
and Secretary, as authorized
by the Board of Directors
Agreed to by:
/s/ Dr. Thomas V. Bonoma
- ----------------------------
Dr. Thomas V. Bonoma
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000933747
<NAME> Renaissance Cosmetics, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,573,050
<SECURITIES> 78,452
<RECEIVABLES> 28,789,720
<ALLOWANCES> 0
<INVENTORY> 32,583,462
<CURRENT-ASSETS> 82,759,263
<PP&E> 14,457,830
<DEPRECIATION> 0
<TOTAL-ASSETS> 193,386,339
<CURRENT-LIABILITIES> 88,940,600
<BONDS> 0
0
31,140,564
<COMMON> 7,268
<OTHER-SE> 1,017,977
<TOTAL-LIABILITY-AND-EQUITY> 193,386,339
<SALES> 30,687,893
<TOTAL-REVENUES> 0
<CGS> 11,506,087
<TOTAL-COSTS> 18,499,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,200,987
<INCOME-PRETAX> (4,348,558)
<INCOME-TAX> (155,500)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,680,998)
<EPS-PRIMARY> (6.49)
<EPS-DILUTED> (6.49)
</TABLE>
